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  5. Economics 348

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Economic Development and Structural Issues: Distribution - SUMMARY and QUESTIONS

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This document provides an extensive summary of the module "Economic Development and Structural Issues: Distribution" of Economics course 348 offered in the third year of Stellenbosch University. First a comprehensive summery will be presented of the conclusions from the readings and classnotes. In ...

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  • October 14, 2017
  • 14
  • 2017/2018
  • Summary

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Economic Development and Structural Issues: Distribution
A. Economic Development
Economic Development​ - A process of structural change that leads to a sustained rise in the
living standards of the population.

Growth + Structural Change + redistribution = Economic Development

However, it is hard to define living standards because:
- income plays a big role, but is not everything
- What about happiness? Happiness does not seem to increase a lot with income
increasing. Also, measuring happiness is challenging.

Is development about finding a Pareto Optimum or a Zero sum game?
Pareto Optimum = the hypothetical point in which people will not both get better anymore if
something is redistributed. Before the optimum, everyone benefits from a redistribution, so the
total welfare increases. After the optimum, one will lose and other(s) will gain.
Zero sum game = improvement is only possible if one gives up utility and someone else gets it.
So in total, welfare does not increase.

How do you measure development:
- indicators of income and production: GDP etc
- social indicators: mortality, fertility, nutrition
- distributional measures: Gini coefficient, Lorenc Curve
- poverty measures
--> it is important to measure development taking all perspectives into account, so measuring
should happen in a holistic approach.

B. Distribution

Concepts
Wealth = stock asset, income accumulated over time.
Redistribution of wealth = asset redistribution
Distribution of income = can be considered as mainly a market process, people buying stuff
from their income and so redistributing it to the producers

Primary income = Yp = W x E + Yn
W = wage

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