The Coale-Hoover Growth Model
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Contents:
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Relation to the Harrod-Domar Model
The Coal;e- Hoover modelwas developed by Ainsey Coale and Edgar Hoover
to explain the effect of rapid population growth in low-income countries
like India. In both the Harrod-Daomar model and the Coale-Hoover Model,
the growth rate of GDP per capita is equal to the APS/ICOR minus G(P), the
growth rate of population. If the population growth rate were constant,
there would be no difference between the two models. |
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Effect of Population Growth on the
Savings Rate
Coale and Hoover assumed that as people had more children, they would
have to spend a larger fraction of their income on consumption and would
have a smaller fraction left for savings. Thus as the population growth
rate G(P) rose, the average propensity to save (APS) would fall. This would
reduce the growth rate of GDP, G(Y). |
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Effect of Population Growth on the
ICOR
Coale and Hoover assumed that as people had more children, the society
would have to spend a larger fraction of its investment resources on new
housing, new schools and new medical facilities. They beleived that the
productivity of these investments would be lower than the productivity of
investment in factories, machines, roads and bridges. Thus the ICOR (a measure
of inefficiency) would rise as the population growth rate G(P), increased.
This would reduce the growth rate of GDP, G(Y). |
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Effect of Population Growth on GDP Per
Capita
In the Harrod-Domar model, population growth affects only the denominator
of the per-capita income ratio. In the Coale -Hoover variant of that model,
population growth reduces the numerator as well. It lowers the growth rate
of GDP by reducing the average propensity to save (APS) and by increasing
the incremental capital output ratio (ICOR). Thus, in the Coale-hoover model,
a 1% increase in the growth rate of population G(P) will reduce the growth
rate of per capita income G(Y/P) by more than 1%. |
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