KHRYSTIN JAZZIE T. SOLIMAN | BSA - 1B | S.Y.

2024 - 2025
CHAPTER 2 – GLOSSARY OF TERMS supplies, financial institutions, electricity, and
public services such as health and education. The
ABSOLUTE POVERTY - A situation where a
level of infrastructural development in a country is a
population or section of a population is, at most,
crucial factor determining the pace and diversity of
able to meet only its bare subsistence essentials of
economic development.
food, clothing, and shelter to maintain
minimum levels of living. FRACTONALIZATION

BRAIN DRAIN - The emigration of highly educated FREE TRADE - Trade in which goods can be imported
and skilled professional and technical manpower and exported without any barriers in the forms
from the developing to the developed countries. of tariffs, quotas, or other restrictions. Free trade
has often been described as an engine of growth
CAPITAL STOCK - The total amount of physical
because it encourages countries to specialize in
goods existing at a particular time that have been
activities in which they have comparative
produced for use in the production of other goods
advantages, thereby increasing their respective
(including services).
production efficiencies and hence their total output
CONVERGENCE of goods and services.

CRUDE BIRTH RATE - The number of children born GROSS DOMESTIC PRODUCT (GDP)
alive each year per 1,000 population (a crude
GROSS NATIONAL INCOME (GNI)
birthrate of 20 per 1,000 is the same as a 2%
increase). HUMAN CAPITAL – Productive
investments embodied in human persons. These
DEPENDENCY BURDEN - The proportion of the total
include skills, abilities, ideals, and health resulting
population aged 0 to 15 and 65+, which is
from expenditures on education, on-the-job training
considered economically unproductive and
programs, and medical care.
therefore not counted in the labor force. In many
LDCs, the population under the age of 15 accounts HUMAN DEVELOPMENT INDEX (HDI) - An index
for almost half of the total population, thus posing a measuring national socioeconomic development,
burden to the generally small productive labor force based on measures of life expectancy at birth,
and to the government, which has to educational attainment, literacy, and adjusted real
allocate resources on such things as education, per capita income.
public health, and housing for the consumption of
IMPERFECT MARKET - A market where the
people who don’t contribute to production.
theoretical assumptions of perfect competition are
DEPRECIATION (OF THE CAPITAL STOCK) - The violated by the existence of, for example, a small
decline over time in the value or price of one number of buyers and sellers, barriers to entry, non-
currency in terms of another as a result of market homogeneity of products, and incomplete
forces of supply and demand. information. The three imperfect markets
commonly analyzed in economic theory
DIMINISHING MARGINAL UTILITY - The principle
are monopoly, oligopoly, and monopolistic
that if one factor of production is fixed and constant
competition.
additions of other factors are combined with it, the
marginal productivity of variable factors will INCOMPLETE INFORMATION - Notion that LDC
eventually decline. markets do not function well because producers
and consumers do not possess the requisite
DIVERGENCE
information to make efficient decisions.
ECONOMIC INSTITUTIONS - Economic
INFRASTRUCTURE
infrastructure The underlying amount of physical
and financial capital embodied in roads, railways, LEAST DEVELOPED COUNTRIES - The poorest
waterways, airways, and other forms of LDCs.
transportation and communication plus water
 KHRYSTIN JAZZIE T. SOLIMAN | BSA - 1B | S.Y. 2024 - 2025
LOW-INCOME COUNTRIES (LIC’s) - Countries with assistance. The World Bank operates with borrowed
a gross national income per capita of less than $755 funds.
in 2000
CHAPTER 3 – GLOSSARY OF TERMS
MIDDLE-INCOME COUNTRIES - LDCs with per
AUTARKY - A closed economy that attempts to be
capita income above $755 and below $9,265 in 2000
completely self-reliant.
according to World Bank measures.
AVERAGE PRODUCT - Total output or product
NEWLY INDUSTRIALIZING COUNTRIES (NICs) - A
divided by total factor input (e.g., the average
small group of countries at a relatively advanced
product of labor is equal to total output divided by
level of economic development with a substantial
the total amount of labor used to produce that
and dynamic industrial sector and with close links to
output).
the international trade, finance, and investment
system (Argentina, Brazil, Greece, Mexico, Portugal, CAPITAL-LABOR RATIO – The number of units
Singapore, South Korea, Spain, and Taiwan). of capital per unit of labor. In traditional
neoclassical growth theory, lower capital-labor
PURCHASING POWER PARITY (PPP) - The
ratios in LDCs should mean higher returns to new
purchasing power of a country’s currency: the
investment and greater flows of capital from MDCs
number of units of that currency required to
to LDCs.
purchase the same basket of goods and services
that a U.S. dollar would buy in the United States. CAPITAL-OUTPUT RATIO - A ratio that shows the
units of capital required to produce a unit of output
RESEARCH AND DEVELOPMENT (R&D) - Scientific
over a given period of time.
investigation with a view toward improving the
existing quality of human life, products, profits, CENTER - In dependence theory, the economic
factors of production, or knowledge. There are two developed world
categories of R&D: basic R&D (without a specific
commercial objective) and applied R&D (with a CLOSED ECONOMY - An economy in which there
commercial objective). are no foreign trade transactions or any other form of
economic contacts with the rest of the world.
RESOURCE ENDOWMENT - A nation’s supply
of factors of production. Normally such COMPRADOR GROUPS - In dependence theory,
endowments are supplied by nature (e.g., mineral local elites who act as fronts for foreign investors.
deposits, raw materials, timber forests, labor). DEPENDENCE - A corollary of dominance; a
TERMS OF TRADE - The ratio of a country’s average situation in which the LDCs have to rely on
export price to its average import price - so known developed country domestic and international
as the commodity terms of trade. A country’s terms economic policy to stimulate their own economic
of trade are said to improve when this ratio increases growth. Dependence can also mean that the LDCs
and to worsen when it decreases, that is, when adopt developed-country education systems,
import prices rise at a relatively faster rate than technology, economic and political systems,
export prices (the experience of most LDCs in recent attitudes, consumption patterns, dress, etc.
decades). DOMINANCE - In international affairs, a situation in
VALUE ADDED - Amount of product’s final value which the developed countries have much greater
added at each stage of production. power than the less developed countries in
decisions affecting important international
WORLD BANK - An international financial institution economic issues, such as the prices of agricultural
owned by its 181 member countries and based in commodities and raw materials in world markets.
Washington, D. C. Its main objective is to
provide development funds to developing nations in DUALISM - The coexistence in one place of two
the form of interest-bearing loans and technical situations or phenomena (one desirable and the
other one not) that are mutually exclusive to
different groups of society - for example, extreme
 KHRYSTIN JAZZIE T. SOLIMAN | BSA - 1B | S.Y. 2024 - 2025
poverty and affluence, modern and traditional justification for government interference with the
economic sectors, growth and stagnation, university working of the free market.
education among a few and mass illiteracy.
MARKET-FRIENDLY APPROACH - World
FALSE-PARADIGM MODEL - The proposition Bank notion that successful development policy
that developing countries have failed to develop requires governments to create an environment in
because their development strategies (usually given which markets can operate efficiently and to
to them by Western economists) have been based intervene selectively in the economy in areas where
on an incorrect model of development, one that, for the market is inefficient (e.g., social and
example, overstressed capital accumulation economic infrastructure, investment coordination,
without giving due consideration to needed social economic ‘safety net”).
and institutional change.
NECESSARY CONDITION - A condition that must be
FREE MARKET - The system whereby prices of present, although it need not be in itself sufficient,
commodities or services freely rise or fall when the for an event to occur. For
buyer’s demand for them rises or falls or the seller’s example, capital formation is a necessary condition
supply of them decreases or increases. for sustained economic growth (before growth in
output can occur, there must be tools to produce
FREE-MARKET ANALYSIS - Theoretical model of an
it). But for this growth to continue, social,
economy as a component of that economy using
institutional, and attitudinal changes may have to
price system and market mechanism.
occur.
HARROD-DOMAR GROWTH MODEL - A functional
NEOCLASSICAL COUNTERREVOLUTION - The
economic relationship in which the growth rate
1980s resurgence of neoclassical free-market
of gross domestic product (g) depends directly on
orientation toward development problems and
the national net savings rate (s) and inversely on the
policies; counter to the
national capital-output ratio (k), that is, g = s/k. The
interventionist dependence revolution of the 1970s.
model takes its name from a synthesis of analyses
of the growth process by two economists, Sir Roy NEOCOLONIAL DEPENDENCE MODEL - A model
Harrod of Britain and E. V Domar of the United whose main proposition is
States. that underdevelopment exists in developing
countries because of continuing exploitative
LEWIS TWO-SECTOR MODEL - Theory of
economic, political, and cultural policies of former
development in which surplus labor from traditional
colonial rulers toward less developed countries.
agricultural sector is transferred to the modern
industrial sector whose growth over time absorbs NET SAVINGS RATIO
the surplus labor, promotes industrialization and
NEW POLITICAL ECONOMY APPROACH
stimulates sustained development.
OPEN ECONOMY - An economy that encourages
MARGINAL PRODUCT - The increase in total output
foreign trade and has extensive financial and non-
resulting from the use of one additional unit of a
financial contacts with the rest of the world in areas
variable factor of production. In the Lewis two-
such as education, culture, and technology. See
sector model, surplus labor is defined as workers
also closed economy and outward-looking
whose marginal product is zero.
development policies.
MARKET FAILURE - A phenomenon that results from
PATTERNS-OF-DEVELOPMENT ANALYSIS
the existence of market imperfections
(e.g., monopoly power, lack of factor PERIPHERY - In dependence theory, the developing
mobility, significant externalities, lack of knowledge) countries. Compare center.
that weaken the functioning of a free-market
economy - it fails to realize its theoretical beneficial PRODUCTION FUNCTION - A technological or
results. Market failure often provides the engineering relationship between the quantity of
 KHRYSTIN JAZZIE T. SOLIMAN | BSA - 1B | S.Y. 2024 - 2025
a good produced and the quantity of inputs required SUFFIECIENT CONDITION - A condition that when
to produce it. present causes an event to occur - for example,
being a low-income university student may be a
PUBLIC-CHOICE THEORY - Theory that self-
sufficient condition to get a loan under a university
interest guides all individual behavior and that
education loan scheme.
governments are inefficient and corrupt because
people use government to pursue their own SURPLUS LABOR - The excess supply of labor over
agendas. Free markets are perceived as more and above the quantity demanded at the going free-
efficient and more just. market wage rate. In W. Arthur Lewis’s two-sector
model of economic development, surplus labor
SELF-SUSTAINING GROWTH - Economic growth
refers to the portion of the rural labor force
that continues over the long run based on saving,
whose marginal productivity is zero or negative.
investment, and complementary private and public
activities. UNDERDEVELOPMENT - An economic situation in
which there are persistent low levels of living
SOLOW NEOCLASSICAL GROWTH MODEL -
in conjunction with absolute poverty, low income
Growth model in which there are diminishing
per capita, low rates of economic growth, low
returns to each factor of production but
consumption levels, poor health services,
constant returns to scale. Exogenous technological
high death rates, high birthrates, dependence on
change generates most long-term economic
foreign economies, and limited freedom to choose
growth.
among activities that satisfy human wants.
STAGES-OF-GROWTH MODEL OF DEVELOPMENT
CHAPTER 4 – GLOSSARY OF TERMS
- A theory of development associated with the
American economic historian Walt W. AGENCY COSTS - Costs of monitoring managers
Rostow. According to Rostow, in and other employees (called agents, but in a slightly
achieving development, a country inevitably passes different sense than its usual definition of
through five stages: (1) the traditional and stagnant independent economic actors) and of designing and
low per capita stage, (2) the transitional stage (in implementing schemes to ensure compliance or
which the preconditions for growth are laid down), provide incentives to follow the wishes of the
(3) the takeoff stage (beginning of the economic employer.
growth process), (4) the drive-to-maturity stage, and
ASYMMETRIC INFORMATION - A situation in which
(5) the industrialized, mass production and
one party to a potential transaction (often a buyer,
consumption stage (development stage).
seller, lender, or borrower) has more information
STRUCTURAL-CHANGE THEORY - The hypothesis than another party
that under-development is due to underutilization
BIG PUSH - A concerted, economy-wide, and
of resources arising from structural or institutional
probably public policy-led, effort to initiate or
factors that have their origins in both domestic and
accelerate economic development across a broad
international dualistic
spectrum of new industries and skills.
situations. Development therefore requires more
than just accelerated capital formation as espoused COMPLEMENTARITY - When complementarities
in the stages-of-growth and false-paradigm models are present, an action taken by one firm, worker, or
of development. organization increases the incentives for other
agents to take similar actions. Complementarities
STRUCTURAL TRANSFORMATION - The process of
often involve investments whose return depends on
transforming the basic industrial structure of an
other investments being made by other agents.
economy so that the contribution to national
income by the manufacturing sector increasingly CONGESTION - The opposite of a complementarity;
becomes higher than that by the agricultural an action taken by one agent that decreases the
sector. More generally, an alteration in the industrial incentives for other agents to take similar
composition of any economy. actions. For example, if most people travel on one
 KHRYSTIN JAZZIE T. SOLIMAN | BSA - 1B | S.Y. 2024 - 2025
highway between two cities, the incentive is present POVERTY TRAP - A bad equilibrium for a family,
for travelers to try alternate routes. community or nation, involving a vicious cycle in
which poverty and underdevelopment breed more
COORDINATION FAILURE - A state of affairs in
poverty and underdevelopment, often from one
which agents’ inability to coordinate their behavior
generation to the next.
(choices) leads to an outcome (equilibrium) that
leaves all agents worse off than in an alternative PRISONERS’ DILEMMA - A situation in which all
situation that is also an equilibrium. parties would be better off cooperating than
competing, but, given that cooperation has been
DEEP INTERVENTION - A government policy that
initially achieved, each party would gain the most by
can move the economy to a preferred equilibrium, or
cheating while others stick to the cooperative
even to a higher permanent rate of growth, that can
agreements.
then be self-sustaining, so that the policy need no
longer be enforced, because the better equilibrium SOCIAL RETURNS
will then prevail without further intervention.
TECHNOLOGICAL EXTERNALITY - A positive or
ECONOMIC AGENT - negative spillover effect on a firm’s production
function through some means other than market
GROWTH DIAGNOSTICS -
exchange, such as productivity benefits of “learning
INFORMATION EXTERNALITY - by watching” how other firms produce
goods or services. Compare pecuniary
LINKAGE - Linkage Connections between firms externalities.
based on sales. A backward linkage is one in which
a firm buys a good from another firm to use as an UNDERDEVELOPMENT TRAP - A poverty trap at a
input; a forward linkage is one in which a firm sells to regional or national level, in which
another firm. Such linkages are especially underdevelopment tends to perpetuate itself over
significant for industrialization strategy when one or time.
more of the sectors involved have increasing returns
WHERE-TO-MEET DILEMMA - A situation in which
to scale that a larger market takes advantage of.
all parties would be better off cooperating than
MIDDLE-INCOME TRAP - competing but lack information about how to do
so. If cooperation can be achieved, unlike
MULTIPLE EQUILIBRIA - A condition in which more the prisoners’ dilemma, there is no subsequent
than one equilibrium exists. These equilibria may be incentive to defect or cheat.
ranked, in the sense that one is preferred to an-
other, but the unaided market will not move the
economy to the preferred outcome.

O-RING MODEL -

O-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 EXTERNALITIES - A positive or negative

spillover effect on an agent’s costs or revenues.