2

-Promotion of specific sectors

-Substitution of imports

-Promotion of exports

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

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

3. Take off (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)

-Oversimplification

-Neglect of External Factors and Environmental Limits

-Assumes a Western development path

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

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

-Y is the total output (GDP)

-A is the productivity

-K is the stock of capital

-L is the amount of labor

-alpha represents the share of output attributable to capital

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

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

Traditional sector:

Low productivity and a surplus of labor that can be withdrawn without losing output (The marginal product of labor is zero).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

The marginal product of labor increases with capital accumulation.

->Demand for labor increases

1. Initial Scarcity of Capital:

• The growth of the modern (industrial) sector is constrained by limited capital availability, which reduces its capacity to absorb labor.

2. Profits of the modern sector aren’t always reinvested in the same sector:

• Profits generated in the modern sector are not always reinvested locally or in labor-intensive industries, slowing economic expansion and labor absorption.

3. Union Wage Pressure:

• Organized labor unions often demand higher wages, which conflicts with the model’s assumption of fixed industrial wages and can reduce the demand for labor.

-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 capita)

-Child mortality/ Life expectancy

-Education (literacy rate)

Strengths:

-More focus on social and human development

-Multidimensional (Provides an overall index)

Weaknesses:

-High correlation with GDP

-No consideration of environmental issues

-Increase the availability of live-sustaining goods

-Raise the quality of living

-Expand the range of economic and social choices

-Bilateral assistance (One donor directly to another country)

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

-For some countries it is desirable

-False issue: structural issues like inequality, resource distribution, governance, and economic development are seen as the real challenges

-Wealthier countries create issues of population growth to distract and keep dependency up

-An improvement in quality of life and living standards

There are three dimensions of poverty:

-Health

-Education

-Standard of living

OAD is the transfer of financial resources or goods valued at the cost of the donor (or 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

From 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 country’s territory (residents and non-residents)

GNI: Total income earned by a country’s residents and businesses, including income from abroad

-SDGs are built on MDGs 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 Coefficient measures the space between the Lorenz curve and the total equality

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

Perfect Equality -> Gini-Coefficient = 0

Extreme Inequality -> Gini-Coefficient = 1

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

The poverty headcount ratio treats every person under the line the same (the 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