ECO 2117 Lecture Notes - Lecture 7: Surplus Labour, Capital Accumulation, Investment
20 Aug 2016
School
Department
Course
Professor
ECO2117
February 4th 2016
*continued from last class
-limitations of the Harrod-Domar equation
-labour force growth is not in the model (assumption is that labour is already abundant,
which is not always the case)
-it simplifies the capital-output ratio (level of technological progress) and assumes it is
constant
-more saving and investment is necessary for higher growth, but is not a sufficient condition
(not the only thing that needs to happen)
-managerial and planning capacities are missing from the model
-the 1970s saw the rise of structural-change models for developing economies
-were a step forward in economic understanding and theory
-by the end of the 70s, people were disappointed with these models (they did not work in
many places)
-theories are not enough — called for more and better understanding of developing issues
and the mechanisms behind economic transformation
-solely capital accumulation is not sufficient for development
-patterns of development gather empirical evidence
-compares development in economic indicators between countries
-changes in economic structure, demand, trade, resource use, etc
-differences between countries attributed to domestic and international constraints but also
development policy
-the Lewis model
-relies on a two sector economy: traditional agriculture and modern urban industry
-is traditional and relies on surplus labour (more hands than needed)
-is modernized and
emphasizes high productivity
and constant wages
-all gains are re-invested,
capital and number of workers
is increased, rural workers
begin jobs in modern sectors,
higher output, and additional
gains are reinvested
-traditional sector:
-output (TPa) = food
-capital (Ka) = fixed
-technology (ta)= fixed
-additional labour (La) does
not raise output
- modern sector:
-upward sloping output curve
-declining MPlm
-profits are reinvested
-modern sector wage (Wm) is
above traditional
-rural workers therefore move
to urban areas
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Labour force growth is not in the model (assumption is that labour is already abundant, which is not always the case) It simpli es the capital-output ratio (level of technological progress) and assumes it is constant. More saving and investment is necessary for higher growth, but is not a suf cient condition (not the only thing that needs to happen) Managerial and planning capacities are missing from the model. The 1970s saw the rise of structural-change models for developing economies. Were a step forward in economic understanding and theory. By the end of the 70s, people were disappointed with these models (they did not work in many places) Theories are not enough called for more and better understanding of developing issues and the mechanisms behind economic transformation. Solely capital accumulation is not suf cient for development. Compares development in economic indicators between countries. Changes in economic structure, demand, trade, resource use, etc.
