Advanced Macro & Growth · intermediate

A heavy-industry push raises the capital-output ratio

What moves on the Harrod-Domar Growth Model diagram

Investment needed (g·v)shifts up (small)

A higher capital-output ratio steepens the required-investment line, so the saving rate supports a lower warranted growth rate: g = s/v falls as v rises.

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Step by step

1
The economy shifts into capital-hungry sectors: steel, rail, dams.
2
Each unit of output now needs more capital behind it: v rises.
3
The investment-requirement line steepens.
4
The same saving now buys LESS growth. Capital-intensive showcase projects can slow measured growth even as they look impressive.

Where this shows up

Examiners ask this as: heavy industry, capital intensive, steel mills, infrastructure push, soviet industrialization.

Other scenarios on Harrod-Domar Growth Model

A national saving campaign lifts the saving rate →A baby boom raises the natural growth rate →