World Bank and Country Classifications

• World Bank: An international financial institution that provides development funds to developing countries through interest-bearing loans, grants, and technical assistance.
• Low-Income Countries (LICs): Classified by the World Bank as countries with a gross national income per capita of less than $976 in 2008.
• Middle-Income Countries: Classified by the World Bank as countries with a GNI per capita between $976 and $11,906 in 2008.
• Newly Industrializing Countries (NICs): Countries with a relatively advanced level of economic development, a substantial and dynamic industrial sector, and close links to the international trade, finance, and investment system.
• Least Developed Countries: Designated by the United Nations as countries with low income, low human capital, and high economic vulnerability.
• 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.
• Value Added: The portion of a product’s final value that is added at each stage of production.
• 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.
• 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.
• 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.
• Human Development Index (HDI): An index measuring national socioeconomic development, based on combining measures of education, health, and adjusted real income per capita.
• Diminishing Marginal Utility: The concept that the subjective value of additional consumption lessens as total consumption becomes higher.
• 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.
• Absolute Poverty: The situation of being unable or only barely able to meet the subsistence essentials of food, clothing, shelter, and basic healthcare.
• Crude Birth Rate: The number of children born alive each year per 1,000 population.
• 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.
• Fractionalization: Significant ethnic, linguistic, and other social divisions within a country.
• Resource Endowment: A nation’s supply of usable factors of production including mineral deposits, raw materials, and labor.
• Infrastructure: Facilities that enable economic activity and markets, such as transportation, communication and distribution networks, utilities, water, sewer, and energy supply systems.
• 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.
• Divergence: A tendency for per capita income (or output) to grow faster in higher-income countries than in lower-income countries, so the income gap widens across countries over time.
• Convergence: The tendency for per capita income (or output) to grow faster in lower-income countries than in higher-income countries, so lower-income countries are “catching up” over time.
• Conditional Convergence: Hypothesized convergence of countries, not in all cases but other things being equal (particularly savings rates, labor force growth, and production technologies).
• Brain Drain: The emigration of highly educated and skilled professionals and technicians from developing countries.
• Free Trade: Trade in which goods can be imported and exported without any barriers in the forms of tariffs, quotas, or other restrictions.
• Terms of Trade: The ratio of a country’s average export price to its average import price.
• 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 behavior and conduct, values, customs, and generally accepted ways of doing things.

Four Approaches to Economic Development

• The classic post–World War II literature has been dominated by four main strands of thought.
• Linear-stages-of-growth model.
• Theories and patterns of structural change.
• International-dependence revolution.
• Neoclassical, free-market counter revolution.
• In recent years, an eclectic approach has emerged that draws on all of these classic theories.
• Theorists of the 1950s and 1960s viewed development as a series of successive stages of economic growth through which all countries must pass.
• Primarily an economic theory in which the right quantity and mixture of saving, investment, and foreign aid were all that was necessary to enable developing nations to proceed along an economic growth path that had historically been followed by the more developed countries.
• Development thus became synonymous with rapid, aggregate economic growth

Theories

• The linear-stages approach was largely replaced in the 1970s by two competing schools of thought.
• The first focused on theories and patterns of structural change, using modern economic theory and statistical analysis.
• Attempted to portray the internal process of structural change that a “typical” developing country must undergo if it is to succeed in generating and sustaining rapid economic growth
• The second, the international-dependence revolution, was more radical and more political.
• Viewed underdevelopment in terms of international and domestic power relationships, institutional and structural economic rigidities, and the resulting proliferation of dual economies and dual societies both within and among the nations of the world.
• Dependence theories tended to emphasize external and internal institutional.