ABSTRACT

Planning models have been increasing in number and complexity in the developing countries in recent years. Strictly speaking, a model is a hypothesis involving a relationship between variables which intends to explain and predict events, past and future, or prescribe policy. For policy purposes, a model distinguishes between target variables which constitute the objectives of economic policy and controlled variables which are instruments affected by policies and which, through the variations occurring in their levels affect the levels or magnitudes of the target variables. A broader classification of variables is between exogenous and endogenous variables. The model specifies relationships, technological, institutional and behaviourial, between variables. In its reduced form, a model can always be expressed in terms of number of exogenous variables, some of which are predetermined for the purpose in hand, whereas others are policy or instrument variables; the values of the endogenous variables are then solved or determined by the interactions postulated in the equation system of the model.