An Empirical Test on Harrod’s Open Economy Dynamics

Abstract

This paper has the objective to empirically test Harrod's explanations of economic dynamics addressing both growth and business cycles. In particular we test Harrod's speculation that opening the economy to foreign trade could lead to a reduction of cyclical instability. The main variables determining the dynamic behaviour are wealth, savings, competitiveness and, therefore, balance of trade. The behaviour of the model under scrutiny is highly non-linear and the conclusion is that stable cycles are possible only under particular conditions. In fact, this empirical test shows a stable long-run pattern for those specific parameters.

Identification of the nature of dynamical systems with recurrence plots and convolution neural networks: A preliminary test

“…In fact, they are nonlinear and irregular [49], However, most of the research concluded that chaotic models are sometimes theoretically fascinating but hold little to no practical use [11]. Notwithstanding, some found that a chaotic model could fit well with true data [50,51,52] including crashes such as those caused by the COVID-19 pandemic [52].…”

The Harrod Model

“…In terms of public policy, "the difficulties may be too great to be dealt with by a mere anti-cycle policy" [11], and hence the government should increase public investment when G w > G n or, conversely, seek to generate more long-term savings when G w < G n (see Figs. 13.1 and 13.2).…”

Resilience and Complex Dynamics — Safeguarding Local Stability Against Global Instability

“…so that f 1 (x) goes to 0 as x → −∞ and tends to ρ as x → ∞ whereas f 2 (y) goes to c as y → −∞ and tends to 1 as x → ∞. The parameters τ 1 and τ 2 are the 'knees' of 17 For an alternative model addressing both growth and business cycles in an open economy see Orlando and Della Rossa (2019). In that work, Harrod's speculation that opening the economy to foreign trade could lead to a reduction in cyclical instability is tested on real-world data.…”