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Development Economics

Purchasing Power Parity

Purchasing Power Parity (PPP) is a theory that says that in the long run (over several decades), the exchange rates between countries should even out so that goods essentially cost the same in both countries. The Purchasing Power Parity theory explains that there should be no arbitrage opportunities (where price differences in countries can…
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Harrod Domar Model

The Harrod Domar model shows the importance of saving and investment in a developing economy. The model was developed independently by Roy F. Harrod in 1939. The growth of an economy is positively related to its savings ratio and negatively related to the capital-output ratio. It suggests that there is no natural reason for an economy to have…
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