Economic Growth and Development

Flashcards based on lecture notes about economic growth and development.

The Lewis Model

A model describing economic development with unlimited supplies of labor.

Sir Arthur Lewis

Argued that developing countries have surplus labor, which can be transferred to the industrial sector to fuel economic growth.

MPLA

The marginal product of labor in agriculture.

Labor Migration in the Lewis Model

If MPLA is greater than wI, labor will migrate from the agricultural sector to the industrial sector, increasing industrial output.

QA

The agricultural sector's output

LA

Labor devoted to agriculture.

T

Total land used for agriculture.

A

Capital used in agriculture.

Structural Transformation

Structural Transformation is the shift in the composition of the economy.

Y = YA + YM + YS

The sum of the output from agriculture, manufacturing, and service.

yi = Yi / Li

Output per worker in sector i

li = Li / L

The percentage of the labor force in sector i

y = yA * lA + yM * lM + yS * lS

Overall output per worker (aggregate productivity)

yi (↑)

Productivity increases in agriculture.

lA (↓), lM (↑),and lS (↑)

Labor shift away from agriculture.

Convergence

A situation where poorer countries tend to grow faster than richer countries, leading to a convergence in income levels.

Unconditional Convergence

The assumption that all countries share the same structural parameters.

Conditional Convergence

Convergence occurs when countries are conditional on the structural differences, such as savings rates, population growth, and human capital.

%△A

This is the parameter representing the level of technology or productivity.