What is the implication?
Under the assumption of constant c, g increases proportionally with s. Because s is considered to increase proportionally with income per capita, s is bound to be low and, hence, g will be low in low-income economies if savings and investment are left to private decision in the free market. The model implies, therefore, that the promotion of investment by government planning and command is needed to accelerateeconomic growth in low-income economies. Infact, the Harrod-Domar model provided a framework for economic planning in developing economies, such as India’s Five Year Plan.
