IDST 1002H Lecture Notes - Lecture 6: Capital Accumulation, Factors Of Production, Workforce Productivity
14 Jun 2018
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Lecture 6: Industrialization, is it a development imperative?
• Developed countries have higher levels of material well-being than developing countries
• Developing countries are more likely to do agriculture, developed more likely to be
involved in service or manufacturing
4 Key Differences between Developed and Developing Countries:
1. Pattern of employment
• Rich countries: services
• Poor countries: agriculture
2. Pattern of industrial output
• Rich countries: heavy and chemical industries, technology- and knowledge-
based industries
• Poor countries: light industries like textiles, toys, and shoes (if at all)
3. Pattern of agricultural inputs
• Rich countries: capital intensive
• Poor countries: labour intensive
4. Pattern of Demand
• Rich countries: domestic demand high, home market important
• Poor countries: domestic demand weak, foreign marker important
Economic development = structural transformation
Capital accumulation: increases in the stock of productive assets (necessary for development)
• Physical (plants, equipments, computers, robots)
• Financial (money)
• Human (education)
You need increases in productivity to have capital accumulation (total factor productivity)
• Productivity: how much is being produced per unit of input
Economies of scale: average cost of production falls as you become more productive
• Very little technological innovation in most of world agriculture
• Little or no technological innovation in most services, most minimum wage jobs
• Extreme amount of technological innovation in manufacturing
Workers must move from low to high productivity occupations
Supply-side reason for manufacturing: productivity
Engel’s law: demand for agricultural products are income inelastic (%ΔQd/%ΔY <1)
• As income increases, you spent less percentage of your income on food
Efficient, sufficient manufacturing sector (significant share of economic activity is in
manufacturing)
• Efficient: able to sell in global markets, and environmentally sustainable
• Sufficient: need to be able to cover significant share of income requirements
Majority of rapidly growing developing countries have developed some significant manufacturing
capabilities
To develop manufacturing capacity, countries must invest
• Not spend/consume today, but spend it on increasing productive capacity so you can
produce more over time
• Increases incomes by more than the initial investment (the multiplier)
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Lecture 6: industrialization, is it a development imperative: developed countries have higher levels of material well-being than developing countries, developing countries are more likely to do agriculture, developed more likely to be involved in service or manufacturing. 4 key differences between developed and developing countries: pattern of employment, rich countries: services, poor countries: agriculture. Pattern of industrial output: rich countries: heavy and chemical industries, technology- and knowledge- based industries, poor countries: light industries like textiles, toys, and shoes (if at all) Pattern of agricultural inputs: rich countries: capital intensive, poor countries: labour intensive. Pattern of demand: rich countries: domestic demand high, home market important, poor countries: domestic demand weak, foreign marker important. Capital accumulation: increases in the stock of productive assets (necessary for development: physical (plants, equipments, computers, robots, financial (money, human (education) You need increases in productivity to have capital accumulation (total factor productivity: productivity: how much is being produced per unit of input.
