Harrod, Economic Growth and International Trade

Of Sir Roy Harrod’s many contributions to economics, two stand out as being of particular importance. First, there was the development of the concept of the foreign trade multiplier in his International Economics, which was published originally in 1933, before the General Theory, but after Kahn’s (1931) formulation of the closed economy multiplier. Secondly, Harrod attempted to express the insights of the General Theory in dynamic form in a series of articles and books commencing in 1939. In the General Theory, Keynes (1936 p. 245) had taken ‘as given ... the existing quality and quantity of available equipment, [and] the existing technique’. As Eltis (1987) points out, Harrod’s observation that net investment implied that the capital stock would be increasing came as somewhat of a surprise to Keynes and the Circus. While Keynes’s approach, which ignored the effect of this increment to the capital stock and concentrated on the effect of investment on the level of income through the multiplier, was adequate for analysis of the short run, it was clearly deficient for the long run.