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The Mahalanobis Model
The Mahalanobis Model
(3)
It = It
It-1
(5)
Ct 1
I t 1
t-1
(6)
Essentially, the increase in the two sectors is related to the liniing up of productive
capacity of investment and the output-capital ratio. Initially, the investment growth path is
determined by the productive capacity of investment in the capital goods sector (i Ii) and its
output-capital ratio (i), such that
I I = I
t
t-1
(7)
i i t-1
It = It-1 + iiIt-1
(8)
It = (1 + ii) It-1
(9)
Inserting different value for t (t= 1, 2, 3, . . .,) the solutions to equation (7) become
I1 = (1 + ii) I0
(10)
I2 = (1 + ii) I1
(11)
I2 = (1 + ii) (1 + ii) I0
(12)
I2 = (1 + ii)2 I0
(13)
Similarly, by putting the value of t in equation (13), it gives
It = I0 (1 + ii)t
(14)
I I = I (1 + )t I
t
It
i i
I0 = I0 (1 + ii)t
(15)
(16)
Also, by inserting the value of t (t= 1, 2, 3, . . .,) in the consumption growth path, as
C C =I
(17)
t
c c 0
C2
C1 = ccI1
(18)
Ct
C0 = cc (I0 + I1 + I2 + . . . + It)
(19)
By substituting the values of I1, I2, . . ., It in equation (19) and its related equations, it
can be solved as below
Ct C0 = cc [I0 + (1 + ii)I0 + (1 + ii)2I0 + . . . + (1 + ii)t I0]
C C = I [1+ (1 + ) + (1 + )2 + . . . + (1 + )t]
t
or
Ct
Ct
c c 0
C0 = ccI0
C0 = ccI0
i i
[
[
( 1+ i i )t1
(1+ i i ) 1
( 1+ i i )t1
i i
i i
i i
(20)
(21)
]
]
(22)
(23)
As such, the growth path of income for the whole economy, given equation (4), is
Yt = It + Ct
(24)
Yt
Y0
=
(It
I0)
+
(Ct
C0)
(25)
By substituting the values of equations (16) and (23) in equation (25), it gives
(1+ i i )t1
Yt
Y0 = [I0 (1 + ii)t
1] + ccI0
i i i
Yt
Y0 = I0[(1 + ii)t
1]
1+
c c
i i
(26)
(27)
Yt Y0 = I0 [(1 + ii)t
1]
i i + c c
i i
(28)
Yt = Y0
1+ 0
1]
i i+ c c
i i
i i + c c
i i
[(1 + ii)t
+ Y0
1)
(29)
(30)
(31)
where 0 is the rate of investment in the base year, Y0 and Yt are the gross national income in
the base year and year t, respectively.
k i + c c
Intuitively, the ratio
i i
coefficient. If, on assumption that i and c are given, the growth rate of income will depend
upon 0 and i. Assuming further that 0 to be constant, the growth rate of income depends
upon the policy instrument, i.
In the economy, if c i, it implies that the larger the percentage investment in
consumer goods industries, the larger will be the income generated. However, the expression
(1 + ii)t in equation (54), shows that after a critical range of time, the larger the investment
in capital goods industries, the larger will be the income generated. Thus, initially a high
value of i increases the magnitude (1 + ii)t., and lower the overall capital coefficient
i i + c c
i i
. But as time passes, a higher value of i would lead to higher growth rate of
is,
i i
i i + c c
implication of the model is that for a higher rate of investment (i), the marginal rate of
saving must also be higher. Thus, a higher rate of investment on capital goods in the short run
would make available a smaller volume of output for consumption. But in the long run, it
would lead to a higher growth rate of consumption. See Jones (1975).