Absolute poverty - a situation of being Less developed countries - a synonym for

unable to meet the minimum levels of developing countries.

income, food, clothing, health care, shelter
and other essentials. Globalization - the increasing integration of
national economics into expanding
Subsistence economy - an economy in international markets.
which production is mainly for personal
consumption and the standard of living Social system - the organizational and
yields little more than the basic necessities institutional structure of a society, including
of life — food, shelter and clothing. its values, attitudes, power structure and
traditions.
Development - the process of improving
the quality of all human lives and Values- principles, standards, or qualities
capabilities by raising people’s levels of that a society or groups within it considers
living, self-esteem, and freedom. worthwhile or desirable.

Developing countries - countries of Asia, Attitudes - the states of mind or feelings of

Africa, Middle east, Latin America, eastern an individual, group, or society, regarding
Europe, and the formerSoviet Union that are issues such as material gain, hard work,
presently characterized by low levels of saving for the future, and sharing wealth.
living and other development deficits. Used
as a synonym for less developed countries. Institutions - norms, rules of conduct and
generally accepted ways of doing things.
Traditional economics - an approach to Economic institutions are humanly devised
economics that emphasizes utility, profit constraints that shape human interactions,
maximization, market efficiency, and including both informal and formal “rules of
determination of equilibrium. the game” of economic life in the widely
used framework of Douglass North
Political economy - the attempt to merge
economic analysis with practical politics to Income per capita- total gross national
view economic activity in its political context. income of a country divided by its total
population.
Development economics - the study of
how economies are transformed from Gross national income (GNI) - the total
stagnation to growth and from low-income domestic and foreign output claimed by
to high-income status, and overcome residents of a country. It comprises gross
problems of absolute property. domestic product (GDP) plus factor incomes
accruing to residents from abroad, less the
More developed countries (MDCs) - the income earned in the domestic economy
now economically advanced capitalist accruing to persons abroad.
countries of western, Europe, North
America, Australia, New Zealand, and
Japan.
Gross domestic product (GDP) - the total development. The goals are assigned
final output of goods and services produced specific targets to be achieved by 2015.
by the country’s economy, within the
country’s territory, by residents and 1. Eradicate extreme poverty and
nonresidents, regardless of its allocation hunger
between domestic and foreign claims. 2. Achieve universal primary education
3. Promote gender equality and
Functionings - what people do or can do empower women
with the commodities of given 4. Reduce child mortality
characteristics that they come to possess or 5. Improve maternal health
control. 6. Combat HIV/AIDS, malaria and
other diseases
Capabilities - the freedoms that people 7. Ensure environmental sustainability
have, given their personal features and their 8. Develop a global partnership for
command over commodities. development

Sustenance - The basic goods and Sector - A subset (part) of an economy,

services, such as food, clothing, and shelter, with four usages in economic development:
that are necessary to sustain an average technology (modern and traditional sectors);
human being at the bare minimum level of activity (industry or product sectors); trade
living. (export sector); and sphere (private and
public sectors
Self-esteem - The feeling of worthiness that
a society enjoys when its social, political, Chapter 2 Comparative Economic
and economic systems and institutions Development
promote human values such as respect,
dignity, integrity, and self-determination. World Bank An organization - known as
an “international financial institution” that
Freedom - A situation in which a society provides development funds to developing
has at its disposal a variety of alternatives countries in the form of interest-bearing
from which to satisfy its wants and loans, grants, and technical assistance.
individuals enjoy real choices according to
their preferences Low-income countries (LICs) - In the
World Bank classification, countries with a
Millennium Development Goals (MDGs) - GNI per capita of less than $1,025 in 2011.
A set of eight goals adopted by the United
Nations in 2000: to eradicate extreme Middle-income countries - In the World
poverty and hunger; achieve universal Bank classification, countries with a GNI per
primary education; promote gender equality capita between $1,025 and $12,475 in 2011
and empower women; reduce child
mortality; improve maternal health; combat Gross national income (GNI) - The total
HIV/AIDS, malaria, and other diseases; domestic and foreign output claimed by
ensure environmental sustainability; and residents of a country, consisting of gross
develop a global partnership for domestic product (GDP) plus factor incomes
earned by foreign residents, minus income Absolute poverty - The situation of being
earned in the domestic economy by unable or only barely able to meet the
nonresidents. subsistence essentials of food, clothing,
shelter, and basic health care.
Value added -The portion of a product’s
final value that is added at each stage of Crude birth rate - The number of children
production. born alive each year per 1,000 population

Depreciation (of the capital stock) - The Dependency burden - The proportion of
wearing out of equipment, buildings, the total population aged 0 to 15 and 65+,
infrastructure, and other forms of capital, which is considered economically
reflected in write-offs to the value of the unproductive and therefore not counted in
capital stock. the labor force.

Capital stock - The total amount of physical Fractionalization - Significant ethnic,

goods existing at a particular time that have linguistic, and other social divisions within a
been produced for use in the production of country.
other goods and services.
Resource endowment- A nation’s supply
Gross domestic product (GDP) - The total of usable factors of production, including
final output of goods and services produced mineral deposits, raw materials, and labor.
by the country’s economy within the
country’s territory by residents and Infrastructure - Facilities that enable
nonresidents, regardless of its allocation economic activity and markets, such as
between domestic and foreign claims. transportation, communication and
distribution networks, utilities, water, sewer,
Purchasing power parity (PPP) - and energy supply systems.
Calculation of GNI using a common set of
international prices for all goods and Imperfect market - A market in which the
services, to provide more accurate theoretical assumptions of perfect
comparisons of living standards. competition are violated by the existence of,
for example, a small number of buyers and
Human Development Index (HDI) - An sellers, barriers to entry, and incomplete
index measuring national socioeconomic information.
development, based on combining
measures of education, health, and Incomplete information - The absence of
adjusted real income per capita. information that producers and consumers
need to make efficient decisions resulting in
Diminishing marginal utility - The concept underperforming markets.
that the subjective value of additional
consumption lessens as total consumption
becomes higher
Property rights - The acknowledged right then the term conditional convergence is
to use and benefit from a tangible (e.g., used.
land) or intangible (e.g., intellectual) entity
that may include owning, using, deriving ● Relative Country Convergence-
income from, selling, and disposing. The most widely used approach is
simply to examine whether poorer
Brain drain - The emigration of highly countries are growing faster than
educated and skilled professionals and richer countries.
technicians from the developing countries to ● Absolute Country Convergence -
the developed world. That is, even when the average
income of a developing country is
Free trade Trade - in which goods can be becoming a larger fraction of
imported and exported without any barriers developed country average incomes,
in the forms of tariffs, quotas, or other the difference in incomes can still
restrictions. continue to widen for some time
before they finally begin to shrink.
Terms of trade - The ratio of a country’s ● Population - Weighted Relative
average export price to its average import Country Convergence - This
price. approach frames the question so as
to weight the importance of a
Research and development (R&D) - country’s per capita income growth
Scientific investigation with a view toward rate proportionately to the size of its
improving the existing quality of human life, population.
products, profits, factors of production, or ● World-as-One-Country
knowledge. Convergence - An alternative
approach to the study of
Divergence - A tendency for per capita convergence is to think of the world
income (or output) to grow faster in as if it were one country. The most
higher-income countries than in important difference from
lower-income countries so that the income population-weighted country
gap widens across countries over time (as convergence is that a
was seen in the two centuries after world-as-one-country convergence
industrialization began). study can take into account changes
in inequality within countries as well
Convergence - The tendency for per capita as between them.
income (or output) to grow faster in ● Sectoral Convergence- Despite
lower-income countries than in evidence that economies are not
higher-income countries so that converging unconditionally, there
lower-income countries are “catching up” can be cross-national convergence
over time. When countries are hypothesized of economic sectors, which in turn
to converge not in all cases but other things may signal the potential for future
being equal (particularly savings rates, labor convergence
force growth, and production technologies),
Economic Institutions - “Humanly Capital-output ratio - A ratio that shows
devised” constraints that shape interactions the units of capital required to produce a
(or “rules of the game”) in an economy, unit of output over a given period of time.
including formal rules embodied in
constitutions, laws, contracts, and market Net savings ratio - Savings expressed as a
regulations, plus informal rules reflected in proportion of disposable income over some
norms of behavior and conduct, values, period of time.
customs, and generally accepted ways of
doing things Necessary condition - A condition that
must be present, although it need not be in
Schematic Representation of Leading itself sufficient, for an event to occur. For
Theories of Comparative Development example, capital formation may be a
necessary condition for sustained economic
growth (before growth in output can occur,
there must be tools to produce it). But for
this growth to continue, social, institutional,
and attitudinal changes may have to occur.

Sufficient condition - A condition that

when present causes or guarantees that an
event will or can occur; in economic models,
a condition that logically requires that a
statement must be true (or a result must
hold) given other assumptions.

Structural-change theory- The hypothesis

that underdevelopment is due to
underutilization of resources arising from
structural or institutional factors that have
Stages-of-growth model of development their origins in both domestic and
- A theory of economic development, international dualism. Development
associated with the American economic therefore requires more than just
historian Walt W. Rostow, according to accelerated capital formation.
which a country passes through sequential
stages in achieving development. Structural transformation - The process of
transforming an economy in such a way that
Harrod-Domar growth model - A the contribution to national income by the
functional economic relationship in which manufacturing sector eventually surpasses
the growth rate of gross domestic product the contribution by the agricultural sector.
(g) depends directly on the national net More generally, a major alteration in the
savings rate (s) and inversely on the industrial composition of any economy.
national capital-output ratio (c).
Lewis two-sector model - A theory of Marginal product - The increase in total
development in which surplus labor from the output resulting from the use of one
traditional agricultural sector is transferred additional unit of a variable factor of
to the modern industrial sector, the growth production (such as labor or capital). In the
of which absorbs the surplus labor, Lewis two-sector model, surplus labor is
promotes industrialization, and stimulates defined as workers whose marginal product
sustained development. is zero.

Surplus labor - The excess supply of labor Self-sustaining growth - Economic growth
over and above the quantity demanded at that continues over the long run based on
the going free-market wage rate. In the saving, investment, and complementary
Lewis two-sector model of economic private and public activities.
development, surplus labor refers to the
portion of the rural labor force whose
marginal productivity is zero or negative.

Production function - A technological or

engineering relationship between the
quantity of a good produced and the
quantity of inputs required to produce it.

Patterns-of-development analysis - An
attempt to identify characteristic features of
the internal process of structural
transformation that a “typical” developing
economy undergoes as it generates and
sustains modern economic growth and
development.

Dependence - The reliance of developing

countries on developed-country economic
policies to stimulate their own economic
growth. Dependence can also mean that the
Average product - Total output or product developing countries adopt
divided by total factor input (e.g., the developed-country education systems,
average product of labor is equal to total technology, economic and political systems,
output divided by the total amount of labor attitudes, consumption patterns, dress, and
used to produce that output). so on.
Dominance - In international affairs, a accumulation or market liberalization
situation in which the developed countries without giving due consideration to needed
have much greater power than the less social and institutional change.
developed countries in decisions affecting
important international economic issues, Dualism - The coexistence of two situations
such as the prices of agricultural or phenomena (one desirable and the other
commodities and raw materials in world not) that are mutually exclusive to different
markets. groups of society—for example, extreme
poverty and affluence, modern and
Neocolonial dependence model - A model traditional economic sectors, growth and
whose main proposition is that stagnation, and higher education among a
underdevelopment exists in developing few amid large-scale illiteracy.
countries because of continuing exploitative
economic, political, and cultural policies of Autarky- A closed economy that attempts
former colonial rulers toward less developed to be completely self-reliant
countries.
Neoclassical counterrevolution - The
Underdevelopment - An economic 1980s resurgence of neoclassical
situation characterized by persistent low free-market orientation toward development
levels of living in conjunction with absolute problems and policies, counter to the
poverty, low income per capita, low rates of interventionist dependence revolution of the
economic growth, low consumption levels, 1970s
poor health services, high death rates, high
birth rates, dependence on foreign Free markets - The system whereby prices
economies, and limited freedom to choose of commodities or services freely rise or fall
among activities that satisfy human wants. when the buyer’s demand for them rises or
falls or the seller’s supply of them
Center - In dependence theory, the decreases or increases.
economically developed world.
Free-market analysis - Theoretical
Periphery - In dependence theory, the analysis of the properties of an economic
developing countries. system operating with free markets, often
under the assumption that an unregulated
Comprador group - In dependence theory, market performs better than one with
local elites who act as fronts for foreign government regulation
investors.
Public-choice theory (new political
False-paradigm model - The proposition economy approach) - The theory that
that developing countries have failed to self-interest guides all individual behavior
develop because their development and that governments are inefficient and
strategies (usually given to them by corrupt because people use government to
Western economists) have been based on pursue their own agendas.
an incorrect model of development, one
that, for example, overstresses capital
Market-friendly approach - The notion
historically promulgated by the World Bank
that successful development policy requires
governments to create an environment in
which markets can operate efficiently and to
intervene only selectively in the economy in
areas where the market is inefficient.

Market failure - A market’s inability to

deliver its theoretical benefits due to the
existence of market imperfections such as
monopoly power, lack of factor mobility,
significant externalities, or lack of
knowledge. Market failure often provides the
justification for government intervention to
alter the working of the free market

Capital-labor ratio - The number of units of

capital per unit of labor.

Solow neoclassical growth model -

Growth model in which there are
diminishing returns to each factor of
production but constant returns to scale.
Exogenous technological change generates
long term economic growth.

Closed economy - An economy in which

there are no foreign trade transactions or
other economic contacts with the rest of the
world.

Open economy - An economy that

practices foreign trade and has extensive
financial and nonfinancial contacts with the
rest of the world