CHAPTER ONE

Capabilities - The freedoms that people have, given their personal features and their command over
commodities.
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 Economics - The study of how economies are transformed from stagnation to growth and
from low- income to high-income status, and overcome problems of extreme poverty.
Functionings - What people do or can do with the commodities of given characteristics that they come to
possess or control.
Gross National Income (GNI) - The total domestic and foreign output claimed by residents of a country,
consisting of gross domestic product (GDP) plus factor incomes earned by foreign residents, minus
income earned in the domestic economy by nonresidents.
High-Income Countries (HICs) - In the World Bank classification, countries with a GNI per capita
above $12,055 in 2018.
Institutions - Constitutions, laws, regulations, social norms, rules of conduct, and generally accepted
ways of doing things. Economic institutions are “humanly devised” constraints that shape human
interactions, including both informal and formal “rules of the game” of economic life in the widely used
framework of Douglass North.
Low-Income Country (LIC) - In the World Bank classification, countries with a GNI per capita of less
than $996 in 2018.

Lower-Middle Income Countries (LMCs) - In the World Bank classification, countries with a GNI per
capita incomes between $996 and $3,895 in 2018.
Living Standards Strata - Stylized sets of material living conditions; the 4-strata schema was created by
Hans Rosling.
Millennium Development Goals (MDGs) - Precursor to the SDGs adopted by the United Nations in
2000 to: eradicate extreme poverty and hunger; achieve universal primary education; promote gender
equality and empower women; reduce child mortality; improve maternal health; combat diseases; ensure
environmental sustainability; and develop a global development partnership. Goals were assigned targets
to be achieved by 2015.
Sector - A subset (part) of an economy, with four usages in economic development: technology (modern
and traditional sectors); activity (industry or product sectors); trade (export sector); and sphere (private,
public, and nonprofit or citizen sectors).
Social System - The organizational and institutional structure of a society, including its values, attitudes,
power structure, and traditions.
Subsistence Economy - An economy in which production is mainly for personal consumption and the
standard of living yields little more than basic necessities of life—food, shelter, and clothing.
Sustainable Development Goals (SDGs) - Successor to the earlier Millennium Development Goals
(MDGs), a set of 17 broad goals, among them to: end poverty and hunger; ensure healthy lives, quality
education, gender equality, water and sanitation, and modern energy; promote inclusive growth,
employment, resilient infrastructure, industrialization, innovation, and improved cities; reduce inequality;
combat climate change and environmental damage; and promote peace, justice, and global partnership.
Upper-Middle Income Countries (UMCs) - In the World Bank classification, countries with a GNI per
capita between $3,896 and $12,055 in 2018.

CHAPTER TWO
Absolute Poverty - The situation of being unable or only barely able to meet the subsistence essentials of
food, clothing, shelter, and basic health care.
Capital Stock - The total amount of physical goods existing at a particular time that have been produced
for use in the production of other goods and services.
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 (particularly savings
rates, labour force growth, and production technologies), then the term conditional convergence is used.
Crude Birth Rate - The number of children born alive each year per 1,000 population (often shortened to
birth rate).
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 labour force.
Depreciation (of the capital stock) - The wearing out of equipment, buildings, infrastructure, and other
forms of capital, reflected in write-offs to the value of the capital stock.
Diminishing Marginal Utility - The concept that the subjective value of additional consumption
(income) lessens as total consumption becomes higher.
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 after industrialisation began).
Economic Institutions - “Humanly devised” constraints that shape interactions (or “rules of the game”)
in an economy, including formal rules embodied in constitutions, laws, contracts, and market regulations,
plus informal rules reflected in norms of behaviour and conduct, values, customs, and generally accepted
ways of doing things.
Fractionalisation - Significant ethnic, linguistic, and other social divisions within a country.
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 nonresidents, regardless of its allocation between
domestic and foreign claims.
Gross National Income (GNI) - Comprises GDP plus the difference between the income residents
receive from abroad for factor services (labour and capital) less payments made to nonresidents who
contribute to the domestic economy.
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 national socioeconomic development, based
on combining measures of education, health, and adjusted real income per capita.
Imperfect Market - A market in which the theoretical assumptions of perfect competition are violated by
the existence of, for example, a small number of buyers and sellers, barriers to entry, and incomplete
information.
Incomplete Information - The absence of information that producers and consumers need to make
efficient decisions resulting in underperforming markets.
Infrastructure - Facilities that enable economic activity and markets, such as transportation,
communication and distribution networks, utilities, water, sewer, and energy supply systems.
Least-Developed Countries
Lower-Middle Income Countries - In the World Bank classification, countries with a GNI per capita
incomes between $994 and $3,895 in 2018.
Low-Income Countries (LICs) - In the World Bank classification, countries with a GNI per capita of
less than $996 in 2018.
Multilateral Development Banks (such as the World Bank) - An organization known as an
“international financial institution” that provides development funds to developing countries in the form
of interest-bearing loans, grants, and technical assistance.
Property Rights - The acknowledged right to use and benefit from a tangible (e.g., land) or intangible
(e.g., intellectual) entity that may include owning, using, deriving income from, selling, and disposing.
Purchasing Power Parity (PPP) - Calculation of GNI using a common set of international prices for all
goods and services, to provide more accurate comparisons of living standards.
Resource Endowment - A nation’s supply of usable factors of production, including mineral deposits,
raw materials, and labor.
Upper-Middle Income Countries - In the World Bank classification, countries with a GNI per capita
between $3,896 and $12,055 in 2018.
Value Added - The portion of a product’s final value that is added at each stage of production.
Very High-Income Countries - An informal category for a per capita income standard indicative of
economies that master frontier technologies, skills and productivity at a point in time, such as $40,000 in
2018.