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Absolute poverty

incomes less than $2/day


Development economics

- studies how economies are transformed from stagnation to growth, low-income to high-income status, and how they overcome problems of absolute poverty
- reduction or elimination of poverty, inequality and unemployment


Social systems

- values, attitudes, power structure and traditions
- represents the interdependent relationships between economic factors and noneconomic factors



achieving sustained rates of growth of income per capita to enable a nation to expand its output at a rate faster than the growth rate of its population


Income per capita

total gross national income of a country divided by its total population


Gross national income

- total domestic and foreign output claimed by residents of a country


Sen's Capability Appraoch

- the capability to function is what really matters for status as a poor or non poor person
- what matters isn't what a person has but what a person is or can be and does or can do



what people do or can do with commodities of given characteristics that they come to possess or control



the freedom that a person has in terms of the choice of functionings, given their personal features and command over commodities


Three Core Values of Development

1. sustenance - the ability to meet the needs for basic goods and services that are necessary to survive at the bare minimum level of living
2. self-esteem - sense of worth and self respect (may vary culture to culture)
3. freedom from servitude - being able to choose (greater leisure, to have more goods and services, more spiritual life)


Human Development Index

1. real income per capita adjusted PPP
2. health measured by life expectancy, under nourishment and child mortality
3. education measured by literacy and schooling


Gross Domestic Product

measures the total value for final use of output produced by an economy, by both residents and non-residents


Purchasing Power Parity

number of units a foreign country's currency required to purchase the identical quantity of goods and services in the local developing country market as $1 would buy in the US


Under-5 mortality rate

probability per 1,000 live births that a new born baby will die before reaching 5y/0


life expectancy

average # of years newborn children would live under the mortality risks that are present at the time of their birth



new human development index ranks countries on a scale of 0 to 1


crude birth rate

the number of children born alive each yer per 1000 population


dependency burden

the proportion of the total population aged 0 to 15 and 65+, which is considered economically unproductive and therefore not counted in labor force



significant ethnic, linguistic, and other social divisions within a country, often leads to civil strike and violent conflict (Afghanistan, Rwanda)


primary products

products derived from all extractive occupations (farming, lumbering)


resource endownment

nations supply of usable factors of prduction


1. Physical and Human Resource Endownments

- developed nations had more natural resources than developing nations currently have
- Paul Romer divides technology gap into physical object gap (factories, roads, machinery) and idea gap (knowledge on marketing, distribution, inventory control)


2. per capita incomes and levels of GDP in relation to rest of the world

- todays developed countries didn't have such low levels of income per capita at early stages


3. climate

- all developing countries are located in tropical or subtropical climate zones
- When climate is uncomfortable to settle, colonialist mostly created extractive institutions (extract & leave)
- when heat and humidity are high, leads to low quality soil and productivity of certain crops, malaria etc.


4. population size, distribution and growth

- developed: didn't have fast ride in population growth before/during growth years


5. historical role of international migration

- unskilled labourers were able to find work in developed countries
- now, strict immigration laws causing immigration to decrease
- those that do migrate are highly educated and skilled and move and don't go back


Brain Drain

emigration of highlight educated and skilled professionals and technicians from developing to developed worlds


6. international trade benefits

- developing countries didn't have access to free trade (imports/exports without barriers - taxes, quotas) which is advanced nations "engine of growth"


Terms of trade

the ratio of a country's average export price to its average import price


7. basic scientific and technological research and development capabilities

- basic R&D is concentrated in developed countries but they take to China and India (spilling over to developing nations)
- BUT, research is dedicated to solving developed nations problems


8. efficacy (power) of domestic institutions

- developed nations had good economic rules enabling access to credit and entrepreneurship
- developing nations established by colonial powers, informal rules are hard to change



growth rate of per capita income (or output) in rich countries increases faster than low income countries so gap between them widens



per capita income (or output) grows faster in lower income countries than higher income countries so lower income countries are catching up over time


Reasons for convergence

1. technology transfer - developing countries dont have to invest in research to find existing technology
2. if conditions were similar, there would be more rapid capital accumulation in developing countries



- very important in facilitating development
- institutions that protect elites and prevent access by broad population impedes development


Rostows Stages of Growth

- shows transition from underdevelopment to development as series of steps through all countries must proceed
- argues that advanced countries had all passed the stage "takeoff into self-sustaining growth" while less developed countries were in traditional society or "preconditions" stage
- mobilization of domestic and foreign savings to generate sufficient investment is necessary for achieving "take off"


Harrod-Domar Growth Model

- an economy must save a certain proportion of its national income to replace worn-out capital goods
- new investment helps growth


Necessary condition

a condition that must be present, although not sufficient, for an event to occur
- e.g. capital formation is necessary for sustained economic growth but not sufficient because we nee social, institutional changes for growth to continue


Sufficient condition

- a condition that guarantees an event will or can occur


Structural Transformation

the process of altering the industrial composition of an economy in such a way that the contribution to national income by the manufacturing sector eventually surpasses the contribution by the agricultural sector


Lewis Theory of Economic Development

- 2 sectors in underdeveloped economy
1. traditional, overpopulated, rural subsistence sector - 0 marginal labour productivity
2. high-productivity modern, urban industrial sector - labor from rural sector is gradually transferred to this sector


Self-sustaining growth

economic growth that continues over the long run based on savings , investment and complementary private and public activities


Patterns of development analysis

- examines process of how rural sector is being transformed over time to allow for industrialization and growth
- physical and human capital are needed as well as changes in structure of economy are needed
- different from Lewis model -- accepts increased savings and investment as necessary but not sufficient


Neoclassical dependence model

- reason for underdevelopment is the unequal international relationships between rich and poor countries
- center = economically developed, periphery = developing countries


False Paradigm Model

- developing nations are unable to achieve development because they are following advice from economists from developed countries that include incorrect models for development



the existence of two situations that are mutually exclusive to different groups of society


Free Markets

- system where prices are set by the interactions between suppliers and demanders
- government doesnt intervene with workings of supply and demand


Neoclassical counterrevolution

- argue that heavy government control, corruption, inefficiency, and lack of economic incentives are the cause of underdevelopment
- promote free markets!
- free market approach, public choice ("new political economy") approach, market friendly approach


Free Market Approach

- states that markets alone are efficient
- argues there is effective competition in the market
- gov't intervention will reduce effciency


Public Choice Theory

- more extreme than free market, argues that governments can do (virtually) nothing right
- politicians are self interested and use power to benefit themselves and therefore govt should be kept at minimal level


Market-Friendly Approach

- accepts the need for government intervention due to market failures in developing countries
- government intervention is needed to correct market outcomes when markets fail


Market Failure

- inefficiencies in distributing resources due to monopolies, externalities or lack of knowledge


Solow Neoclassical Growth Model

- adds labour and technology to growth equation
- technology is key in explaining long term growth


Structural Change Model

emphasizes how developing countries can transform their economies from focusing on traditional agriculture to a modern and diverse manufacturing and service economy


Size Distributions

Deals with how much income individuals/households receive without giving attention to sources of the income


Lorenz Curve

- graph depicting the variance of the size distribution of income relative to perfect


Gini Coefficient

- measure of inequality obtained by calculating the ratio of the area between the diagonal and the Lorenz curve, divided by the total area of the half square in which the curve lies


Functional Distribution Theory

- attempts to explain the share of total national income that each of the factors of productions recieve


Total poverty gap

- measures the total amount of income necessary to raise everyone who is below the poverty line up to the line


Multidimensional Poverty Index

- health, education, wealth
- takes into account there are negative interaction effects when people have multiple deprivations
- percentage of people living in poverty X weighted indicators for which poor households are deprived on avg



1. whether a child has died in family
2. whether adult or child in family is malnourished



1. whether not even one member has completed 5 years of schooling
2. whether any school-age child is out of school from grade 1-8



1. lack of electricity
2. insufficient safe drinking water
3. inadequate santitation
4. inadequate flooring
5. lack of more than 1 of 5 assets: phone, radio, tv, bike, motorbike or similar vehicle


Multidimensionally poor

family is deprived of weighted sum of 0.3 or more


Ultra Poverty

living on half the dollar-a-day poverty line, or 54 cents per day in 1993 dollars


Rural Poverty

- most poor are located in rural areas and engaged in agricultural activities
- even though most poverty is in rural areas, governments direct money to urban areas
- new employment opportunities are directed in urban areas which induces migration


Women and poverty

- women and children are more likely to be malnourished
- less likely to receive medical services, clean water, sanitation
- less access to education, employment, social security, and government employment programs


Ethnic minorities, indigenous populations and poverty

- poverty is heavy in minority ethnic groups and indigenous populations
- existences of different ethnic groups might lead to conflict because some fact economic, political and social discrimination and compete amongst each other for limited resources and job opportunities


Policy on Income Inequality and Poverty

1. altering functional distribution (returns to land, labour, capital)
2. mitigating size distribution (ownership and skills)
3. reduce size distribution at upper levels through taxation
4. increasing size distribution at lower levels directly (cash transfers) or indirectly (employment, health care, education)


Progressive Taxes

tax whose rate increases with increasing personal incomes


Workfare program

require program beneficiaries to work in exchange for benefits (food-for-work programs)


Conditional Cash Transfer program

allocates income to poor families to improve education, health and nutrition among poor under such conditions like keeping kids in school