2

-Oversimplification

-Neglect of External Factors and Environmental Limits

-Assumes a Western development path

-Fokus on capital while other factors like education might not be considered

-Promotion of specific sectors

-Substitution of imports

-Promotion of exports

Y = A * K^alpha * L^(1-alpha)

-Y is the total output (GDP)

-K is the stock of capital

-L is the amount of labor

-A is the productivity

-alpha represents the share of output attributable to capital

The original Cobb-Douglas production function has constant returns to scale

-Initial scarcity of capital in the modern sector limits its growth

-Profits of modern sector aren’t always reinvested in same sector

-Organized unions press for higher wages

-Differences in economic development between advanced economies (Europe, North America) and poorer economies (Africa, South America)

-Can increase (Kongo) or decrease (China)

Are measured in:

-Income (GDP per Person)

-Child mortality/ Life expectancy

-Education

Strenghts:

-More focus on social and human development

-Provide an overall index

Weaknesses:

-High correlation with GDP

-No consideration of environment issues

-Increase the availabiltiy of live sustaining goods

-Raise quality of living

-Expand the range of economic and social choices

1. Traditional society (High levels of labor intensive agriculture)

2. Pre-conditions (Mining and increase in capital use)

3. Take of (increased industrialization, saving and investments)

4. Drive to maturity (Growth becomes self sustaining, increased levels of technology)

5. High mass consumption (High output and consumption)

-Bilateral assistance (One donor directly to another country)

-Multilateral assistance (A sum of donors to an international organisation)

-For some countries its desireable

-Issue of population growth is created by wealthier countries to keep dependency up

-An improvement in quality of life and living standards

There are three dimensions of poverty:

-Health

-Education

-Standard of living

-Is the transfer of financial resources or goods valued at the cost of the donor (less repayments)

-Humanitarian argument

-Market development

-Foreign policy goals

-Reputation

-As economies become wealthier they change from rural agricultural economy to urban industrial economy

-Labor productivity increases

-Stagnant growth with high birth rates and high death rates

-To rapid growth rates with high birth rates and low death rates

-To stable growth rates with low birth rates and low death rates

-Economic growth is the growth of the real GDP

-Economic development is an improvement in standard of living

-> Economic growth can lead to economic development but doesn’t have to

GDP: Total output of goods and services produced within a countries territory (residents and non-residents)

GNI: Total outputs of goods and services produced by nationals

-SDG build on MDG and aim to further shrink poverty

Zero goals:

MDG -> Reduce hunger and half poverty

SDG -> Zero hunger and poverty

Universal goals:

MDG -> Rich donors aiding poor recipients

SDG -> Both poor and rich countries must follow SDG

Amount:

MDG -> 8 goals

SDG -> 17 goals

Goal setting:

MDG -> Top down SDG -> Inclusive process

-The Gini Koeffizient measures the space between the Lorenz-curve and the total equality

-Lorenz-curve cumulates how much of the total income each quantil has

Perfect Equality -> Gini-Coefficient = 0

Extreme Inequality -> Gini-Coefficient = 1

-The Gini Koeffizient measures the space between the Lorenz-curve and the total equality -Lorenz-curve cumulates how much of the total income each quantil has -Perfectly equal distribution is diagonal Equality -> Gini-Coefficient = 0 Extrme Inequality -> Gini-Coefficient = 1

Two sector model (agriculture (traditional) and industry (modern))

Traditional sector:

Low productivity and a surplus of labor that can be withdrawn without losing output (Marginal product of labor is zero).

For high levels of labor the slope of the production is horizontal

Modern sector:

Capital intensive with higher productivity.

Becomes more productive if capital is accumulated.

Marginal product of labor increases with capital accumulation

->Demand for labor increases

Poverty headcount * (poverty line - average income) / poverty line

The poverty headcount ratio treats every person under the line the same (poverty gap takes the degree of poverty into account)

-Number of people earning below the poverty line

-Measure of absolute poverty

Absolute poverty line -> The daily income underneath families or individuals are considered to be lacking the resources to meet the basic needs

-Countries have specific poverty lines

-Traditional definition is the income required to purchase 2.000 calories of food based on the typical basket

-Factor productivity measures the contribution of each factor to the output

-Total growth is the marginal output all factors combined produce

-Factor productivity measures the contribution of each factor of production to the output

-The growth of total factor productivity can be seen as the sum of the marginal productivity of each factor of production