Diaz

CHAPTER 4. Contemporary Models of Development Where-to-meet dilemma - A situation in which all

and Underdevelopment parties would be better off cooperating than competing
but lack information about how to do so. If cooperation
Economic agent - An economic actor—usually a firm,
can be achieved, there is no subsequent incentive to
worker, consumer or government official—that chooses
defect or cheat.
actions so as to maximize an objective.
Multiple equilibria - A condition in which more than
Complementarity - An action taken by one firm, worker,
one equilibrium exists. These equilibria may sometimes
or organization that increases the incentives for other
be ranked, in the sense that one is preferred to another,
agents to take similar actions. Complementarities often
but the unaided market will not move the economy to
involve investments whose return depends on other
the preferred outcome.
investments being made by other agents.
Prisoners’ dilemma - A situation in which all parties
Coordination failure - A state of affairs in which the
would be better off cooperating than competing but
inability of agents to coordinate their behavior (choices)
once cooperation has been achieved, each party would
leads to an outcome (equilibrium) that leaves all agents
gain the most by cheating, provided that others stick to
worse off than in an alternative situation that is also an
cooperative agreements— thus causing any agreement
equilibrium.
to unravel.
Big push - A concerted, economy wide, and typically
Multiple equilibria - A condition in which more than
public policy–led effort to initiate or accelerate
one equilibrium exists. These equilibria may sometimes
economic development across a broad spectrum of new
be ranked, in the sense that one is preferred to another,
industries and skills.
but the unaided market will not move the economy to
O-ring model - An economic model in which production the preferred outcome.
functions exhibit strong complementarities among
Pareto improvement - A situation in which one or more
inputs and which has broader implications for
persons may be made better off without making anyone
impediments to achieving economic development.
worse off.
Middle-income trap - A condition in which an economy
Pecuniary externality - A positive or negative spillover
begins development to reach middle-income status but
effect on an agent’s costs or revenues.
is chronically unable to progress to high-income status.
Often related to low capacity for original innovation or Technological externality - A positive or negative
for absorption of advanced technology, and may be spillover effect on a firm’s production function through
compounded by high inequality. some means other than market exchange.

Underdevelopment trap - A poverty trap at the regional
or national level in which underdevelopment tends to
perpetuate itself over time.
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.
Agency costs - Costs of monitoring managers and other
employees 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.

Congestion - The opposite of a complementarity; an

action taken by one agent that decreases the incentives
for other agents to take similar actions.
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 industrialization
strategy when one or more of the industries (product
areas) involved have increasing returns to scale that a
larger market takes advantage of.
Poverty trap – A bad equilibrium for a family,
community, or nation, involving a vicious circle in which
poverty and underdevelopment lead to more poverty
and underdevelopment, often from one generation to
the next.
O-ring production function – A production function
with strong complementarities among inputs, based on
the products of the input qualities.
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 non-rival
(one agent’s use of information does not prevent others
from using it).
Growth diagnostics – A decision tree framework for
identifying a country’s most binding constraints on
economic growth.
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.
CHAPTER 5. POVERTY, INEQUALITY AND
DEVELOPMENT
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.
Quintile - A 20% proportion of any numerical quantity.
A population divided into quintiles would be divided
into five groups of equal size.
Decile – A 10% portion of any numerical quantity; a
population divided into deciles would be divided into
ten equal numerical groups.
Income inequality - The disproportionate distribution of
total national income among households.
Lorenz curve - A graph depicting the variance of the size
distribution of income from perfect equality.
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 equal the
distribution of income.
Functional distribution of income (factor share
distribution of income) - The distribution of income to
factors of production without regard to the ownership
of the factors.
Factors of production - Resources or inputs required to
produce a good or a service, such as land, labor, and
capital.
Absolute poverty - The situation of being unable or only
barely able to meet the subsistence essentials of food,
clothing, and shelter.
Headcount index - The proportion of a country’s
population living below the poverty line.
Total poverty gap (TPG) - The sum of the difference
between the poverty line and actual income levels of all
people living below that line.
Foster-Greer-Thorbecke (FGT) index – A class of
measures of the level of absolute poverty.
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
percent of weighted indicators for which poor
households are deprived on average.
Kuznets curve - A graph reflecting the relationship Neoclassical price incentive model – A model whose
between a country’s income per capita and its equality main proposition is that if market prices are to influence
of income distribution. economic activities in the right direction, they must be
adjusted to remove factor price distortions by means of
Character of economic growth - The distributive
subsidies, taxes, or the like so that factor prices may
implications of economic growth as reflected in such
reflect the true opportunity cost of the resources being
factors as participation in the growth process and asset
used.
ownership.
Factor price distortions - Situations in which factors of
Disposable income - The income that is available to
production are paid prices that do not reflect their true
households for spending and saving after personal
scarcity values (i.e., their competitive market prices)
income taxes have been deducted.
because of institutional arrangements that tamper with
Asset ownership - The ownership of land, physical the free working of market forces of supply and
capital (factories, buildings, machinery, etc.), human demand.
capital, and financial resources that generate income
Elasticity of factor substitution - A measure of the
for owners.
degree of substitutability between factors of production
Redistribution policies - Policies geared to reducing in any given production process when relative factor
income inequality and expanding economic prices change.
opportunities in order to promote development,
CHAPTER 6. POPULATION GROWTH AND ECONOMIC
including income tax policies, rural development
DEVELOPMENT: CAUSES, CONSEQUENCES AND
policies, and publicly financed services.
CONTREVERSIES.
Land reform - A deliberate attempt to reorganize and
Doubling time - Period that a given population or other
transform existing agrarian systems with the intention
quantity takes to increase by its present size
of improving the distribution of agricultural incomes
and thus fostering rural development. Rate of population increase - The growth rate of a
population, calculated as the natural increase after
Progressive income tax - A tax whose rate increases
adjusting for immigration and emigration.
with increasing personal incomes.
Natural increase - The difference between the birth
Regressive tax – A tax structure in which the ratio of
rate and the death rate of a given population.
taxes to income tends to decrease as income increases.
Net international migration - The excess of persons
Indirect taxes - Taxes levied on goods ultimately
migrating into a country over those who emigrate from
purchased by consumers, including customs duties
that country.
(tariffs), excise duties, sales taxes, and export duties.
Crude birth rate - The number of children born alive
Public consumption - All current expenditures for
each year per 1,000 population (often shortened to
purchases of goods and services by all levels of
birth rate).
government, including capital expenditures on national
defense and security. Death rate - The number of deaths each year per 1,000
population.
Subsidy - A payment by the government to producers or
distributors in an industry to prevent the decline of that Total fertility rate (TFR) - The number of children that
industry, to reduce the prices of its products, or to would be born to a woman if she were to live to the end
encourage hiring. of her childbearing years and bear children in
accordance with the prevailing age-specific fertility
Workfare program - A poverty alleviation program that
rates.
requires program beneficiaries to work in exchange for
benefits, as in a food for-work program.
Life expectancy at birth - The number of years a
newborn child would live if subject to the mortality risks
prevailing for the population at the time of the child’s
birth.
Under-5 mortality rate - Deaths among children
between birth and 5 years of age per 1,000 live births.
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.

Youth dependency ratio - The proportion of young

people under age 15 to the working population aged 16
to 64 in a country.

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.

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.

Demographic transition - The phasing-out process of

population growth rates from a virtually stagnant
growth stage characterized 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.

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 increases at a geometric rate.

Microeconomic theory of fertility - The theory that

family formation has costs and benefits that determine
the size of families formed.

Family-planning programs - Public programs designed

to help parents plan and regulate their family size.

Population-poverty cycle – A theory to explain how

poverty and high population growth become
reinforcing.