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
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
