absolute poverty Below the income that secures the bare essentials of food, clothing, and shelter.

accelerator The proposition that a given increase in the rate of growth of output induces a larger increase in the demand for capital goods.

adjusted net savings Gross savings plus educational expenditure minus capital consumption, environmental degradation, and resource depletion (World Bank 2003d).

adjustment or structural adjustment Policies of privatization, deregulation, wage and price decontrol, trade and financial liberalization and reforms in agriculture, industry, energy, and education intended to increase the economy’s efficiency, macroeconomic balance, and growth.

antidumping The sovereign right of members of WTO/GATT to impose new trade restrictions to counter dumping.

apartheid A system of racial segregation and discrimination, such as that in South Africa before 1992.

Asian borderless economy An economy, organized by Japanese multinational corporations, in which production of manufactures is broken into discrete stages in a number of countries, with each performed in countries best suited for these stages.

Asian tigers The four newly industrializing countries of East Asia: Taiwan, South Korea, Hong Kong, and Singapore.

Association of South East Asian Nations (ASEAN) A regional trading bloc that includes Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam.

backward linkages The connections between a firm and the firms that provide its inputs.

balanced growth The synchronized application of capital to a wide range of different industries.

basic needs approach An approach that stresses providing food, housing, health, sanitation, water, and basic education, especially for low-income groups.

big push thesis The view that a major thrust is needed to overcome the inertia inherent in a stagnant economy.

bourgeoisie The social order dominated by the property-owning class.

brain drain The emigration of highly skilled and educated people from developing to developed countries.

Bretton Woods international monetary system The international monetary system from 1946 to 1971 in which the U.S. dollar was convertible to gold at $35 an ounce, and other currencies had a fixed but adjustable exchange rate with the U.S. dollar.

capitalism An economic system in which the private owners of capital and their agents hire legally free but capital-less workers.

capital stock The accumulated sum of net investments in machinery, equipment, and structures.

cartels Collusive agreements among rival firms to regulate prices, output, and marketing.

Chaebol South Korean conglomerates, such as Hyundai, Lucky-Goldstar, and Daewoo.

civil society Institutions independent of the state – private and nongovernmental entities such as labor unions, religious organizations, educational and scientific communities, and the media.

classical theory Analysis based on the works of late-18th- and 19th-century English economists such as Adam Smith, David Ricardo, and Thomas Malthus who advocated laissez-faire, free trade, the labor theory of value, a gold standard, minimal government interference, and diminishing returns from population growth.

clientelism A personalized relationship between patrons and clients, commanding unequal wealth, status, or influence, based on conditional loyalties and involving mutual benefits.

closed economy An economy with no foreign trade.

club convergence A situation in which some countries’ incomes converge to a given level, whereas that of others converges to another.

Coase’s theorem The proposition that states that when property rights are well defined and legally enforceable and transactions costs are not prohibitive, participants will organize their transactions voluntarily to achieve efficient (mutually advantageous) outcomes.

commercialization (turning) point In the Fei–Ranis model, the point at which industry abandons the institutional wage and, together with agriculture, must pay the market rate.

comparison-resistant services Services, such as government administration, health care, and education, whose qualities are difficult to hold constant when making price comparisons between countries.

conditional convergence A situation in which countries’ incomes per capita converge, conditional on other variables being the same.

contested markets Markets with few entry or exit barriers, where potential competition is effective in attaining competitive prices.

debt service The interest and principal payments due in a given year on external debt.

debt-service ratio The ratio of annual debt service to exports of goods and services.

demonstration effect The effect of a person’s consumption on the consumption of another.

dependency theory The theory that underdevelopment in third-world countries results from the international capitalist system.

democratization The process of moving from authoritarian to democratic rule, in which the sovereign power of the state resides in the people as a whole, who exercise power directly or by officers elected by them.

disparity reduction rate The rate at which the disparity between a country’s social indicator and the maximum value of that indicator is reduced.

divergence A situation in which countries’ incomes per capita move apart, so that the gap between rich and poor widens.

dual economy An economy with a modern, urban, capital-intensive industrial sector and a traditional, rural, labor-intensive agricultural sector.

economic development Economic growth accompanied by changes in output distribution and economic structure.

economic growth Increases in a country’s production or income per capita.

economic liberalism A philosophy that advocates reliance on the free market and opposes state intervention.

economic rent Payment above the minimum essential to attract the resource to the market.

economic union Regional integration that removes trade barriers among members, retains common trade barriers against nonmembers, allows free labor and capital movement among member states, and, unlike a common market, unifies members’ monetary and fiscal policies.

economies in transition The former communist economies of East-Central European and the former Soviet Union that are making transitions to market economies.

endogenous Explained within a model.

European Regional Development Fund A European Union fund to reduce economic disparities among its regions.

European Union accession countries Ten countries that joined the European Union in 2004: Poland, Hungary, Czech Republic, Slovakia, Estonia, Latvia, Lithuania, Slovenia, Malta, and Cyprus.

export commodity concentration ratio The three leading primary products as a percentage of total merchandise exports.

extended family A family that includes other relatives, such as grandparents, uncles, aunts, and cousins, in addition to the nuclear family of husband, wife, and children.

external balance An international balance or equilibrium. See balance of payments equilibrium.

external diseconomies See negative externalities.

external economies Cost advantages rendered free by one producer to another.

external (international) deficit Exports less than imports of goods and services.

factor price distortions Situations in which factors of production are paid prices that do not reflect their competitive market price because of institutions, state interference, or monopolistic or oligopolistic restraints on market supply and demand.

failed states States in which the government has lost its monopoly of the legitimate use of force and is unable to provide its citizens with basic services.

Fel’dman model A Soviet planning model for a closed economy in which the proportion of total investment devoted to capital goods industries determines the growth rate.

financial liberalization Eliminating or reducing government intervention into financial markets, allowing supply and demand to determine interest rates, foreign exchange rates, and other financial prices.

financial repression Government intervention into financial markets that constrain investment or distort interest rates, foreign exchange rates, and other financial prices, usually through setting interest rates or prices of foreign exchange below market-determined rates.

fiscal incentives Tax concessions or subsidies used to attract investment by business, often from abroad.

Fisher ideal index The geometric mean of the Laspeyres and Paasche indexes.

forward linkages The connections between a firm and the firms that buy its outputs.

Gender-related Development Index (GDI) UNDP’s index measuring the average achievement of the same capabilities as the HDI but taking account of inequality in achievement between women and men.

General Agreements on Tariffs and Trade (GATT) A multilateral organization of market economies founded in 1947 that administered rules of conduct in international trade through 1995, when WTO became all-encompassing.

Genuine Progress Indicator (GPI) An alternative measure of welfare to GDP that adjusts gross product for resource depletion and environmental degradation.

Gini coefficient An index of inequality or concentration (where perfect equality is 0 and perfect inequality is 1) used to measure the distribution of income or land holdings.

globalization The world’s spreading modernization and growing economic integration in the late 20th and early 21st century.

global production networks (GPNs) A value-added chain or division of labor of manufacturing output, organized by multinational corporations, usually with DC headquarters, in which production is broken into discrete stages in a number of countries.

Golden Age of Capitalist Growth The period of rapid Western economic growth, 1950 to 1973.

Green markets Markets modified by government action to affect prices through taxes and subsidies to correct market failure and distortions pertaining to the environment.

Green Revolution The increased productivity of agriculture, especially in Asia, from the development of high-yielding varieties of grain and accompanying inputs, infrastructure, pricing policies, research, extension, and technology.

gross domestic product (GDP) The market value of final goods and services produced by residents and nonresidents in a country.

gross national product (GNP) or gross national income (GNI) The market value of final goods and services produced by the residents of a country.

Group of Eight (G-8) Group of Seven plus Russia.

Group of Seven (G-7) The major industrialized countries – the United States, Canada, Japan, the United Kingdom, Germany, France, and Italy.

Group of 10 (G-10) The dominant 11 members of the 55-member Bank for International Settlements – Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, the United Kingdom, and the United States.

high-income countries Countries with a GNI per capita of more than $9,000 in 2002. Also known as developed countries (DCs) or industrial countries.

historical materialism The Marxian view that material or economic forces determine the course of history.

household responsibility system China’s decollectivization of agriculture beginning in 1979.

human capital The stock of skills and knowledge that a worker has.

Human Development Index (HDI) UNDP’s measure of human development based on a nation’s life expectancy, educational attainment, and per-capita GNI adjusted for PPP.

ICOR (incremental capital output ratio) The ratio of the change in capital stock to the change in output.

import substitutes Domestically produced goods that replace imports.

indicative planning Planning that indicates expectations, aspirations, and intentions, but falls short of authorization.

individual economy The small entrepreneurial sector in China.

indivisibilities Discontinuities in the productivity of infrastructure and the response of investment decisions to demand growth.

informal sector The traditional, labor-intensive, small-scale, and unregulated part of the urban economy.

information and communications technology (ICT) The technology that connects computers, communication linkages, and other equipment for collecting, producing, processing, storing, managing, manufacturing, and information spreading purposes.

infrastructure Social overhead capital such as that in transport, communication, power, and technical research that increases the productivity of investment in directly productive activities.

innovation The embodiment in commercial practice of some new idea or invention (Schumpeter).

institutions The rules of the game of a society composed of formal rules, informal constraints, and their enforcement characteristics.

institutional wage An infinitely elastic wage in a less-developed economy resulting from government setting a minimum wage or from labor union pressure.

intellectual property rights (IPR) World Trade Organization provided rights to protection of patents, trademarks, copyrights, biotechnological products, and other innovations.

international balance on goods and services Exports minus imports of goods and services.

International Comparison Project (ICP) A project to determine the purchasing power of GDP in different countries.

International Development Association (IDA) The concessional window of the World Bank, primarily for low-income countries.

international economic order This order includes all economic relations and institutions, both formal and informal, that link people living in different nations.

International Monetary Fund (IMF) The agency created in 1944 at Bretton Woods, New Hampshire, charged with providing short-term credit for countries’ international balance of payments deficits.

inverted U-shaped curve The pattern of the Gini index of inequality first increasing and then decreasing with increased GNP per capita.

invisible hand Adam Smith’s concept that the pursuit of self-interest by individuals in a competitive market economy results in the maximization of the public good.

iron law of wages The Ricardian theory that the long-run wage rate is determined by the cost of reproducing the labor force.

Japanese development model A model for latecomers to industrialization characterized by the state providing infant industry protection, credit, and technological support for private business and by a reliance on labor-intensive exports.

keiretsu A Japanese enterprise group, especially the large C. Itoh, Marubeni, Mitsubishi, Mitsui, Sumitomo, and Dai-Ichi Kangyo enterprise groups.

labor participation rate The ratio of the labor force to the population.

laissez-faire An absence of government interference in the economy.

Laspeyres price index A price index using base-period quantity weights.

least developed countries (LLDCs) A statutory United Nations list of countries based on a low combined score for indicators like per-capita GDP, human development, and economic diversification.

less-developed countries (LDCs) Low- and middle-income countries.

low-income economies Countries with a GNI per capita of less than $750 in 2002, according to the World Bank.

middle-income economies Countries with a GNI per capita between $750 and $9,000 in 2002.

monopoly A market structure with only one seller.

multilateral aid Aid given to a country by an agency with several donor countries.

multinational corporations (MNCs) Business firms with a parent company in one country and subsidiary operations in other countries.

natural public monopoly A firm that can produce the entire output of the market at a cost that is lower than what it would be if there were several firms.

negative externalities External diseconomies or costs that a firm or actor imposes on the rest of society.

negative real interest rate A nominal rate of interest less than the inflation rate.

newly industrializing countries (NICs) A group of LDCs, including Taiwan, South Korea, Hong Kong, and Singapore, which grew very fast in the last half of the 20th century by exporting manufactures.

oligopoly A market structure with only a few sellers.

Organization of Petroleum Exporting Countries (OPEC) A cartel of 11 major oil-exporting countries that agree to limit output and fix prices.

overvalued currency Attaining a price of foreign currency below the market rate through exchange controls and trade restrictions.

Paasche price index A price index using present-period quantity weights.

Paris Club A venue for LDCs to renegotiate their foreign debts through agreements with creditor governments.

Physical Quality of Life Index (PQLI) A composite of a country’s infant mortality rate, life expectancy, and adult literacy rate.

poverty-weighted index An index of GNP growth in which a higher weight is given to a 1-percent income growth for low-income groups than for high-income groups.

price level of GDP (P) The price of GDP in a given country divided by the price of GDP in the United States.

Purchasing Power Parity (PPP) An exchange rate that equates the purchasing power of currencies in different countries.

real economic growth GNP growth adjusted for inflation.

residual The growth in real national income not explained by the growth of measured inputs of labor, capital, and land.

risk A situation in which the probability distribution of a variable is known but its actual value is not.

shadow prices Adjusted prices that reflect the true opportunity costs of resources.

social benefit–cost analysis A comparison of the expected benefits and costs of a particular project from the perspective of society as a whole.

social democracy A democratic welfare state that encourages private enterprise but regulates it and provides a social safety net.

socialism An economic system characterized by a large degree of state ownership of the nonlabor factors of production.

social profitability A measure of an investment’s contribution to the net benefit of the society.

stabilization Monetary, fiscal, and exchange-rate policies to attain an optimal trade-off between domestic economic growth and price stability and between internal and external balance.

stagflation When the overall price level (inflation) rises rapidly during periods of recession or high unemployment (stagnation).

state-owned enterprises (SOEs) Enterprises where government is the principal owner or can appoint or remove the chief executive officer, and which produces or sells goods or services to the public or other enterprises.

technical progress The residual; that is, the growth in output not explained by the growth of measured factors of production.

third world A term referring to the developing countries of Asia, Africa, and Latin America.

total external debt (EDT) The stock of debt owed to nonresident governments, businesses, and institutions and repayable in foreign currency, goods, or services.

total factor productivity (TFP) Output per combined factor input. TFP growth is a measure of technical progress.

total fertility rate (TFR) The number of children born to the average woman during her reproductive years.

township and village enterprises (TVEs) Chinese rural enterprises that were initially organized as cooperatives, but later took other forms, such as joint-stock cooperatives, limited liability companies, or even private firms.

United Nations Conference on Trade and Development (UNCTAD) The U.N. organization devoted to the economic interests of the Asian, African, and Latin American less-developed economies.

unlimited supply of labor An infinite elasticity of labor at a given wage, as assumed in the Lewis model.

vicious circle theory The theory that a country is poor because it does not save and invest, and it cannot save and invest because it is poor.

Washington consensus A consensus among the World Bank, IMF, and U.S. government on policies to be followed by LDCs, such as privatization, trade and financial liberalization, and other market reforms.

workfare The payment of food or low wages in exchange for work, increasing the probability that only the poor will select this antipoverty program.

World Bank (International Bank for Reconstruction and Development or IBRD) The agency created in 1944 at Bretton Woods, New Hampshire, charged with loans for the development of LDCs and (initially) postwar reconstruction.

World Economic Forum An annual meeting of many of the world’s economic elites that celebrates the advances of globalization.

world’s middle class Countries with a real GDP per capita less than that of Italy and more than that of Brazil, or individuals with annual PPP incomes between $3,650 and $14,600 at 1993 prices.

World Social Forum An annual meeting of antiglobalization forces, a rival to the annual World Economic Forum.

World Trade Organization (WTO) A multilateral organization of market economies that administers rules of conduct in international trade.