Thegrowth rate of output according to the HarrodDomar model is afunction of savings and the capital output ratio. Where Y=S/K. inorder to understand the model it is important first to consider thekey determinants of the model. These are generated below.
.Because,then we can substitute the equation to get.In addition, it is clear that thismeans we can rearrange the formula to get.Given that, all income will either be saved or consumed, then.
Thecapital accumulation component can be derived as this means that
BURUNDI 
  
1991 
2001 
Average rate of growth 
  
GNI per capita PPP(current international $) 
520 
460 
6 
  
Total population 
5,724,030 
6,499,653 
77562.3 
  
Gross capital formation(% of GDP) 
14 
6 

  
Aid received per person( current US$) 
44.8 
21.4 

  
Corruption rate (%) 
82 
82 

  
Saving rate(% of GDP) 
12 
1 

  
  
  
  
Giventhat the growth component is given by,then from the data provided for 1991 and 2001 it is possible to givethe growth component as follows. Rearranging this we get.Thus 460=520(1+g)^{10}.Substituting this formula in excel gives us a value of g that is1.05325.Thus, the growth in the economy is estimated at around 1.1%.
TheHarrodDomar model is a good model that can be used to predict theeconomic growth of any economy. However, the model does suffer fromsome limitations especially related to the assumptions that it makes.First, the assumption that savings is a product of the savings rateand output and that these savings are equal to investments is notnecessarily true. This is because in reality the level of investmentsis not always equal to savings. This is because some of the savingsare later used for household final consumption or governmentconsumption expenditure. Under such circumstances, the savings arenot equal to the investments.
Part2
Givena model where Y_{t}= AK_{t}^{0.5}N_{t}^{0.5},then it is easier to find K by substituting the equation. If b=Bt/Nt,then Bt=bNt. Then we can deduce from the formula that 460=5K_{t}^{0.5}N_{t}^{0.5}.if we assume that there is a steady state of capital then we expectthe Nt component or the labour component to be insignificant in thiscase we shall have 460=5Kt^{0.5.}thisgives us the value that Kt=(460/5)^{2.}Fromthe excel analysis this gives us K=9.591663.this means that K is approximately 10.
Thefigure below shows the equilibria of the SolowSwan model. The modelrepresents positive and diminishing marginal productions with respectto labour and capital. The model does suggest that if savingsincrease the income per capita will increase but this does notnecessarily mean that the growth rate will increase.
ThesolowSwan economic model is a longrun economic model that looks atthe longrun economic growth through the lens of population growth,productivity (technological progress), and capital accumulation.Convergence in the neoclassical model (SolowSwan) refers to thetendency of a certain variable to move towards a specific value.According to the model when two economies have the same productionfunction as well as the same values for s, n, and δ will ultimatelyexhibit the same longrun equilibrium level of income per capita.According to the model this is given by
Thecapitallabor ratio of the economy determines whether the economywill grow at a faster rate or a slower rate. From the case presented,it is clear that the capitallabor ratio is very low. This means thatthe economy has a higher marginal product of capital and thistranslates into a faster economic growth rate. In the case presentedfor Miraclina it is clear that the country has a higher GNI percapita than the case of Burundi that is presented here. This meansthat in the current situation the economic growth output of Burundiwill be higher than that of Miraclina. However as time progresses theeconomic growth for Burundi will steadily decline to such a pointthat it will be equivalent to that of Miraclina.
Corruptionrelated activities tend to affect the growth potential of anycountry. However, there is a critical corruption rate that can makethe growth of any country. In a situation where this critical rate ishigher than the investment or savings rate then this means that, aneconomy is in a lot of trouble. From the data given for Burundi, itis clear that this rate will have to be equal to or higher than therate of investments.
Listof References
Westerberg,L. (2014). Foreign Aid and Economic Growth in Ecuador: A Test of theHarrod Domar/Financing Gap Growth Model. Scribd (2010). Retrieved onJune 5, 2014, from http://www.scribd.com/doc/24708419/ATestoftheHarrodDomarFinancingGap GrowthModelEcuador.