Definitions

1. Harrod Domar Model

The growth focuses on the on the constraint imposed by shortages of capital in developing countries.
It focuses on the savings and the potential growth of a country.
Harrod-Domar Model is stated as g=s/k where s is savings, k is the capital-output ratio, and g is economic growth.

2. Lewis Model

The transformation of a largely poor rural economy to a modern industrial economy.
It requires a shift of employment from a agriculture to a industrial workforce.
Moves the excess agriculture workers to the industrial workforce.
Therefore, the economy will be more productive economy without compensating the other sectors of the economy.

3. Types of Aids

Bilateral Aid-Individual governments giving to poor countries.
Multilateral Aid-Organizations (World Bank, IMF, etc.) giving money to poor countries with expectations of them paying the money back.
Grants-Money given to countries with no expectations of them paying the money back.
Soft Loans-The conditions of the loans are more favorable than market conditions. (?)

Assumptions:

1. Harrod Domar Model

Economy is closed and there is not government involvement.
Investments must come from domestic savings in order to fund leakages and injections.
There is no depreciation of existing capital

2. Lewis Model

There are traditional (agriculture) and modern (industrial) sectors in the economy.
There are too many people in the agriculture sector of the economy.
The marginal productivity of labour is assumed to equal zero.
People could leave the agriculture sector and move into the industrial sector of the economy without affecting the productivity of the agriculture sector.

3. Types of Aid

Bilateral aid: One country giving aid or money to another country. Countries tend to ship money, emergency supplies, and experts to help the country get back onto their feet.
Multilateral: Organizations such as World Bank or the IMF helping poor countries. The organizations use a pool of money that the member countries put in and give it to developing countries.
Grant Aid: A "gift" from other countries without any strings attached.
Soft Loans: Concessionary loans at low market interest rates. Tend to be given by International Bank for Reconstruction and Development, or the World Bank.