1. The Production Function
Technology … combining the
factors of production to get output
Physical capital, human capital, natural resources (“land”)

2. Possible Sources of Differences in Output per Worker
What We
See

3. GDP and Capital per Worker, 2005 Cause – Effect – Cause

4. Relationship between Latitude and Income per Capita “Fertile ground” for capitalism

5. Relationship between Income per Capita and Population Growth Demographic Transition: Mortality transition Fertility transition

6. Income per Capita vs Total Fertility Rate

7. Nutrition versus GDP per Capita Cause – Effect – Cause

8. Life Expectancy Versus GDP per Capita Human capital indicator

9. Average Years of Schooling Versus GDP per Capita Human capital indicator Cause – Effect – Cause

10. Student Test Scores Versus GDP per Capita

11. GDP and Capital per Worker, 2005 Is Physical Capital Key to Development?

12. Financing Gaps and the Role of Aid
Domar growth model: Y = k K ΔY = kΔK = kI g = ΔY/Y = k (I/K) In words: Growth rate is directly related to investment share Fundamental truth: Uses of Y = Sources of Y T + S + C = C + I + G + NX = C + I + G + Capital Outflow I = S + (T – G) + Capital Inflow I = National Saving + Capital Inflow

13. Financing Gaps and the Role of Aid
I = National Saving + Capital Inflow
If poor countries can’t save much of their meager incomes
and
If developed country capitalists aren’t eager to invest in poor countries
There’s a “financing gap”
Prescription:Provide aid/loans to developing countries
They’ll pay back once they TAKE OFF
BUT: Aid can substitute for domestic saving
Aid can sustain private & public consumption
Aid needn’t/hasn’t gone to productive investment