Todaro_Smith_Chapter_00_Glossary

Absolute advantag e Production of a commodity with thesame amount of real resources as another producer but at a lower absolute unit cost.Absolute povertyThe situation of being unable or only barely able to meet the subsistence essentials of food, clothing, shelter, and basic health care.Absorptive capacity (for foreign aid)The ability of a country to absorb foreign private or public financial assistance (to use the funds in a productive manner).Absorptive capacity (for ecosystems)The capacity of an eco-system to assimilate potential pollutants.Acquired immunodeficiency syndrome (AIDS)Viral disease transmitted predominantly through sexual contact.Agency costsCosts of monitoring managers and other em-ployees and of designing and implementing schemes to ensure compliance or provide incentives to follow the wishes of the employer.Ag g lomeration economies Cost advantages to producers and consumers from location in cities and towns, which take the forms of urbanization economies and localiza-tion economies.Aggregate growth model A formal economic model describ-ing growth of an economy in one or a few sectors using alimited number of variables.Ag rarian system The pattern of land distribution, owner-ship, and management, and also the social and institu-tional structure of the agrarian economy.Amortization Gradual payoff of a loan principal.Asset ownership The ownership of land, physical capital(factories, buildings, machinery, etc.), human capital,and financial resources that generate income for owners.Asymmetric information A situation in which one party to a potential transaction (often a buyer, seller, lender, or bor-rower) has more information than another party.Attitudes The states of mind or feelings of an individual,group, or society regarding issues such as material gain, hard work, saving for the future, and sharing wealth.Autarky A closed economy that attempts to be completely self-reliant.Averag e productTotal output or product divided by totalfactor 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).826GlossaryBalanced trade A situation in which the value of a country’sexports and the value of its imports are equal.Balance of payments A summary statement of a nation’s fi-nancial transactions with the outside world.Barter transactions The trading of goods directly for other goods in economies not fully monetized.Basic education The attainment of literacy, arithmetic com-petence, and elementary vocational skills.Basic transfer Net foreign-exchange inflow or outflow re-lated to a country’s international borrowing; the quan-titative difference between the net capital inflow (gross inflow minus amortization on past debt) and interestpayments on existing accumulated debt.Big push A concerted, economy-wide, and typically publicpolicy–led effort to initiate or accelerate economic develop-ment 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 allowsa larger amount of some other targeted outcome).Biodiversity The variety of life forms within an ecosystem.Biomass fuels Any combustible organic matter that may beused as fuel, such as firewood, dung, or agricultural residues.Brady Plan A program launched in 1989, designed to re-duce the size of outstanding developing-country com-mercial debt through private debt forgiveness procuredin exchange for IMF and World Bank debt guaranteesand greater adherence to the terms of conditionality.Brain drain The emigration of highly educated and skilled professionals and technicians from the developing coun-tries to the developed world.Capabilities The freedoms that people have, given their personal features and their command over commodities.Capital account The portion of a country’s balance of pay-ments that shows the volume of private foreign invest-ment and public grants and loans that flow into and out of a country over a given period, usually one year.Capital accumulationIncreasing a country’s stock of realcapital (net investment in fixed assets). To increase the production of capital goods necessitates a reduction in the production of consumer goods.Capital-au g mentin g technolo g ical pro g ress Technologicalprogress that raises the productivity of capital by inno-vation and inventions.827 GlossaryCapital flight The transfer of funds to a foreign country bya citizen or business to avoid conditions in the sourcecountry.Capital-labor ratio The number of units of capital per unit of labor.Capital-output ratio A ratio that shows the units of capital required to produce a unit of output over a given period of time.Capital-saving technolog ical prog ress Technological prog-ress that results from some invention or innovation that facilitates the achievement of higher output levels using the same quantity of inputs of capital.Capital stock The total amount of physical goods existing ata particular time that have been produced for use in theproduction of other goods and services.Cash account (international reserve account)The balancing portion of a country’s balance of payments, showing how cash balances (foreign reserves) and short-term fi-nancial claims have changed in response to current ac-count and capital account transactions.Cash crops Crops produced entirely for the market.Center In dependence theory, the economically developed world.Central bank The major financial institution responsible for issuing a nation’s currency, managing foreign reserves, implementing monetary policy, and providing banking services to the government and commercial banks. Character of economic growth The distributive implications of economic growth as reflected in such factors as par-ticipation in the growth process and asset ownership. Clean technolog ies Technologies that by design produce less pollution and waste and use resources more effi-ciently.Climate change Nontransient altering of an underlying cli-mate, such as increased average temperature, decreased annual precipitation, or greater average intensity of droughts or storms. Used in reference to the impact of the global warming phenomenon. Note the distinction be-tween changes in weather (which varies within a climate) and changes in climate that alter underlying probabilities of weather outcomes.Closed economy An economy in which there are no foreign trade transactions or other economic contacts with the rest of the world.Commercialization A process whereby an NG O (a not-for-profit organization) providing microfinance is con-verted into a for-profit bank.Commitment problem An inability to make a “credible prom-ise” to honor a contractual agreement due to the pres-ence of incentives to renege; sometimes a “commitment device,” such as posting a large bond, can be imple-mented that automatically invokes high penalties on the reneging party, thereby creating a “credible threat,” al-lowing agreement to be reached and honored. Commodity terms of trade The ratio of a country’s average export price to its average import mon market A form of economic integration in which there is free internal trade, a common tariff, and the free movement of labor and capital among partner states. Common property resource A resource that is collectively or publicly owned and allocated under a system of unre-stricted access, or as self-regulated by users. Comparative advantag e Production of a commodity at a lower opportunity cost than any of the alternative com-modities that could be produced.Complementarity An action taken by one firm, worker, or organization that increases the incentives for other agents to take similar actions. Complementarities often involve investments whose return depends on other in-vestments being made by other agents. Complementary investments Investments that complement and facilitate other productive factors.Comprador g roup In dependence theory, local elites who act as fronts for foreign investors.Comprehensive plan An economic plan that sets targets to cover all the major sectors of the national economy. Concessional terms Terms for the extension of credit that are more favorable to the borrower than those available through standard financial markets.Conditional cash transfer (CCT) prog rams Welfare benefits provided conditionally based on family behavior such as children’s regular school attendance and health clinic visitations.Conditionality The requirement imposed by the Interna-tional Monetary Fund that a borrowing country un-dertake fiscal, monetary, and international commercial reforms as a condition for receiving a loan to resolve bal-ance of payments difficulties.Congestion The opposite of a complementarity; an action taken by one agent that decreases the incentives for other agents to take similar actions.Consumer surplus Excess utility over price derived by con-sumers because of a negative-sloping demand curve. 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 hypothesized to converge not in all cases but other things being equal (par-ticularly savings rates, labor force growth, and production technologies), then the term conditional convergence is used. Coordination failure A situation in which the inability of agents 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. Corporate social responsibility Nongovernmental self-regu-lation by corporations or consortia of corporations (pos-sibly with consumer group representation), to attempt to ensure compliance with acceptable international norms of ethical practice such as avoidance of cruel, coercive, or deceptive labor practices.Corruption The appropriation of public resources for pri-vate profit and other private purposes through the use and abuse of official power or influence.828GlossaryCost-benefit analysis A tool of economic analysis in which the actual and potential private and social costs of vari-ous economic decisions are weighed against actual and potential private and social benefits.Crude birth rate The number of children born alive each year per 1,000 population (often shortened to birth rate). Currency board A form of central bank that issues domestic currency for foreign exchange at a fixed exchange rate. Currency substitution The use of foreign currency (e.g., U.S.dollars) as a medium of exchange in place of, or along with, the local currency (e.g., Mexican pesos).Current account The portion of a country’s balance of pay-ments that reflects the market value of the country’s “visible” (e.g., commodity trade) and “invisible” (e.g., shipping services) exports and imports.Customs union A form of economic integration in which two or more nations agree to free all internal trade while levy-ing a common external tariff on all nonmember countries. Death rate The number of deaths each year per 1,000 population.Debt-for-equity swap A mechanism used by indebted de-veloping countries to reduce the real value of exter-nal debt by exchanging equity in domestic companies (stocks) or fixed-interest obligations of the government (bonds) for private foreign debt at large discounts.Debt-for-nature swap The exchange of foreign debt held by an organization for a larger quantity of domestic debt that is used to finance the preservation of a natural re-source or environment in the debtor country.Debtors’ cartel A group of developing-country debtors who join together to bargain as a group with creditors.Debt repudiation The 1980s fear in the developed world that developing countries would stop paying their debt obligations.Debt service The sum of interest payments and repayments of principal on external public and publicly guaranteed debt. Decile A 10% portion of any numerical quantity; a popula-tion divided into deciles would be divided into ten equal numerical groups.Deep intervention A government policy that can move the economy to a preferred equilibrium or even to a higher permanent rate of growth, which can then be self-sustaining so that the policy need no longer be en-forced because the better equilibrium will then prevail without further intervention.Deficit An excess of expenditures over revenues. Deforestation The clearing of forested land either for agri-cultural purposes or for logging and for use as firewood. Demographic transition The phasing-out process of popula-tion growth rates from a virtually stagnant growth stage, characterized by high birth rates and death rates througha rapid-growth stage with high birth rates and low deathrates to a stable, low-growth stage in which both birth and death rates are low.Dependence The reliance of developing countries on de-veloped-country economic policies to stimulate theirown economic growth. Dependence can also mean that the developing countries adopt developed-country edu-cation systems, technology, economic and political sys-tems, attitudes, consumption patterns, dress, and so on. 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. Depreciation (of currency)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. Depreciation (of the capital stock)The wearing out of equip-ment, buildings, infrastructure, and other forms of capi-tal, reflected in write-offs to the value of the capital stock. Derived demand Demand for a good that emerges indi-rectly from demand for another good.Desertification The transformation of a region into dry, bar-ren land with little or no capacity to sustain life without an artificial source of water.Devaluation A lowering of the official exchange rate be-tween one country’s currency and all other currencies. Developing countries Countries of Asia, Africa, the Middle East, Latin America, eastern Europe, and the former Soviet Union that are presently characterized by low lev-els of living and other development deficits. Used in the development literature as a synonym for l ess devel oped countries.Development The process of improving the quality of all human lives and capabilities by raising people’s levels of living, self-esteem, and freedom.Development banks Specialized public and private finan-cial intermediaries that provide medium- and long-term credit for development projects.Development economics The study of how economies are transformed from stagnation to growth and from low-income to high-income status, and overcome problems of absolute poverty.Diminishing marg inal utility The concept that the subjec-tive value of additional consumption lessens as total consumption becomes higher.Direct taxes Taxes levied directly on individuals or busi-nesses—for example, income taxes.Discount rate In present-value calculations, the annual rate at which future values are decreased to make them com-parable to values in the present.Disposable income The income that is available to house-holds for spending and saving after personal income taxes have been deducted.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 af-ter industrialization began).Diversified (mixed) farming The production of both staple crops and cash crops and simple animal husbandry typi-cal of the first stage in the transition from subsistence to specialized farming.829 GlossaryDominance 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 agri-cultural commodities and raw materials in world markets. Doubling time Period that a given population or other quantity takes to increase by its present size.Dual exchange rate (parallel exchange rate)Foreign-exchange-rate system with a highly overvalued and legally fixed rate applied to capital- and intermediate-goods imports and a second, illegal (or freely floating) rate for imported consumption goods.Dualism The coexistence of two situations or phenomena (one desirable and the other not) that are mutually exclu-sive to different groups of society—for example, extreme poverty and affluence, modern and traditional economic sectors, growth and stagnation, and higher education among a few amid large-scale illiteracy.Economic agent An economic actor—usually a firm, worker, consumer, or government official—that chooses actions so as to maximize an objective; often referred to as “agents.”Economic infrastructure The amount of physical and finan-cial capital embodied in roads, railways, waterways, airways, and other transportation and communications, plus other facilities such as water supplies, financial in-stitutions, electricity, and public services such as health and education.Economic institutions“Humanly devised” constraints that shape interactions (or “rules of the game”) in an econ-omy, including formal rules embodied in constitutions, laws, contracts, and market regulations, plus informal rules reflected in norms of behavior and conduct, values, customs, and generally accepted ways of doing things. Economic integration The merging to various degrees of the economies and economic policies of two or more coun-tries in a region.Economic plan A written document containing govern-ment policy decisions on how resources will be allocated among various uses so as to attain a targeted rate of eco-nomic growth or other goals over a certain period of time. Economic planning A deliberate and conscious attempt by the state to formulate decisions on how the factors of production will be allocated among different uses or in-dustries, thereby determining how much of total goods and services will be produced in one or more ensuing periods.Economic union The full integration of two or more econo-mies into a single economic entity.Educational certification The phenomenon by which par-ticular jobs require specified levels of education. Educational g ender g ap Male-female differences in school access and completion.Effective rate of protection The degree of protection on value added as opposed to the final price of an imported prod-uct—usually higher than the nominal rate of protection. Efficiency wag e The notion that modern-sector urban em-ployers pay a higher wage than the equilibrium wagerate in order to attract and retain a higher-quality work-force or to obtain higher productivity on the job. Elasticity of factor substitution A measure of the degree of substitutability between factors of production in any given production process when relative factor prices change.Enclave economies Small, economically developed regions in developing countries in which the remaining areas have experienced much less progress.Endog enous g rowth theory (new g rowth theory)Economic growth generated by factors within the production pro-cess (e.g., increasing returns or induced technological change) that are studied as part of a growth model. Environmental accounting The incorporation of environ-mental benefits and costs into the quantitative analysis of economic activities.Environmental capital The portion of a country’s overall capital assets that directly relate to the environment—for example, forests, soil quality, and groundwater. Environmental Kuznets curve A graph reflecting the con-cept that pollution and other environmental degrada-tion first rises and then falls with increases in income per capita. There is evidence that this holds for some pollut-ants, such as sulfur dioxide and particulate matter in the air, but not for others, such as emissions of greenhouse gases.Euro A common European currency adopted by some of the countries of the European Union.Exchang e control A governmental policy designed to re-strict the outflow of domestic currency and prevent a worsened balance of payments position by controlling the amount of foreign exchange that can be obtained or held by domestic citizens.Exchange rate Rate at which the domestic currency may be converted into (sold for) a foreign currency such as the U.S. dollar.Export dependence A country’s reliance on exports as the major source of financing for development activities. Export earnings instability Wide fluctuations in developing-country earnings on commodity exports resulting from low price and income elasticities of demand leading to erratic movements in export prices.Export promotion Governmental efforts to expand the vol-ume of a country’s exports through increasing export incentives, decreasing disincentives, and other means in order to generate more foreign exchange and improve the current account of its balance of payments or achieve other objectives.External debt Total private and public foreign debt owed bya country.Externality Any benefit or cost borne by an individual eco-nomic unit that is a direct consequence of another’s behavior. Factor endowment trade theory The neoclassical model of free trade, which postulates that countries will tend to specialize in the production of the commodities that make use of their abundant factors of production (land, labor, capital, etc.).830GlossaryFactor price distortions Situations in which factors of pro-duction are paid prices that do not reflect their true scar-city values (i.e., their competitive market prices) because of institutional arrangements that tamper with the free working of market forces of supply and demand.Factor price equalization In factor endowment trade theory, the proposition that because countries trade at a com-mon international price ratio, factor prices among trad-ing partners will tend to equalize.Factors of production Resources or inputs required to pro-duce a good or a service, such as land, labor, and capital. False-paradi m model The proposition that developing countries have failed to develop because their devel-opment strategies (usually given to them by Western economists) have been based on an incorrect model of development, one that, for example, overstresses capital accumulation or market liberalization without giving due consideration to needed social and institutional change. Family farm A farm plot owned and operated by a single household.Family-planning prog rams Public programs designed to help parents plan and regulate their family size. Financial repression Constraints on investment resulting from the rationing of credit, usually to a few large-scale borrowers, in financial markets where interest rates and hence the supply of savings are below market-determined levels.Fiscal g ap Deficiencies of government investments in-cluding infrastructure and human capital that are com-plementary to, and raise the rate of return from, private investment.Flexible exchange rate The exchange value of a national cur-rency that is free to move up and down in response to shifts in demand and supply arising from international trade and finance.Foreig n aid The international transfer of public funds in the form of loans or grants either directly from one government to another (bilateral assistance) or indirectly through the vehicle of a multilateral assistance agency such as the World Bank.Foreig n direct investment (FDI)Overseas equity invest-ments by private multinational corporations.Foreign-exchange earnings The sum total of all foreign cur-rency receipts less expenditures during a given fiscal year.Foreig n-exchang e g ap The shortfall that results when the planned trade deficit exceeds the value of capital in-flows, causing output growth to be limited by the avail-able foreign exchange for capital goods imports.Foster-Greer-Thorbecke (FGT) index A class of measures of the level of absolute poverty.Fractionalization Significant ethnic, linguistic, and other so-cial divisions within a country.Freedom A situation in which a society has at its disposala variety of alternatives from which to satisfy its wantsand individuals enjoy real choices according to their preferences.Free markets 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 de-creases or increases.Free-rider problem The situation in which people can se-cure benefits that someone else pays for.Free trade Trade in which goods can be imported and ex-ported without any barriers in the forms of tariffs, quo-tas, or other restrictions.Free-market analysis Theoretical analysis of the properties of an economic system operating with free markets, of-ten under the assumption that an unregulated market performs better than one with government regulation. Free-market exchange rate Rate determined solely by inter-national supply and demand for domestic currency ex-pressed in terms of, say, U.S. dollars.Free-trade area A form of economic integration in which free trade exists among member countries, but members are free to levy tariffs on nonmember countries. Functional distribution of income (factor share distribution of income)The distribution of income to factors of pro-duction without regard to the ownership of the factors. Functionings What people do or can do with the commodi-ties of given characteristics that they come to possess or control.Gains from trade The increase in output and consumption resulting from specialization in production and free trade with other economic units, including persons, re-gions, or countries.General Ag reement on Tariffs and Trade (GATT)An in-ternational body set up in 1947 to explore ways and means of reducing tariffs on internationally traded goods and services; replaced in 1995 by the World Trade Organization.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 co-efficient is, the higher the inequality of income distribu-tion; the lower it is, the more equal the distribution of income.Global factories Production facilities whose various opera-tions are distributed across a number of countries to take advantage of existing price differentials.Globalization The increasing integration of national econo-mies into expanding international markets.Global public g ood A public good, whose benefits reach across national borders and population groups.Global warming Increasing average air and ocean temper-atures. Used in reference to the trend that began in the mid-twentieth century and attributed largely to human industrial, forestry, and agricultural activities emitting greenhouse gases.Government failure A situation in which government inter-vention in an economy worsens outcomes.831 GlossaryGreenhouse g ases G ases that trap heat within the earth’s atmosphere and can thus contribute to global warming. Green revolution The boost in grain production associated with the scientific discovery of new hybrid seed varieties of wheat, rice, and corn that have resulted in high farm yields in many developing countries.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 nonresi-dents, regardless of its allocation between domestic and foreign claims.Gross national income (GNI)The total domestic and for-eign output claimed by residents of a country, consist-ing of gross domestic product (GDP) plus factor incomes earned by foreign residents, minus income earned in the domestic economy by nonresidents.Group lending scheme A formal arrangement among a group of potential borrowers to borrow money from commercial or government banks and other sources as a single entity and then allocate funds and repay loans as a group, thereby lowering borrowing costs.Growth diag nostics A decision tree framework for identi-fying a country’s most binding constraints on economic growth.Growth poles Regions that are more economically and so-cially advanced than others around them, such as urban centers versus rural areas or highway corridors in devel-oping countries.Hard currency The currency of a major industrial country or currency area, such as the U.S. dollar, the euro, or the Jap-anese yen, that is freely convertible into other currencies. 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 tak-ing into account informal-sector activities and outright unemployment.Harrod-Domar g rowth model A functional economic re-lationship in which the growth rate of gross domestic product (g) depends directly on the national net sav-ings rate (s) and inversely on the national capital-out-put ratio (c).Headcount index The proportion of a country’s population living below the poverty line.Health system All the activities whose primary purpose is to promote, restore, or maintain health.Heavily indebted poor countries (HIPCs)The group of the world’s poorest and most heavily indebted countries as defined by the World Bank and the IMF, which status may make them eligible for special debt relief.Hidden momentum of population growth The phenomenon whereby population continues to increase even after a fall in birth rates because the large existing youthful popula-tion expands the population’s base of potential parents. Human capital Productive investments in people, such as skills, values, and health resulting from expenditures on education, on-the-job training programs, and medical care.Human Development Index (HDI)An index measuring na-tional socioeconomic development, based on combining measures of education, health, and adjusted real income per capita.Human immunodeficiency virus (HIV)The virus that causes the acquired immunodeficiency syndrome (AIDS). Imperfect market A market in which the theoretical as-sumptions of perfect competition are violated by the existence of, for example, a small number of buyers and sellers, barriers to entry, and incomplete information. Import substitution A deliberate effort to replace consumer imports by promoting the emergence and expansion of domestic industries.Income elasticity of demand The responsiveness of the quantity of a commodity demanded to changes in the consumer’s income, measured by the proportionate change in quantity divided by the proportionate change in income.Income inequality The disproportionate distribution of to-tal national income among households.Income per capita Total gross national income of a country divided by its total population.Incomplete information The absence of information that producers and consumers need to make efficient deci-sions resulting in underperforming markets.Increasing returns A disproportionate increase in output that results from a change in the scale of production. Indirect taxes Taxes—including customs duties (tariffs), excise taxes, sales taxes, value-added taxes (VATs), and export duties—levied on goods purchased by consumers and exported by producers.Induced mig ration Process in which the creation of urban jobs raises expected incomes and induces more people to migrate from rural areas.Industrialization strateg y approach A school of thought in trade and development that emphasizes the importance of overcoming market failures through government pol-icy to encourage technology transfer and exports of pro-gressively more advanced products.Industrial policy Deliberate effort by governments to guide the market by coordinating and supporting specific in-dustrial activities.Infant industry A newly established industry, usually pro-tected by a tariff barrier as part of a policy of import sub-stitution.Informal finance Loans and other financial services not passed through the formal banking system—for exam-ple, loans between family members.Informal sector The part of the urban economy of develop-ing countries characterized by small competitive indi-vidual or family firms, petty retail trade and services, labor-intensive methods, free entry, and market-deter-mined factor and product prices.Information externality The spillover of information—such as knowledge of a production process—from one agent to another, without intermediation of a market transaction;。