Mahalanobis considered an economy with two sectors, each producing capital and consumer goods, respectively. Moreover, the model was assumed to the closed economy without government. Thus, capital good entered into the production of the consumer good and of itself, whereas, the capital was not subjected to diminishing returns. This implies that a greater initial allocation of investment to the production of capital goods would leave the economy with a higher stock of the same in the future. Thus, capital goods being the physical counterpart of investment, a higher initial allocation to capital goods production enables a higher investment in the future. Assuming that all the feasible investment is undertaken, a higher level of investment will ensure the future-dated output is higher than the case where the initial allocation skewed more towards the production of consumer goods, leading to a higher growth rate economy in relation to the starting point. However, the planner’s problem was to arrive at the share of investment to be allocated to the capital goods sector given the target level of income. We must note that this model was meant only as a guide to a strategy for …show more content…
Heavy goods have been aptly described as “machine-building complexes with a large capacity for the manufacture of machinery to produce steel, chemicals, fertiliser, electricity, transport equipment, etc” [Joshi 1979]. The means of bringing about a fast-growing heavy-goods sector was to invest disproportionately in these machine-building complexes. It was implicitly recognised that as the sector was characterised by long gestation lags in the production of output the rate of growth inherent in the Mahalanobis model would be lower in the short-run than that which would result from a strategy of investing disproportionately in consumer goods production. However, the long-run rate of growth resulting from the Mahalanobis strategy of shifting the investment allocation towards heavy goods would be higher, even for the consumer goods sector, as it enhances productive capacity across the