FeldmanMahalanobis model

The FeldmanMahalanobis model is a Neo-Marxist 2 Assumptions

model of economic development, created independently
by Soviet economist G. A. Feldman in 1928,[1] and Indian The assumptions under which the Mahalanobis model
statistician Prasanta Chandra Mahalanobis in 1953.[2] holds true are as follow:
Mahalanobis became essentially the key economist of
India's Second Five Year Plan, becoming subject to much
We assume a closed economy.
of Indias most dramatic economic debates.[3]
The economy consists of two sectors: consumption
goods sector C and capital goods sector K.

The essence of the model is a shift in the pattern of

industrial investment towards building up a domestic
consumption goods sector. Thus the strategy suggests in
order to reach a high standard in consumption, investment in building a capacity in the production of capital
goods is rstly needed. A high enough capacity in the
capital goods sector in the long-run expands the capacity
in the production of consumer goods. The distinction between the two dierent types of goods was a clearer formulation of Marxs ideas in Das Kapital, and also helped
people to better understand the extent of the trade o
between the levels of immediate and future consumption. These ideas were however rst introduced in 1928
by Feldman, an economist working for the GOSPLAN
planning commission; presenting theoretical arguments
of a two-department scheme of growth. There is no evidence that Mahalanobis knew of Feldmans approach, being kept behind the borders of the USSR.

Capital goods are non-shiftable.

Full capacity production.
Investment is determined by supply of capital goods.
No changes in prices.
Capital is the only scarce factor.
Production of capital goods is independent of the
production of consumer goods.

3 Basics of the model

The full capacity output equation is as follows:[4]
{
}
c c
Yt = Y0 1 + 0 k kk+
[(1 + k k )t 1]
k

Implementation of the model

In the model the growth rate is given by both the share of

investment in the capital goods sector, k , and the share
of investment in the consumer goods sector, c . If we
choose to increase the value of k to be larger than c
, this will initially result in a slower growth in the shortrun, but in the long run will exceed the former growth rate
choice with a higher growth rate and an ultimately higher
level of consumption. In other words, if this method is
used, only in the long run will investment into capital
goods produce consumer goods, resulting in no short run
gains.

The model was created as an analytical framework for

Indias Second Five Year Plan in 1955 by appointment
of Prime Minister Jawaharlal Nehru, as India felt there
was a need to introduce a formal plan model after the
First Five Year Plan (19511956). The First Five Year
Plan stressed investment for capital accumulation in the
spirit of the one-sector HarrodDomar model. It argued
that production required capital and that capital can be
accumulated through investment; the faster one accumulates, the higher the growth rate will be. The most fundamental criticisms came from Mahalanobis, who himself was working with a variant of it in 1951 and 1952.
The criticisms were mostly around the models inability
to cope with the real constraints of the economy; its ignoring of the fundamental choice problems of planning
over time; and the lack of connection between the model
and the actual selection of projects for governmental expenditure. Subsequently Mahalanobis introduced his celebrated two-sector model, which he later expanded into
a four-sector version.

4 Criticisms
One of the most common criticisms of the model is that
Mahalanobis pays hardly any attention to the savings constraint, which he assumes comes from the industrial sector. Developing countries however do not have this tendency, as the rst stages of saving usually come from the
agricultural sector. He also does not mention taxation,
1

8 FURTHER READING

an important potential source of capital. A more serious criticism is the limitation of the assumptions under
which this model holds, an example being the limitation
of foreign trade. This cannot be justiable to developing
countries today. Also another criticism is that a country to use this model would have to be large enough to
contain all the raw resources needed to be sustainable, so
therefore this would not apply to smaller countries.

Empirical case

8 Further reading
Bagchi, Amiya Kumar (1995). Closed-economy
Structuralist Models for a Less Developed Economy. In Patnaik, Prabhat. Macroeconomics. Delhi:
Oxford University Press. pp. 85113. ISBN 0-19563534-5.
Bhagwati, J.; Chakravarty, S. (1969). Contributions to Indian Economic Analysis: A Survey.
American Economic Review 59 (4): 173. JSTOR
1812104.

Essentially the model was put into practice in 1956 as

the theoretical pathway of Indias Second Five Year Plan.
However, after two years the rst problems started to
emerge. Problems such as unexpected and unavoidable
costs contributed to increased money supply and growing
ination. The biggest problem was the fall in the foreign
exchange reserve due to liberalised import policy and international tension, leading to modications in the Second Plan in 1958. It was nally abandoned and replaced
by the Third Five Year Plan in 1961.[5]

Brenner, Y. S. (1966). The Soviet Theories. Theories of Economic Development and Growth. New
York: Praeger. pp. 223247.

Kumar, B. (1962). An Introduction to Planning in

India. India: Bookland Private Limited. pp. 145,
80145.

See also
HarrodDomar model
Economic growth
Development economics
Mahalanobis
Indian Economy
Five-year plans of India

References

[1] Feldman, G. A. (1964) [1928]. On the Theory of Growth

Rates of National Income. In Spulber, N. Foundations of
Soviet Strategy for Economic Growth. Bloomington: Indiana University Press. (Translated version)
[2] Mahalanobis, P. (1953). Some observations on the Process
of Growth of National Income. Sankhya. pp. 307312.
[3] Bronfenbrenner, M. (1960). A Simplied Mahalanobis
Development Model. Economic Development and Cultural Change 9 (1): 4551. doi:10.1086/449867. JSTOR
1151921.
[4] Ghatak, Subrata (2003). Introduction to Development
Economics (4th ed.). London: Routledge. p. 349. ISBN
0-415-09722-3.
[5] Sen, Pronab (1991). Growth Theories and Development Strategies: Lessons from Indian Experience. Economic and Political Weekly 26 (30): PE62PE72. JSTOR
41498498.

Dasgupta, A. K. (1993). A History of Indian Economic Thought. London: Routledge. ISBN 0-41506195-4.
Komiya, Ryutaro (1959). A Note on Professor
Mahalanobis Model of Indian Economic Planning.
Review of Economics and Statistics 41 (1): 2935.
JSTOR 1925455.

Osadchaya, Irina (1974). A Retrospect of the

Theory of Socialist Reproduction (G. Feldmans
Economic Growth Model)". From Keynes to Neoclassical Synthesis: A Critical Approach. Moscow:
Progress Publishers. pp. 180190. OCLC
1510988.

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