i

mongmama

CHAPTER1

Onecoul dclai
mt hatAdam Smi thwast hefir
st“developmenteconomi st
”andt hat
his Wealt
h ofNat ions,publ ished i
n 1776,was t he f i
rsttreat
ise on economi c
devel
opment ,thesy stemat i
cst udyoft heproblemsandpr ocessesofeconomi c
devel
opmenti nAfrica,Asia,andLat i
nAmer icahasemer gedonlyov erthepastf ive
decadesorso.Al t
houghdev elopmenteconomi csoftendr awsonr elev
antpr i
nciples
andconcept sfrom otherbr anchesofeconomi csinei t
herast andardormodi fied
for
m, forthemostpar titisaf i
eldofstudythatisrapidl
yev ol
vi
ngi tsowndi sti
nctive
analy
tical
andmet hodol ogicali
denti
ty.

Tradi
ti
onaleconomi csi
sconcernedpri
maril
ywit
htheeffi
cient
,least-
costall
ocat
ion
ofscarceproducti
veresour
cesandwiththeopti
malgrowthoftheser esour
cesover
ti
mesoast opr oduceanever-
expandi
ngrangeofgoodsandservices.

Traditi
onalneoclassi
caleconomi cs deal s with an advanced capital
istwor ld of
perfectmar ket
s;consumersov erei
gnt y
;aut omat i
cpr i
ceadj ust-
ment s;decisi
ons
madeont hebasisofmar ginal
,pr i
vate-prof
it
,andut il
it
ycalcul
ations;andequili
brium
outcomesi nallproductandr esour cemar kets.Itassumeseconomi c“ r
ati
onali
ty”
andapur elymateri
ali
sti
c,indiv
idual i
sti
c,self
-i
nterestedorient
ationtowar deconomi c
decisionmaking.

Pol
it
icaleconomy The at
tempt t
o merge economic anal
ysi
s wi
th pr
act
ical
pol
i
tics—t
ovieweconomi
cacti
vi
tyi
nit
spol
i
tical
context
.

Devel
opmenteconomics-Thest udyofhow economiesar
et r
ansfor
med fr
om
st
agnati
ontogrowthandfrom l
ow incomet
ohigh-i
ncomestat
us,andover
come
pr
oblemsofabsol
utepov
ert
y.

Moredevel
oped count
ri
es-( MDCs)Thenow economical
l
yadv anced capi
tal
i
st
count
ri
esofwest
ernEurope,
Nort
hAmeri
ca,
Aust
rali
a,NewZealand,
andJapan

Lessdev
elopedcount
ri
es-Asy
nony
mfordev
elopi
ngcount
ri
es.

Absol
utepov er
ty-Asit
uati
onofbeingunabletomeetthemi
nimum l
evel
sofi
ncome,
food,
clot
hing,heal
thcar
e,shel
ter
,andotheressent
ial
s

Subsist
enceeconomy-Aneconomyi nwhichproduct
ionismainl
yforpersonal
consumptionandthest
andardofl
i
vingyi
eldsl
it
tl
emor ethanbasi
cnecessi
ti
esof
l
ife—food,
shelt
er,
andcl
othi
ng.

Development-The pr ocess ofimprovi

ng t
he quali
ty ofal
lhuman l
i
ves and
capabil
it
iesbyr
aisi
ngpeople’
slev
elsofli
vi
ng,
self
-est
eem,andfr
eedom.
 i
mongmama

Soci
alsyst
em -Theorgani
zati
onalandinsti
tuti
onalst
ruct
ureofasoci
ety
,incl
udi
ng
i
tsval
ues,at
ti
tudes,
powerstr
uctur
e,andtradit
ions

Val
ues-Pri
nci
ples,st
andar
ds,
orqual
i
tiest
hatasoci
etyorgr
oupswi
thi
nitconsi
der
s
wor
thwhi
leordesir
able.

Atti
tudes- Thest at
esofmindorf eel
ingsofani ndi
vi
dual,gr
oup,orsoci
ety
regardi
ngi
ssuessuchasmat
eri
algai
n,har
dwork,sav
ingforthefut
ure,
andshar
ing
wealth

I
nsti
tuti
ons-Nor ms,rul
esofconduct,andgener
all
yacceptedwaysofdoingthi
ngs.
Economici nsti
tut
ions are humanly devi
sed constrai
ntsthat shape human
i
nteract
ions,incl
udingbothinf
ormalandformal“r
ulesofthegame”ofeconomicli
fe
i
nthewi delyusedframeworkofDouglassNorth.

I
ncomepercapi
ta- Tot
algr
ossnat
ionali
ncomeofacount
rydi
vi
dedbyi
tst
otal
popul
ati
on.

Grossnati
onalincome-( GNI)Thetotaldomest
icandforeignoutputcl
aimedby
resi
dent
sofacount ry.Itcompr i
sesgrossdomesticproduct(GDP)plusf act
or
i
ncomesaccruingtoresidentsfr
om abroad,l
esst
heincomeearnedinthedomestic
economyaccrui
ngt opersonsabroad.

Grossdomest i
cpr oduct(GDP)-The t otalfi
naloutputofgoodsand ser vi
ces
producedbythecount r
y’seconomy ,wit
hinthecount
ry’ster
ri
tor
y,byresident
sand
nonresi
dent
s,regar
dlessofit
sallocati
onbetweendomest i
candforei
gnclaims.

Amar t
ya Sen'
sCapabili
tyApproach -Amar ty
a Sen,the1998 Nobell aur
eat
ei n
economics,arguest
hatthe“capabil
i
tytofunct
ion”iswhatreall
ymatter
sforst
atus
as a poorornonpoorper son.As Sen put si t
,“the expansi
on ofcommodity
producti
ons.
..
areval
ued,ul
ti
mat el
y,notf
ortheirownsake,butasmeanst ohuman
welfar
eandf r
eedom.”

Functi
onings -Whatpeople do orcan do witht
he commodi
ti
es of gi
ven
charact
erist
icst
hatt
heycomet
opossessorcont
rol
.

Capabi
l
iti
es-Thefreedomsthatpeopl
ehav
e,gi
vent
hei
rper
sonalf
eat
uresandt
hei
r
commandov ercommoditi
es.

THREECOREVALUESOFDEVELOPMENT

 Sustenance-Thebasi
cgoodsandser
vices,
suchasf
ood,cl
othi
ng,
andshel
ter
,
thatarenecessar
ytosustai
nanaveragehumanbeingatthebaremi
nimum
 i
mongmama

l
ev el ofli
ving.
 Self-esteem -Thef eeli
ngofwor t
hinesst hatasoci et
yenjoyswhenitssoci
al,
politi
cal,andeconomi csystemsandi nst
itu-
tionspromotehumanv al
uessuch
asr espect ,di
gni
ty,i
ntegri
ty,
andself-deter
mi nati
on
 Freedom -A si t
uati
on in which a societyhasati tsdisposala v
ari
etyof
al
ter nativ
esf rom whichtosat i
sfyit
swant sandi ndiv
idual
senjoyr
ealchoi
ces
accor dingt ot
heirpr
eferences.

THREEOBJECTI
VESOFDEVELOPMENT

1.Toincreasetheavai
l
abil
it
yandwi denthedist
ri
but
ionofbasi
cli
fe-
sust
aini
ng
goodssuchasfood,
shel
ter
,heal
th,
andprot
ecti
on

2.Tor aiselevelsofli
ving,incl
udi
ng,inadditi
ont ohi
gheri
ncomes,thepr
ovi
sionof
mor ejobs,bettereducati
on,andgr eaterat
tenti
ontocult
uralandhumanval
ues,al
l
ofwhi chwi l
lser venotonl ytoenhancemat er
ialwel
lbeingbutalsotogener
ate
greateri
ndividualandnationalsel
f-
esteem

3.Toexpandt herangeofeconomi candsocialchoicesav ai

l
abl
etoindi
v i
dual
sand
nati
onsbyfreeingthem f
rom serv
itudeanddependence, notonl
yinr
elat
iontoother
peopleandnati
on-stat
es,butal
sotot hef
orcesofignoranceandhumanmi sery

MI
LLENI
UM DEVELOPMENTGOALS

Sector-Asubset(
par
t)ofaneconomy,wit
hf ourusagesineconomi
cdevel
opment:
technol
ogy(moder
nandt r
adi
ti
onalsect
ors);acti
vi
ty(indust
ryorpr
oductsect
ors)
;

t
rade(
expor
tsect
or)
;andspher
e(pr
ivat
eandpubl
i
csect
ors)
 i
mongmama

UNI
VERSALSHI
FTS

I
NCOMEI
NEQUALI
TY

• I
ncomeDi
spar
it
ies

• Economi
cInef
fi
ci
ency

• Vei
lofI
gnor
ance

Dual
i
sti
cDev
elopmentandShi
ft
ingLor
enzCur
ves: St
yli
zedTy
pol
ogi
es

GROWTH I
NEQUALI
TY

moder
n-sect
orenl
argement

moder
n-sect
orenr
ichment

t
radi
ti
onal
-sect
orenr
ichment t
radi
ti
onal
-sect
orenr
ichment

moder
n-sect
orenr
ichment

moder
n-sect
orenl
argement

Incomeinequal
it
yisanext
remeconcent
rat
ionofweal
thori
ncomeinthehandsofa
smallpercent
ageofapopulat
ion.I
thasbeendescribedasthegapbetweenthe
 i
mongmama

r
ichestandt
her
est
.

MEASURI
NGI
NEQUALI
TY

1. Si
zeDist
ri
buti
on-Thepersonalorsi
zedistr
ibuti
onofincomeisthemeasure
mostcommonlyusedbyeconomist
s.Deal
swi t
hi ndi
vi
dualper
sonsorhousehol
ds
andt
hetot
ali
ncomestheyr
eceiv
e.Thewaytheyreceiv
eitdoesnotmat
ter
.

KuznetsRati
on-Hasoft
enbeenusedasameasur
eofthedegr
eeofthei
nequali
ty
betweenhighandlow i
ncomegroupsinacount
ry.Namedaft
erNobell
aureate
SimonKuznets

Lor
enzCur v
e-Showst heactualquant i
tat
iverel
ati
onshi pbet weentheper centageof
i
ncomer eci
pient
sandt hepercent
ageoft otali
ncomet heyr ecei
vei nspanoft i
me.
Themor etheLor enzcurvesawaysagsaway ,thegr eaterthedegr eeofi nequali
ty.
TheLorenzcurveshowst heactualquant i
tati
verel
ationshi pbetweent hepercentage
ofincomer eci
pientsandt heper centageoft het otali ncomet heyr eceivedina
par
ticul
aryear.We can al so use t he Lorenz curvet o studyinequal i
tyint he
di
stri
buti
onofland, i
neducati
onandheal t
h,andalsoinot herassets.

GiniCoeffici
ent
sand Aggr egat
eMeasur esofI nequali
ty-Thi
si san aggregat
e
numericalmeasureofi ncomei nequal
i
tyr angi
ng fr
om 0 (per
fectequal
it
y )to1
(per
fectinequal
it
y). Namedaf tertheI
tali
anstati
sti
cianwhofi
rstfor
mulatediti
n
1912.

2. Funct
ionDist
ri
but
ion-Functi
onalincomedistr
ibut
iondeal
swi t
htheamountof
i
ncomerel
ativ
etothefact
orsofproducti
on.(
land,
labour,
capi
tal
,entr
epr
eneur
)

ABSOLUTEPOVERTY-absolut
epovert
yasthenumberofpeopl
ewhoar
eunabl
eto
commandsuf
fi
cientr
esour
cestosat
isf
ybasi
cneeds.

• TheFost er-
Greer
-ThorbeckeI ndex i ntr
oducedi na1984paperbyeconomi st
s
Eri
kThor becke,JoelGr eer,and James Fost er.cr i
teri
af ora desi rabl
e povert
y
measur ethatarewidelyaccept edbydev el
opmenteconomi sts: The anony mi t
y
andpopul ati
onindependence-measur eoft heext entofpov er
tyshouldnotdepend
onwhoi spoororonwhet hert hecount ryhasal argeorsmal lpopulat
ion.
Monot onici
ty,meansthati fyouaddi ncomet osomeonebel owt hepov er
tyli
ne,all
otherincomeshel dconstant,pov ert
ycanbenogr eaterthanitwas.
Distr
ibuti
onalsensiti
vit
ypr i
nciples states that,othert hings being equal,i
fy ou
tr
ansf eri
ncomef rom apoorper sontoar i
cherperson, theresult
ingeconomyshoul d
 i
mongmama

bedeemedst
ri
ctl
ypoor
er.

• Per sonEqui
val
entHeadcounts-headcountmeasur es—apparentl
yresponding
topublicandlegi
sl
ativeexpectat
ionstodiscusspovertyint er
msofnumber sof
people.Giv
enapolit
icalneedtof eat
ure“headl
ine”headcountmeasur es,apartial
i
mpr ovementi
stoconvertchangesinthepover
tygapintoitsheadcount-
equi
valent.

• Mul ti
dimensionalPovert
yMeasur ement-apoorper soni sident
if
iedthr
ough
whatiscall
edt he“dualcutoffmethod”:f
ir
st,t
hecutoffl
ev el
swi t
hineachofthe
di
mensionsandsecond,t hecutof
foft henumberofdimensionsinwhichaperson
mustbedepriv
ed( bel
owthel i
ne)t
obedeemedmul ti
dimensional
lypoor

CHAPTER2

10I
MPORTANTFEATURESOFDEVELOPI
NGCOUNTRI
ES

1.Lowerl
evel
sofl
i
vingandpr
oduct
ivi
ty

2.Lowerl
evel
sofhumancapi
tal

3.Hi
gherl
evel
sofi
nequal
i
tyandabsol
utepov
ert
y

4.Hi
gherpopul
ati
ongr
owt
hrat
es

5.Gr
eat
ersoci
alf
ract
ional
i
zat
ion

6.Lar
gerr
ural
popul
ati
onsbutr
api
drur
al-
to-
urbanmi
grat
ion

7.Lowerl
evel
sofi
ndust
ri
ali
zat
ion

8.Adv
ersegeogr
aphy

9.Under
dev
elopedf
inanci
alandot
hermar
ket
s

10.Lingeri
ng col
oni
ali
mpact
s such as poori
nst
it
uti
ons and of
ten ext
ernal
dependence.
 i
mongmama

Worl
dBank- Anor ganizati
onknownasan“ int
ernat
ionalf
inanci
ali
nsti
tut
ion”t
hat
pr
ovidesdevelopmentfundst odev el
opi
ngcountr
iesi
nt heform ofi
nter
est-
bear
ing
l
oans,grant
s,andtechnicalassi
stance.

Low-
incomecountr
ies(LI
Cs)- IntheWorl
dBankcl
assi
fi
cat
ion,count
ri
eswi
tha
GNIpercapi
taofl
essthan$1,
025i
n2011.

Middl
e-i
ncomecountr
ies- I
ntheWorldBankcl
assi
fi
cat
ion,
count
ri
eswi
thaGNIper
capi
tabetween$1,
025and$12,475i
n2011.

Newlyindust
ri
ali
zi
ngcountries(NICs)-Count r
iesatar el
ati
velyadvancedlev
elof
economicdevel
opmentwi thasubst ant
ialanddy namicindustr
ialsect
orandwith
cl
oseli
nkstotheint
ernat
ionaltr
ade,fi
nance,andinvest
mentsy st
em.

Leastdev
elopedcountr
ies-AUN desi
gnati
onofcount
ri
eswi
thl
ow i
ncome,l
ow
humancapit
al,andhi
gheconomi
cvul
ner
abil
i
ty.

Humancapit
al- Producti
vei
nvest
mentsinpeopl
e,suchasski
ll
s,val
ues,
andhealt
h
resul
ti
ngf
rom expendi
tur
esoneducat
ion,
on-the-
jobtr
aini
ngpr
ograms,andmedical
care.

Val
ueadded-Thepor
ti
onofapr
oduct
’sf
inalv
aluet
hati
saddedateachst
ageof
pr
oduct
ion.

Depreciat
ion (ofthe capit
alst
ock)-The wear i
ng outofequipment
,buil
dings,
i
nfrastr
ucture,andotherformsofcapi
tal
,ref
lect
edinwrit
e-of
fst
ot hev
alueofthe
capit
alstock.

Capit
alst
ock-Thetotalamountofphysi
calgoodsexist
ingatapar
ti
cularti
met
hat
havebeenpr
oducedforusei
nt hepr
oducti
onofothergoodsandser
vices.

Purchasi
ng powerparity(PPP)-Calcul
ati
on ofGNIusing a common setof
i
nternati
onalpri
ces for allgoods and ser
vices,t
o pr
ovi
de more accurat
e
compar i
sonsofl
i
vingstandar
ds.

HumanDev elopmentIndex(
HDI)-Ani ndexmeasuringnat i
onalsocioeconomi
c
dev
elopment,basedoncombi
ningmeasuresofeducat
ion,heal
th,andadjust
edreal
i
ncomepercapi t
a.

Dimini
shi
ngmarginalut
il
it
y-Theconceptthatthesubj
ecti
vev
alueofaddi
ti
onal
consumpti
onl
essensastotal
consumpt
ionbecomeshi
gher
.

Dependencybur
den- Thepr
opor
ti
onoft
het
otalpopul
ati
onaged0t
o15and65+,
 i
mongmama

whi
chisconsi
der
edeconomi
cal
l
yunpr
oduct
iveandt
her
efor
enotcount
edi
nthe
l
aborf
orce.

Fract
ional
i
zat
ion-Si
gni
fi
cantet
hni
c,l
i
ngui
sti
c,andot
hersoci
aldi
vi
si
onswi
thi
na
country
.

Resourceendowment- Anat i
on’ssuppl
yofusabl
efact
orsofpr
oduct
ion,
incl
udi
ng
mineraldeposi
ts,
rawmat
eri
als,andlabor
.

Infrastr
ucture -Faci
l
iti
es t
hatenabl
e economic act
ivi
ty and market
s,such as
transportati
on,communicat
ionanddi
str
ibut
ionnet
works,ut
ili
ti
es,water
,sewer
,and
ener gysupplysyst
ems.

Imperf
ectmar ket-A mar ketin which t
he theor
eticalassumptions ofper
fect
competit
ionar
ev i
olat
edbyt heexist
enceof,f
orexampl e,asmallnumberofbuyers
andsel
ler
s,bar
rier
stoent
ry,
andi ncomplet
einfor
mation.

I
ncomplet
einf
ormation-Theabsenceofinfor
mati
onthatpr
oducersandconsumer
s
needt
omakeef f
ici
entdeci
sionsr
esult
inginunder
per
formi
ngmar ket
s.

REQUIREMENTSOFMODERNECONOMI CDEVELOPMENT
1.Phy
sical
andhumanr
esour
ceendowment
s

2.Percapi
tai
ncomesandl
evel
sofGDPi
nrel
ati
ont
other
estoft
hewor
ld

3.Cl
i
mat
e

4.Popul
ati
onsi
ze,
dist
ri
but
ion,
andgr
owt
h

5.Hi
stor
ical
rol
eofi
nter
nat
ional
migr
ati
on

6.I
nter
nat
ional
tradebenef
it
s

7.Basi
csci
ent
if
icandt
echnol
ogi
cal
resear
chanddev
elopmentcapabi
l
iti
es

8.Ef
fi
cacyofdomest
ici
nst
it
uti
ons

Braindrain- Theemi gr
ati
onofhighl
yeducat
edandskill
edprof
essi
onal
sand
techni
ciansf
rom t
hedev
elopi
ngcount
ri
estot
hedevel
opedworl
d.

Fr
eetr
ade-Tr
adeinwhichgoodscanbeimport
edandexpor
tedwi
thoutanybar
ri
ers
i
nthefor
msoftar
if
fs,
quotas,
orotherr
est
ri
cti
ons

Ter
msoft
rade-Ther
ati
oofacount
ry’
sav
erageexpor
tpr
icet
oit
sav
eragei
mpor
t
 i
mongmama

pr
ice

Di
vergence- A t endencyforpercapitaincome(oroutput)t
o grow fast
eri n
hi
gher-
incomecount ri
est hani
nlower-
incomecountri
essot hattheincomegap
wi
dens acr oss count
ri
es overti
me (as was seen inthe two cent
uries af
ter
i
ndustri
ali
zati
onbegan).

Convergence-Thet endencyf orpercapi t

aincome( orout put)togr ow fasterin
l
ower-income countries than in hi
gher-
income count r
ies so t hatl ower-
income
countri
esare“catchi
ngup”ov erti
me.Whencount ri
esar ehy pothesizedtoconv erge
notinallcasesbutot hert hi
ngsbeingequal(part
icularl
ysav ingsrates,laborforce
growth,andproducti
ont echnologi
es),
thentheterm conditi
onal convergenceisused.

[Remember
,sabinganiRi
zal
:"sksksksksksk"]

CHAPTER3

Stages-of-
growth modelofdev el
opment-A t heor
yofeconomic devel
opment
,
associatedwiththeAmer icaneconomichist
ori
anWaltW.Rostow,accordi
ngto
whichacount rypassest
hroughsequent
ial
stagesi
nachi
evi
ngdev
elopment.

Harrod-
Domargrowth model-A functi
onaleconomicr el
ati
onshi
pin which t
he
growthrat
eofgr ossdomesti
cproduct(g)dependsdi r
ectl
yont henati
onalnet
savi
ngsrat
e(s)andinv
ersel
yonthenat
ionalcapi
tal
-out
putrat
io(c)
.

Capi
tal-
outputr
ati
o-Arat
iothatshowst
heuni
tsofcapi
tal
requi
redt
opr
oduceauni
t
ofoutputoveragi
venper
iodofti
me.

Netsav
ingsrat
io-Sav
ingsexpr
essedasapr
opor
ti
onofdi
sposabl
eincomeov
er
someperi
odofti
me.
i
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 i
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Necessarycondit
ion-Acondi t
ionthatmustbepr esent,al
thoughitneednotbei n
i
tsel
fsuf fi
ci
ent,foranev enttooccur .Forexampl e,capit
alfor
mationmaybea
necessarycondit
ionforsust ai
nedeconomi cgrowth( bef
oregrowthinout putcan
occur,ther
emustbet oolstopr oduceit)
.Butf orthisgrowthtocontinue,soci
al,
i
nstit
uti
onal,andatt
it
udinalchangesmayhav etooccur .

Suffi
cientcondi
ti
on-Acondi ti
onthatwhenpresentcausesorguar anteesthatan
eventwi l
lorcanoccur;
ineconomicmodel
s,acondit
ionthatlogi
cal
lyrequir
esthata
st
atementmustbet r
ue( orar
esul
tmusthol
d)givenotherassumpti
ons

Struct
ural-
change theory -The hy pot
hesist hatunder developmenti s due to
underutl
izat
ionofresourcesari
singfr
om structuralorinst
itut
ionalfact
orsthathave
theirori
gins i
n both domestic and i
nter
nationaldual i
sm.Dev el
opmenttheref
ore
requir
esmor ethanjustaccel
erat
edcapital
format ion.

Struct
uralt
ransfor
mation-Thepr ocessoftr
ansfor
minganeconomyi nsuchaway
thatthecont r
ibut
iontonationalincomebyt hemanuf act
uri
ngsectoreventual
ly
surpasses t
he contri
buti
on byt he agr
icul
tur
alsector
.Mor e gener
all
y,a major
alt
erati
onintheindust
rial
compositi
onofanyeconomy .

Lewistwo-sect
ormodel-At heor
yofdev el
opmentinwhi
chsur
pluslaborfrom t
he
tr
adit
ionalagri
cult
uralsectoristransf
err
edt othemoderni
ndustr
ialsector,t
he
growth of which absorbs the surpl
us labor
,promot
es i
ndust
ri
alizat
ion,and
sti
mulatessust
aineddevelopment.

Surpl
uslabor-Theexcesssupplyofl
aborov erandabovethequant
it
ydemandedat
the goi
ng fr
ee-mar
ketwage r ate.I
nt he Lewistwo-sectormodelofeconomic
 i
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dev
elopment,sur
pluslaborrefer
stot hepor
ti
onoft
her
urall
aborf
orcewhose
margi
nalpr
oducti
vi
tyiszeroornegat
ive.

Producti
on f
unct
ion -A technologi
calorengineeri
ng rel
ati
onship bet
ween t
he
quanti
tyofagoodproducedandthequanti
tyofi
nputsrequir
edtoproduceit
.
 i
mongmama

Aver
agepr oductTotaloutputorpr
oductdivi
dedbytotalfact
orinput(e.
g.,the
aver
ageproductoflabori
sequalt
ototalout
putdi
vi
dedbythetot
alamountoflabor
usedtopr
oducet hatout
put).

Marginalproduct-Thei ncreaseintotaloutputresul
ti
ng f
rom theuseofone
addi
tionalunitofav ar
iablefactorofproducti
on(suchaslabororcapi
tal
).I
nt he
Lewistwo-sectormodel
, sur
pluslabori
sdefinedasworker
swhosemar gi
nal
product
i
szero.

Sel
f-
sustai
ninggrowth-Economicgrowt
hthatcont
inuesov
erthelongr
unbasedon
sav
ing,i
nvestment,andcomplement
arypr
ivat
eandpubli
cacti
vi
ti
es.

Patt
erns-of
-dev el
opmentanalysi
s-Anat tempttoident
if
ycharact
eri
sti
cfeatur
esof
thei
nternalprocessofstruct
uralt
ransfor
mati
onthata“typi
cal
”devel
opingeconomy
undergoesasi tgener
atesandsustainsmoderneconomicgrowthanddevel
opment.

DependenceTher
eli
ance

ofdev
elopi
ngcount
ri
eson

dev
eloped-
count
ryeconomi
c

pol
i
ciest
ost
imul
atet
hei
r

owneconomi
cgr
owt
h.

Dependence-canalsomeant hatthedevel
opingcount
ri
esadoptdevel
oped-
countr
y
educat
ion syst
ems, t echnology, economic and poli
ti
cal sy
stems, at
ti
tudes,
consumpti
onpatter
ns,dress,andsoon.

Domi nance - (see:Chri

sti
anGrey )Ininter
nat
ionalaf
fair
s,asituat
ioninwhi
chthe
developedcount
rieshavemuchgr eaterpowert hanthelessdevelopedcount
ri
esin
decisi
onsaf f
ect
ingimport
antint
ernationaleconomicissues,suchast hepri
cesof
agri
cultur
alcommoditi
esandrawmat eri
alsinworldmarkets.

Neocolonialdependence model-A modelwhose mai n pr

oposit
ion i
st hat
underdevelopmentexi
stsi
ndevelopi
ngcountr
iesbecauseofcont
inui
ngexploi
tati
ve
economic,pol i
ti
cal
,and cul
tur
alpolici
es offor
mercol oni
alruler
st owar
dl ess
devel
opedcount ri
es.

Underdevel
opment-Aneconomi csi
tuati
onchar act
erizedbypersi
stentl
owlevelsof
l
ivinginconjuncti
onwi thabsol
utepov er
ty,low incomepercapi ta,l
ow rat
esof
economicgrowt h,l
ow consumpti
onl ev
els,poorheal t
hservi
ces,highdeathrates,
highbir
thrates,dependenceonfor
eigneconomi es,andlimi
tedfreedom t
ochoose
 i
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amongact
ivi
ti
est
hatsat
isf
yhumanwant
s.

Compradorgr
oup-I
ndependencet
heor
y,l
ocalel
i
teswhoactasf
ront
sforf
orei
gn
i
nvest
ors.

False-paradi
gm model-Thepr oposit
iont hatdev elopi
ngcount r
ieshav efai
l
edt o
developbecauset hei
rdevel
opmentst rategies(usuallygiventot hem byWest ern
economi sts)havebeenbasedonani ncor r
ectmodelofdev el
opment,onethat,for
exampl e,overstr
essescapi
talaccumulationormar ketliber
ali
zat
ionwithoutgiving
dueconsi derati
ontoneededsocialandinsti
tuti
onal change.

Duali
sm -Thecoexist
enceoft wosit
uati
onsorphenomena( onedesirableandthe
othernot)t
hatar emutual
lyexcl
usi
vetodiff
erentgr
oupsofsoci et
y—f orexample,
extr
emepov ert
yandaf fl
uence,modernandtradi
ti
onaleconomicsect ors,gr
owth
andstagnat
ion,andhi
ghereducat
ionamongaf ewamidlar
ge-scal
eil
li
teracy.

[basakapa,
wal
akanamannai
i
nti
ndi
hangr
rrr
rrr
r]

CHAPTER4

Bindi
ngconst
rai
nt-Theonelimi
ti
ngfact
ort
hatifrel
axedwouldbet hei
tem that
accel
erat
esgr
owth(ort
hatal
l
owsalar
geramountofsomeothert
arget
edoutcome).

Complement ar
it
y -An acti
on taken by one fi
rm,worker,ororganizat
ion t
hat
i
ncreasestheincenti
vesf
orotheragentst
ot akesi
mil
aracti
ons.Complementar
it
ies
oft
eninvolveinvest
mentswhoser et
urndependsonotherinvest
mentsbeingmade
byotheragents.

Economi
c agent-An economi c act
or—usual
l
ya fi
rm,worker
,consumer,or
gover
nmentoffi
cial
—thatchoosesacti
onssoast omaxi
mizeanobj
ecti
ve;of
ten
ref
err
edt
oas“ agent
s.”

Coordinat
ionfail
ure- Asi t
u-at
ioninwhi
chtheinabi
li
tyofagentst
ocoordinat
et hei
r
behavior(
choices)leadstoanoutcome(equi
li
bri
um)thatleavesal
lagent
swor seoff
thaninanalternat
ivesit
ua-t
ionthati
sal
soanequili
bri
um.

Bi
gpush-A concer t
ed,economy
-wide,andtypi
cal
l
ypubl
icpoli
cy–l
edef f
ortt
o
i
nit
iat
e oracceler
ate economi
cdevelopmentacr
ossa br
oad spect
rum ofnew
i
ndustr
iesandskil
l
s.

O-r
ingmodel-Aneconomicmodeli
nwhichproduct
ionfunct
ionsexhibi
tstr
ong
complement
ari
ti
es among i
nput
s and whi
ch has broader impl
icati
ons for
 i
mongmama

i
mpedi
ment
stoachi
evi
ngeconomi
cdev
elopment
.

Middl
e-i
ncometr
ap-Acondi ti
oninwhichaneconomybegi nsdev
elopmenttoreach
middl
e-i
ncomestat
usbuti schroni
cal
lyunabletoprogresstohigh-i
ncomestatus.
Oft
enrelat
edtolow capaci
tyforor
igi
nalinnovat
ionorforabsor
ptionofadvanced
t
echnology,
andmaybecompoundedbyhi ghinequali
ty

Under
devel
opmenttr
ap-Apover
tytr
apatt heregi
onalornat
ionall
eveli
nwhi
ch
under
dev
elopmentt
endst
oper
pet
uat
eitsel
fovert
ime.

Prisoner
s’di
l
emma-Asi t
uati
oninwhi challpart
ieswouldbebetteroffcooperat
ing
thancompeting,butoncecooperat
ionhasbeenachi eved,eachpart
ywoul dgainthe
mostbycheat ing,prov
ided t
hatot hers sti
ck to cooper
ati
ve agreements—thus
causinganyagreementtounravel
.

Mult
ipl
eequili
bri
a-Acondit
ioni nwhichmor ethanoneequili
bri
um exist
s.These
equi
l
ibr
iasomet i
mesmayber anked,
inthesensethatoneispref
err
edov eranot
her
,
butt
heunaidedmarketwi
l
lnotmov etheeconomyt othepr
efer
redoutcome.

Povertytr
ap- Abadequi li
bri
um forafamil
y,community
,ornat
ion,i
nvol
vinga
vi
ciouscircl
einwhichpover
tyandunderdev
elopmentleadtomorepov er
tyand
underdev
elopment
,oft
enf
rom onegener
ati
ontothenext
.

Somei nequal
i
tymayenhancegr
owt
hbecauset
hesav
ingsoft
her
ichar
ehi
ghert
han
thoseofthepoor
.

Absol
utepov er
ty-Thesituat
ionofbeingunabl
eoronl
ybar
elyabl
etomeett
he
subsi
stenceessent
ial
soff
ood, cl
othi
ng,
andshel
ter
.

Kuznet
scur
ve- Agr aphr
efl
ect
ingt
herel
ati
onshi
pbet
weenacount
ry’
sincomeper
capi
taandi
tsi
nequal
i
tyofi
ncomedist
ri
but
ion.
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[ay
okona,
pagodnako.HI
NDIMONAMAN'
TOBABASAHI
NEH!
!!
!1!
1!]

#MALAYSI
A

#
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