CHAPTER 1

●​ Absolute poverty - being unable to meet the minimum requirements for essentials
(food, shelter, income)
●​ Capabilities - The freedoms that a person has to be or to do, given their personal
features and their command over commodities. See the discussion of Amartya Sen’s
approach to defining development in Chapter 1.
●​ Development - The process of improving the quality of all human lives. Three equally
important aspects of development are: (1) raising people’s living levels - their incomes
and consumption levels of food, medical services, education etc., through relevant
economic growth processes (SUSTENANCE); (2) creating conditions conducive to the
growth of people’s self-esteem through the establishment of social, political, and
economic systems and institutions that promote human dignity and respect
(SELF-ESTEEM); and (3) increasing people’s freedom by enlarging the range of their
choice variables, as by increasing varieties of consumer goods and services (FREEDOM
FROM SLAVERY).
-​ increasing human quality of life and capabilities through raising standards of living,
self-esteem and freedom.
●​ Development economics - The study of how economies are transformed from
stagnation to growth and from low-income to high-income status. See development.
-​ The study of how economies are transformed from stagnation to growth and from low-
income to high-income status, and overcome problems of extreme poverty.
-​ Equality - notion of being equal
-​ Equity - notion of being fair
●​ Functionings - What people do or can do with the commodities of given characteristics
that they come to possess or control (see Chapter 1).
●​ Gross national income (GNI) - The total domestic and foreign output claimed by
residents of a country, consisting of gross domestic product (GDP) plus factor incomes
earned by foreign residents, minus income earned in the domestic economy by
nonresidents.
●​ High-income countries (HICs) - In the World Bank classification, countries with a GNI
per capita above $12,055 in 2018.
●​ Institutions - Constitutions, laws, regulations, social norms, rules of conduct, and
generally accepted ways of doing things. Economic institutions are “humanly devised”
constraints that shape human interactions, including both informal and formal “rules of
the game” of economic life in the widely used framework of Douglass North.
●​ Low-Income Country (LIC) - In the World Bank classification, countries with a GNI per
capita of less than $996 in 2018.
●​ Lower-middle income countries (LMCs) - In the World Bank classification, countries
with a GNI per capita incomes between $996 and $3,895 in 2018.
●​ Living standards strata - Stylized sets of material living conditions; the 4-strata
schema was created by Hans Rosling
●​ Macroeconomics - The branch of economics that considers the relationships among
broad economic aggregates such as national income, total volumes of saving,
investment, consumption expenditure, employment, and money supply. It is also
 concerned with determinants of the magnitudes of these aggregates and their rates of
change over time. See also Keynesian model
●​ Microeconomics - The branch of economics concerned with individual decision units -
firms and households - and the way in which their decisions interact to determine relative
prices of goods and factors of production and how much of these will be bought and
sold. The market is the central concept in microeconomics. See also price system and
traditional economics.
●​ Millennium Development Goals (MDGs) - Precursor to the SDGs adopted by the
United Nations in 2000 to: (1) eradicate extreme poverty and hunger; (2) achieve
universal primary education; (3) promote gender equality and empower women; (4)
reduce child mortality; (5) improve maternal health; (6) combat diseases; (7) ensure
environmental sustainability; and (8) develop a global development partnership. Goals
were assigned targets to be achieved by 2015.
●​ National income - Total monetary value of all final goods and services produced in an
economy over some period of time, usually a year. See also gross national product
(GNP).
●​ Sector - A subset (part) of an economy, with four usages in economic development: (1)
technology (modern and traditional sectors); (2) activity (industry or product sectors); (3)
trade (export sector); and (4) sphere (private, public, and nonprofit or citizen sectors)
●​ Social system - The organizational and institutional structure of a society, including its
value premises, attitudes, power structure, and traditions (Attitudes, values and
traditions). Major social systems include political processes, religions, and ethnic
divisions.
●​ Subsistence economy - An economy in which production is mainly for personal
consumption and the standard of living yields no more than the basic necessities of life -
food, shelter, and clothing. See also subsistence farming.
-​ where the main products are those required for survival of the indigenous population
●​ Sustainable development - Pattern of development that permits future generations to
live at least as well as the current generation.
●​ Sustainable Development Goals (SDGs) - Successor to the earlier Millennium
Development Goals (MDGs), a set of 17 broad goals, among them to: end poverty and
hunger; ensure healthy lives, quality education, gender equality, water and sanitation,
and modern energy; promote inclusive growth, employment, resilient infrastructure,
industrialisation, innovation, and improved cities; reduce inequality; combat climate
change and environmental damage; and promote peace, justice, and global partnership.
●​ Upper-middle income countries (UMCs) - In the World Bank classification, countries
with a GNI per capita between $3,896 and $12,055 in 2018.

CHAPTER 2

●​ Absolute poverty - A situation where a population or section of a population is, at most,

able to meet only its bare subsistence essentials of food, clothing, and shelter to
maintain minimum levels of living. See also international poverty line and subsistence
economy.
-​ The situation of being unable or only barely able to meet the subsistence essentials of
food, clothing, shelter, and basic health care.
●​ Capital stock - The total amount of physical goods existing at a particular time that have
been pro­duced for use in the production of other goods (including services).
-​ The total amount of physical goods existing at a particular time that have been produced
for use in the production of other goods and services.
●​ Convergence - The tendency for per capita income (or output) to grow faster in
lower-income countries than in higher-income countries so that lower-income countries
are “catching up” over time. When countries are hypothesised to converge not in all
cases but other things being equal (particularly savings rates, labour force growth, and
production technologies), then the term conditional convergence is used.
●​ Crude birth rate - The number of children born alive each year per 1,000 population (a
crude birthrate of 20 per 1,000 is the same as a 2% increase). See also fertility rate and
death rate.
●​ Dependency burden - The proportion of the total population aged 0 to 15 and 65+,
which is considered economically unproductive and therefore not counted in the labor
force. In many LDCs, the population under the age of 15 accounts for almost half of the
total population, thus posing a burden to the generally small productive labor force and
to the government, which has to allocate resources on such things as education, public
health, and housing for the consumption of people who don’t contribute to production.
-​ The proportion of the total population aged 0 to 15 and 65+, which is considered
economically unproductive and therefore not counted in the labour force.
●​ Depreciation (of the capital stock) - The decline over time in the value or price of one
currency in terms of another as a result of market forces of supply and demand. See
devaluation and exchange rate.
-​ The wearing out of equipment, buildings, infrastructure, and other forms of capital,
reflected in write-offs to the value of the capital stock.
●​ Developing countries - Countries primarily in Asia, Africa, the Middle East, Latin
America, eastern Europe, and the former Soviet Union that are presently characterized
by low levels of living and other development deficits. Used in the development literature
as a synonym for less developed countries, or collectively low and middle income
countries.
●​ Diminishing marginal utility - The concept that the subjective value of additional
consumption (income) lessens as total consumption becomes higher.
●​ Divergence - A tendency for per capita income (or output) to grow faster in
higher-income countries than in lower-income countries so that the income gap widens
across countries over time (as was seen in the two centuries after industrialisation
began).
●​ Economic institutions - “Humanly devised” constraints that shape interactions (or
“rules of the game”) in an economy, including formal rules embodied in constitutions,
laws, contracts, and market regulations, plus informal rules reflected in norms of
behaviour and conduct, values, customs, and generally accepted ways of doing things.
●​ Economic infrastructure - The underlying amount of physical and financial capital
embodied in roads, railways, waterways, airways, and other forms of transportation and
 communication plus water supplies, financial institutions, electricity, and public services
such as health and education. The level of infrastructural development in a country is a
crucial factor determining the pace and diversity of economic development.
●​ Fractionalisation - Significant ethnic, linguistic, and other social divisions within a
country.
●​ Gross domestic product (GDP) - The total final output of goods and services produced
by the country’s economy, within the country’s territory, by residents and nonresidents,
regardless of its allocation between domestic and foreign claims. See also gross
national product (GNP).
-​ The total final output of goods and services produced by the country’s economy, within
the country’s territory, by residents and nonresidents, regardless of its allocation
between domestic and foreign claims
-​ total final output (goods and services) produced by a given region.
●​ Gross national income (GNI) - the aggregate value of the gross balances of primary
incomes for all sectors. GNI is the gross domestic product, plus net receipts from abroad
of compensation of employees, property income and net taxes less subsidies on
production.
-​ GDP + income accruing to residents from foreign sources - domestic income accruing to
non-residents
●​ Gross national product (GNP) - The total domestic and foreign output claimed by
residents of a country. It comprises gross domestic product (GDP) plus factor incomes
accruing to residents from abroad, less the income earned in the domestic economy
accruing to persons abroad. See also national income.
●​ High-income countries (HICs) - In the World Bank classification, countries with a GNI
per capita above $12,055 in 2018.
●​ Human capital - Productive investments embodied in human persons. These include
skills, abilities, ideals, and health resulting from expenditures on education, on-the-job
training programs, and medical care. See also physical capital.
●​ Human Development Index (HDI) - An index measuring national socioeconomic
development, based on measures of life expectancy at birth, educational attainment,
literacy, and adjusted real per capita income.
●​ Imperfect market - A market where the theoretical assumptions of perfect competition
are violated by the existence of, for example, a small number of buyers and sellers,
barriers to entry, non-homogeneity of products, and incomplete information. The three
imperfect markets commonly analyzed in economic theory are monopoly, oligopoly, and
monopolistic competition.
●​ Incomplete information - Notion that LDC markets do not function well because
producers and consumers do not possess the requisite information to make efficient
decisions. See imperfect market.
-​ The absence of information that producers and consumers need to make efficient
decisions resulting in underperforming markets.
●​ Industrialization - The process of building up a country’s capacity to process raw
materials and to manufacture goods for consumption or further production.
 ●​ Infrastructure - Facilities that enable economic activity and markets, such as
transportation, communication and distribution networks, utilities, water, sewer, and
energy supply systems.
●​ Least-developed countries - The poorest LDCs.
●​ Lower-middle income countries - In the World Bank classification, countries with a
GNI per capita incomes between $994 and $3,895 in 2018.
●​ Low-income countries (LICs) - In the World Bank classification, countries with a GNI
per capita of less than $996 in 2018.
●​ Multilateral development banks (such as the World Bank) - First financial responders
in the developing world. When a crisis hits, whether a pandemic or a climate disaster,
these institutions are often the first to open their coffers and offer a lifeline. Chartered by
two or more countries, they provide a lifeline of loans and grants to member nations,
funding critical projects from road construction to clean water initiatives.
●​ National income - Total monetary value of all final goods and services produced in an
economy over some period of time, usually a year. See also gross national product
(GNP).
●​ Property rights - Legal titles given to landowners enabling them freely to buy and sell
their plots, and other rights to use, gain income from, or sell property.
-​ The acknowledged right to use and benefit from a tangible (e.g., land) or intangible (e.g.,
intellectual) entity that may include owning, using, deriving income from, selling, and
disposing.
●​ Purchasing Power Parity (PPP) - The purchasing power of a country’s currency: the
number of units of that currency required to purchase the same basket of goods and
services that a U.S. dollar would buy in the United States.
-​ Calculation of GNI using a common set of international prices for all goods and
services, to provide more accurate comparisons of living standards.
●​ Resource endowment - A nation’s supply of factors of production. Normally such
endowments are supplied by nature (e.g., mineral deposits, raw materials, timber
forests, labor). See also factor endowment trade theory.
-​ A nation’s supply of usable factors of production, including mineral deposits, raw
materials, and labor.
●​ Upper-middle income countries - In the World Bank classification, countries with a
GNI per capita between $3,896 and $12,055 in 2018.
●​ Value added - Amount of product’s final value added at each stage of production.
●​ Very high-income countries - An informal category for a per capita income standard
indicative of economies that master frontier technologies, skills and productivity at a
point in time, such as $40,000 in 2018.
●​ World Bank - An organisation known as an “international financial institution” that
provides development funds to developing countries in the form of interest-bearing
loans, grants, and technical assistance.

CHAPTER 3
●​ Autarky - A closed economy that attempts to be completely self-reliant.
●​ Average product - Total output or product divided by total factor input (e. g. , the
average product of labor is equal to total output divided by the total amount of labor used
to produce that output). (Marginal product)
●​ Capital-labor ratio - The number of units of capital per unit of labor. In traditional
neoclassical growth theory, lower capital-labor ratios in LDCs should mean higher
returns to new investment and greater flows of capital from MDCs to LDCs. (New growth
theory)
●​ Capital-output ratio - A ratio that shows the units of capital required to produce a unit of
output over a given period of time. (Harrod-domar)
●​ Center - In dependence theory, the economic developed world.
●​ Closed economy - An economy in which there are no foreign trade transactions or any
other form of economic contacts with the rest of the world. See also autarky and
inward-looking development policies.
●​ Comprador groups - In dependence theory, local elites who act as fronts for foreign
investors.
●​ Dependence - A corollary of dominance; a situation in which the LDCs have to rely on
developed country domestic and international economic policy to stimulate their own
economic growth. Dependence can also mean that the LDCs adopt developed-country
education systems, technology, economic and political systems, attitudes, consumption
patterns, dress, etc.
●​ Dominance - In international affairs, a situation in which the developed countries have
much greater power than the less developed countries in decisions affecting important
international economic issues, such as the prices of agricultural commodities and raw
materials in world markets. See also dependence.
●​ Dualism - The coexistence in one place of two situations or phenomena (one desirable
and the other one not) that are mutually exclusive to different groups of society - for
example, extreme poverty and affluence, modern and traditional economic sectors,
growth and stagnation, university education among a few and mass illiteracy.
●​ False-paradigm model - The proposition that developing countries have failed to
develop because their development strategies (usually given to them by Western
economists) have been based on an incorrect model of development, one that, for
example, overstressed capital accumulation without giving due consideration to needed
social and institutional change.
●​ Free market - The system whereby prices of commodities or services freely rise or fall
when the buyer’s demand for them rises or falls or the seller’s supply of them decreases
or increases. See market mechanism.
●​ Free-market analysis - Theoretical model of an economy as a component of that
economy using price system and market mechanism.
●​ Harrod-Domar growth model - A functional economic relationship in which the growth
rate of gross domestic product (g) depends directly on the national net savings rate (s)
and inversely on the national capital-output ratio (k), that is, g = s/k. The model takes its
name from a synthesis of analyses of the growth process by two economists, Sir Roy
Harrod of Britain and E. V Domar of the United States.
●​ Lewis two-sector model - Theory of development in which surplus labor from the
traditional agricultural sector is transferred to the modern industrial sector whose growth
over time absorbs the surplus labor, promotes industrialization and stimulates sustained
development.
●​ Marginal product - The increase in total output result­ing from the use of one additional
unit of a variable factor of production. In the Lewis two-sector model, surplus labor is
defined as workers whose marginal product is zero. See also average product.
●​ Market failure - A phenomenon that results from the existence of market imperfections
(e.g., monopoly power, lack of factor mobility, significant externalities, lack of knowledge)
that weaken the functioning of a free-market economy - it fails to realize its theoretical
beneficial results. Market failure often provides the justification for government
interference with the working of the free market.
●​ 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.
●​ Necessary condition - A condition that must be present, although it need not be in itself
sufficient, for an event to occur. For example, capital formation is 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.
●​ Neoclassical counterrevolution - The 1980s resurgence of neoclassical free-market
orientation toward development problems and policies; counter to the interventionist
dependence revolution of the 1970s.
●​ Neocolonial dependence model - A model whose main proposition is that
underdevelopment exists in developing countries because of continuing exploitative
economic, political, and cultural policies of former colonial rulers toward less developed
countries.
●​ Net savings ratio - Savings expressed as a proportion of disposable income over some
period of time.
●​ Open economy - An economy that encourages foreign trade and has extensive financial
and non-financial contacts with the rest of the world in areas such as education, culture,
and technology. See also closed economy and outward-looking development policies.
●​ 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. See
structural-change theory.
●​ Periphery - In dependence theory, the developing countries. Compare center.
●​ Production function - A technological or engineering relationship between the quantity
of a good produced and the quantity of inputs required to produce it.
●​ Public-choice theory - Theory that self-interest guides all individual behavior and that
governments are inefficient and corrupt because people use government to pursue their
own agendas. Free markets are perceived as more efficient and more just.
 ●​ Self-sustaining growth - Economic growth that continues over the long run based on
saving, investment, and complementary private and public activities.
●​ 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 most long-term economic growth.
●​ Stages-of-growth model of development - A theory of development associated with
the American economic historian Walt W. Rostow. According to Rostow, in achieving
development, a country inevitably passes through five stages: (1) the traditional and
stagnant low per capita stage, (2) the transitional stage (in which the preconditions for
growth are laid down), (3) the takeoff stage (beginning of the economic growth process),
(4) the drive-to-maturity stage, and (5) the industrialized, mass production and
consumption stage (development stage).
●​ Structural-change theory - The hypothesis that under-development is due to
underutilization of resources arising from structural or institutional factors that have their
origins in both domestic and international dualistic situations. Development therefore
requires more than just accelerated capital formation as espoused in the
stages-of-growth and false-paradigm models of development.
●​ Structural transformation - The process of transforming the basic industrial structure
of an economy so that the contribution to national income by the manufacturing sector
increasingly becomes higher than that by the agricultural sector. More generally, an
alteration in the industrial composition of any economy. See also primary, secondary,
and tertiary industrial sectors.
●​ Sufficient condition - A condition that when present causes an event to occur - for
example, being a low-income university student may be a sufficient condition to get a
loan under a university education loan scheme. See also necessary condition.
●​ Surplus labor - The excess supply of labor over and above the quantity demanded at
the going free-market wage rate. In W. Arthur Lewis’s two-sector model of economic
development, surplus labor refers to the portion of the rural labor force whose marginal
productivity is zero or negative. See also underemployment.
●​ Underdevelopment - An economic situation in which there are persistent low levels of
living in conjunction with absolute poverty, low income per capita, low rates of economic
growth, low consumption levels, poor health services, high death rates, high birth rates,
dependence on foreign economies, and limited freedom to choose among activities that
satisfy human wants. See also development.

CHAPTER 4
●​ Agency costs - Costs of monitoring managers and other employees (called agents, but
in a slightly different sense than its usual definition of independent economic actors) and
of designing and implementing schemes to ensure compliance or provide incentives to
follow the wishes of the employer.
●​ Asymmetric information - A situation in which one party to a potential transaction
(often a buyer, seller, lender, or borrower) has more information than another party
●​ Big push - A concerted, economy-wide, and probably public policy-led, effort to initiate
or accelerate economic development across a broad spectrum of new industries and
skills.
●​ Binding constraint - The one limiting factor that if relaxed would be the item that
accelerates growth (or that allows a larger amount of some other targeted outcome).
●​ Congestion - The opposite of a complementarity; an action taken by one agent that
decreases the incentives for other agents to take similar actions.
●​ Complementarity - When complementarities are present, an action taken by one firm,
worker, or organization increases the incentives for other agents to take similar actions.
Complementarities often involve investments whose return depends on other
investments being made by other agents.
●​ Coordination failure - A state of affairs in which agents’ inability to coordinate their
behavior (choices) leads to an outcome (equilibrium) that leaves all agents worse off
than in an alternative situation that is also an equilibrium.
●​ Deep intervention - A government policy that can move the economy to a preferred
equilibrium, or even to a higher permanent rate of growth, that can then be
self-sustaining, so that the policy need no longer be enforced, because the better
equilibrium will then prevail without further intervention.
●​ Diminishing returns - The principle that if one factor of production is fixed and constant
additions of other factors are combined with it, the marginal productivity of variable
factors will eventually decline.
●​ Economic agent - An economic actor—usually a firm, worker, consumer, or government
official—that chooses actions so as to maximise an objective; often referred to as
“agents.”
●​ Growth diagnostics - A decision tree framework for identifying a country’s most binding
constraints on economic growth.
●​ Information externality - The spillover of information— such as knowledge of a
production process—from one agent to another, without intermediation of a market
transaction; reflects the public good characteristic of information (and susceptibility to
free riding)—it is neither fully excludable from other uses, nor nonrival (one agent’s use
of information does not prevent others from using it).
●​ Linkages - Connections between firms based on sales. A backward linkage is one in
which a firm buys a good from another firm to use as an input; a forward linkage is one
in which a firm sells to another firm. Such linkages are especially significant for
industrialisation strategy when one or more of the industries (product areas) involved has
increasing returns to scale that a larger market takes advantage of.
●​ Middle-income trap - A condition in which an economy begins development to reach
middle-income status but is chronically unable to progress to high-income status. Often
related to low capacity for original innovation or for absorption of advanced technology,
and may be compounded by high inequality.
●​ Multiple equilibria - A condition in which more than one equilibrium exists. These
equilibria may be ranked, in the sense that one is preferred to another, but the unaided
market will not move the economy to the preferred outcome.
●​ 0-ring model - An economic model in which production functions exhibit strong
complementarities among inputs and which has broader implications for impediments to
achieving economic development.
●​ 0-ring production function - A production function with strong complementarities
among inputs, given by the products of the input qualities. It emphasizes the idea that in
advanced economies, many tasks and activities must be done well in order for any of
them to have adequate value.
●​ Pareto improvement - A situation in which one or more persons may be made better off
without making anyone worse off. Alternatively, it is a situation in which all persons are
made better off.
●​ Pecuniary externality - A positive or negative spillover effect on an agent’s costs or
revenues.
●​ Poverty trap - A bad equilibrium for a family, community or nation, involving a vicious
cycle in which poverty and underdevelopment breed more poverty and
underdevelopment, often from one generation to the next.
●​ Prisoners’ dilemma - A situation in which all parties would be better off cooperating
than competing, but, given that cooperation has been initially achieved, each party would
gain the most by cheating while others stick to the cooperative agreements.
●​ Shadow price - A price that reflects the true opportunity cost of a resource. The change
in the objective function due to an increase in the supply of a constrained input.
●​ Social returns - The profitability of an investment in which both costs and benefits are
accounted for from the perspective of the society as a whole.
●​ Technological externality - A positive or negative spillover effect on a firm’s production
function through some means other than market exchange, such as productivity benefits
of “learning by watching” how other firms produce goods or services. Compare
pecuniary externalities.
●​ Underdevelopment trap - A poverty trap at a regional or national level, in which
underdevelopment tends to perpetuate itself over time.
●​ Where-to-meet problem - A situation in which all parties would be better off cooperating
than competing but lack information about how to do so. If cooperation can be achieved,
unlike the prisoners’ dilemma, there is no subsequent incentive to defect or cheat.
CHAPTER 5

●​ Absolute poverty - A situation where a population or section of a population is, at most,

able to meet only its bare subsistence essentials of food, clothing, and shelter to
maintain minimum levels of living. See also international poverty line and subsistence
economy.
-​ The situation of being unable or only barely able to meet the subsistence essentials of
food, clothing, and shelter.
●​ Asset ownership - The ownership of land, physical capital (factories, buildings,
machinery, etc.), human capital, and financial resources that generate income for
owners. The distribution of asset ownership is a major determinant of the distribution of
personal income in any non-socialist society. See also income distribution.
●​ Character of economic growth - The distributive implications of the process of
economic growth; for example, participation in the growth process or asset ownership.
In other words, how that economic growth is achieved and who benefits.
●​ Decile - A 10% portion of any numerical quantity; a population divided into deciles would
be divided into 10 equal numeric groups. See also quintile.
●​ Disposable income - The income that is available to households for spending and
saving after personal income taxes have been deducted.
●​ Elasticity of factor substitution (Appendix 5.1) - A measure of the degree of
substitutability between factors of production in any given production process when
relative factor prices change.
●​ Factor price distortions (Appendix 5.1) - Situations in which factors of production are
paid prices that do not reflect their true scarcity values (i.e., their competitive market
prices) because of institutional arrangements that tamper with the free working of market
forces of supply and demand. In many LDCs, the prices paid for capital and
intermediate producer goods are artificially low because of special capital depreciation
allowances, tax rebates, investment subsidies, etc., while labor is paid a wage above its
competitive market value partly because of trade union and political pressures.
Factor-price distortions can lead to the use of inappropriate techniques of production.
See also neoclassical price-incentive model and appropriate technology.
●​ Factors of production - Resources or inputs required to produce a good or a service.
Basic categories of factors of production are land, labor, and capital.
●​ Foster-Greer-Thorbecke (FGT) index - A class of measures of the level of absolute
poverty, which include as special cases the headcount ratio and the normalized income
shortfall, but in other cases, notably the P2 measure, satisfy all four axioms for desirable
poverty measures, including distributional sensitivity
●​ Functional distribution of income - The distribution of income to factors of production
without regard to the ownership of the factors.
●​ Gini coefficient - An aggregate numerical measure of income inequality ranging from 0
(perfect equality) to 1 (perfect inequality). It is measured graphically by dividing the area
between the perfect equality line and the Lorenz curve by the total area lying to the right
of the equality line in a Lorenz diagram. The higher the value of the coefficient, the
 higher the inequality of income distribution; the lower it is, the more equitable the
distribution of income.
●​ Headcount index - The proportion of a country’s population below the poverty line.
●​ Income inequality - The existence of disproportionate distribution of total national
income among households whereby the share going to rich persons in a country is far
greater than that going to poorer persons (a situation common to most LDCs). This is
largely due to differences in the amount of income derived from ownership of property
and to a lesser extent the result of differences in earned income. Inequality of personal
incomes can be reduced by progressive income taxes and wealth taxes. See also Gini
coefficient and Lorenz curve.
-​ The disproportionate distribution of total national income among households.
●​ Indirect taxes - Taxes levied on goods purchased by the consumer (and exported by the
producer) for which the taxpayer’s liability varies in proportion to the quantity of goods
purchased or sold. Examples of indirect taxes are customs duties (tariffs), excise duties,
sales taxes, and export duties. They are a major source of tax revenue for most LDCs
as they are easier to administer and collect than direct taxes (e.g., income and property
taxes).
●​ Kuznets curve - A relationship between a country’s income per capita and its equality of
income distribution such that as per capita incomes increase, the distribution of income
at first worsens and later improves from very low levels. Named after Nobel laureate
Simon Kuznets, who first statistically identified this relationship for developed countries.
-​ A graph reflecting the relationship between a country’s income per capita and its
inequality of income distribution.
●​ Land reform - A deliberate attempt to reorganize and transform existing agrarian
systems with the intention of improving the distribution of agricultural incomes and thus
fostering rural development. Among its many forms, land reform may entail provision of
secured tenure rights to the individual farmer, transfer of land ownership away from small
classes of powerful landowners to tenants who actually till the land, appropriation of land
estates for establishing small new settlement farms, or instituting land improvements and
irrigation schemes.
●​ Lorenz curve - A graph depicting the variance of the size distribution of income from
perfect equality. See also Gini coefficient.
●​ Multidimensional poverty index (MPI) - A poverty measure that identifies the poor
using dual cutoffs for levels and numbers of deprivations, and then multiplies the
percentage of people living in poverty times the percentage of weighted indicators for
which poor households are deprived on average.
●​ Neoclassical price incentive model (Appendix 5.1) - A model whose main proposition
is that if market prices are to influence economic activities in the right direction, they
must be adjusted to remove factor-price distortions by means of subsidies, taxes, or the
like so that factor prices may reflect the true opportunity cost of the resources being
used. See also appropriate technology.
●​ Personal distribution of income (size distribution of income) - The distribution of
income according to size class of persons—for example, the share of total income
 accruing to the poorest specific percentage or the richest specific percentage of a
population—without regard to the sources of that income.
●​ Progressive income tax - A tax whose rate increases with increasing personal
incomes, such that the propor­tion of personal income paid in taxes by a rich person is
higher than that paid by a poorer person. A progressive tax structure therefore tends to
improve income distribution. Compare regressive tax.
●​ Public consumption - All current expenditures for purchases of goods and services by
all levels of government; includes capital expenditures on national defense and security.
●​ Quintile - A 20% proportion of any numeric quantity. A population divided into quintiles
would be divided into five equal numeric groups. See also decile.
●​ Redistribution policies - Policies geared to reducing income inequality and expanding
economic opportunities in order to promote development. Examples include progressive
income tax policies, provision of services financed out of such taxation to benefit persons
in the lower-income groups, rural development policies giving emphasis to raising levels
of living for the rural poor through land reform, and other forms of asset and wealth
redistribution.
-​ Policies geared to reducing income inequality and expanding economic opportunities in
order to promote development, including income tax policies, rural development policies,
and publicly financed services.
●​ Regressive tax - A tax structure in which the ratio of taxes to income tends to decrease
as income increases. Relatively poor people will pay a larger proportion of their income
in taxes than relatively rich people. A regressive tax therefore tends to worsen income
distribution. See also progressive tax.
●​ Subsidy - A payment by the government to producers or distributors in an industry to
prevent the decline of that industry (e.g., as a result of continuous unprofitable
operations) or an increase in the prices of its products or simply to encourage it to hire
more labor (as in the case of a wage subsidy). Examples are export subsidies to
encourage the sale of exports: subsidies on some foodstuffs to keep down the cost of
living, especially in urban areas; and farm subsidies to encourage expansion of farm
production and achieve self-reliance in food production.
●​ Total poverty gap (TPG) - The sum of the difference between the poverty line and
actual income levels of all people living below that line.
●​ Workfare programmes - A poverty program that requires program beneficiaries to work
in exchange for benefits, such as a Food for Work Program. The term work-fare is used
as a contrast with “welfare,” which provides benefits without work requirements.
-​ A poverty alleviation programme that requires programme beneficiaries to work in
exchange for benefits, as in a food-for-work programme.

CHAPTER 6

●​ Crude birth rate - The number of children born alive each year per 1,000 population
(often shortened to birth rate).
●​ Death rate - The number of deaths each year per 1,000 population.
●​ Demographic dividend - The high economic growth that can be achieved during the
demographic transition when the working-age population share is significantly greater
than the non-working-age population share, with much of the labour force in their prime
productive years.
●​ Demographic transition - The phasing-out process of population growth rates from a
virtually stagnant growth stage, characterised by high birth rates and death rates through
a rapid-growth stage with high birth rates and low death rates to a stable, low-growth
stage in which both birth and death rates are low.
●​ Doubling time - Period that a given population or other quantity takes to increase by its
present size.
●​ Family-planning programmes - Public programmes designed to help parents plan and
regulate their family size.
●​ Hidden momentum of population growth - The phenomenon whereby population
continues to increase even after a fall in birth rates because the large existing youthful
population expands the population’s base of potential parents.
●​ Life expectancy at birth - The number of years a newborn child would live if subjected
to the mortality risks prevailing for the population at the time of the child’s birth.
●​ Malthusian population trap - The threshold population level anticipated by Thomas
Malthus (1766–1834) at which population increase was bound to stop because
life-sustaining resources, which increase at an arithmetic rate, would be insufficient to
support human population, which would increase at a geometric rate.
●​ Microeconomic theory of fertility - The theory that family formation has costs and
benefits that determine the size of families formed.
●​ Natural increase - The difference between the birth rate and the death rate of a given
population.
●​ Net international migration - The excess of persons migrating into a country over those
who emigrate from that country.
●​ Population–poverty cycle - A theory to explain how poverty and high population growth
become reinforcing.
●​ Population pyramid - A graphic depiction of the age structure of the population, with
age cohorts plotted on the vertical axis and either population shares or numbers of
males and females in each cohort on the horizontal axis.
●​ Rate of population increase - The growth rate of a population, calculated as the natural
increase after adjusting for immigration and emigration.
●​ Replacement fertility - The number of births per woman that would result in stable
population levels.
●​ Reproductive choice - The concept that women should be able to determine on an
equal status with their husbands and for themselves how many children they want and
what methods to use to achieve their desired family size.
●​ Total fertility Rate (TFR) - The number of children that would be born to a woman if she
were to live to the end of her childbearing years and bear children in accordance with the
prevailing age-specific fertility rates.
●​ Under-5 mortality rate - Deaths among children between birth and 5 years of age per
1,000 live births.
 ●​ Youth dependency ratio - The proportion of young people under age 15 to the working
population aged 16 to 64 in a country.

CHAPTER 7

●​ Agglomeration economies - Cost advantages to producers and consumers from

location in cities and towns, which take the form of urbanisation economies and
localisation economies.
●​ Congestion - An action taken by one agent that decreases the incentives for other
agents to take similar actions. Compare to the opposite effect of a complementarity.
●​ Efficiency wage - The notion that modern-sector urban employers pay a higher wage
than the equilibrium wage rate in order to attract and retain a higher-quality workforce or
to obtain higher productivity on the job.
●​ Harris-Todaro model - An equilibrium version of the Todaro migration model that
predicts that expected incomes will be equated across rural and urban sectors when
taking into account informal-sector activities and outright unemployment.
●​ Induced migration - Process in which the creation of urban jobs raises expected
incomes and induces more people to migrate from rural areas.
●​ Informal sector - The part of the urban economy of developing countries characterised
by small, competitive, individual or family firms, petty retail trade and services,
labour-intensive methods, free entry, and market-determined factor and product prices.
●​ Labour turnover - Worker separations from employers,a concept used in theory that the
urban–rural wage gap is partly explained by the fact that urban modern-sector employers
pay higher wages to reduce labour turnover rates and retain trained and skilled workers.
●​ Localisation economies - Agglomeration effects captured by particular sectors of the
economy, such as finance or autos, as they grow within an area.
●​ Present value - The discounted value at the present time of a sum of money to be
received in the future.
●​ Rural-urban migration - The movement of people from rural villages, towns, and farms
to urban centres (cities) in search of jobs.
●​ Social capital - The productive value of a set of social institutions and norms, including
group trust, expected cooperative behaviours with predictable punishments for
deviations, and a shared history of successful collective action, that raises expectations
for participation in future cooperative behaviour.
●​ Todaro migration model - A theory that explains rural–urban migration as an
economically rational process despite high urban unemployment. Migrants calculate
(present value of) urban expected income (or its equivalent) and move if this exceeds
average rural income.
●​ Urban bias - The notion that most governments in developing countries favour the urban
sector in their development policies, thereby creating a widening gap between the urban
and rural economies.
●​ Urbanisation economies - Agglomeration effects associated with the general growth of
a concentrated geographic region.
 ●​ Wage subsidy - A government financial incentive to private employers to hire more
workers, such as through tax deductions for new job creation.

CHAPTER 8

●​ Acquired immunodeficiency syndrome (AIDS) - Viral disease transmitted

predominantly through sexual contact.
●​ Basic education - The attainment of literacy, arithmetic competence, and elementary
vocational skills.
●​ Conditional cash transfer (CCT) programmes - Welfare benefits provided
conditionally based on family behaviour, such as children’s regular school attendance
and health clinic visitations.
●​ Derived demand - Demand for a good that emerges indirectly from demand for another
good.
●​ Discount rate - In present-value calculations, the annual rate at which future values are
decreased to make them comparable to values in the present.
●​ Educational certification - The phenomenon by which particular jobs require specified
levels of education.
●​ Educational gender gap - Male–female differences in school access and completion.
●​ Health system - All the activities whose primary purpose is to promote, restore, or
maintain health.
●​ Human capital - Productive investments embodied in human persons, including skills,
abilities, ideals, health, and locations, often resulting from expenditures on education,
on-the-job training programmes, and medical care.
●​ Human immunodeficiency virus (HIV) - The virus that causes the acquired
immunodeficiency syndrome (AIDS).
●​ Literacy - The ability to read and write
●​ Neglected tropical diseases - Thirteen treatable diseases, most of them parasitic, that
are prevalent in developing countries but receive much less attention than tuberculosis,
malaria, and AIDS.
●​ Private benefits - The benefits that accrue directly to an individual economic unit. For
example, private benefits of education are those that directly accrue to a student and his
or her family.
●​ Private costs - The costs that accrue to an individual economic unit.
●​ Social benefits of education - Benefits of the schooling of individuals, including those
that accrue to others or even to the entire society, such as the benefits of a more literate
workforce and citizenry.
●​ Social costs of education - Costs borne by both the individual and society from private
education decisions, including government education subsidies.
●​ World Health Organization (WHO) - The key UN agency concerned with global health
matters.