Chapter 1)
Absolute poverty: When being unable or barely able to meet the subsistence essentials of food,
clothing, shelter and basic healthcare. Often measured when PPP is < 1 $.
Relative Poverty: When Households receive 50% less than average households / when below the
national poverty line; the minimum requirement for living.
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.
Development: The process of improving the quality of all human lives and capabilities by raising
people’s levels of living, self-esteem and freedom.
Traditional economics: An approach to economics that emphasizes utility, profit maximization,
market efficiency, and determination of equilibrium.
Political economics attempt to merge economic analyses with practical politics, to view economic
activity in its political context.
Development economics: The study of how economics are transformed from stagnation to growth
and from low-income to high-income status, and overcome problems of absolute poverty. While
also dealing with the economic, social, political and institutional mechanisms, both public and
private.
Globalization: The increasing integration of national economies into expanding international
markets.
Social system: The organizational and institutional structure of a society, including its values,
attitudes, power structure and traditions.
Values: Principles, standards or qualities that a society or groups within it consider worthwhile or
desirable.
Attitudes: The states of mind or feelings of an individual, group, or society regarding issues such as
material gain, hard work, saving and sharing wealth.
Institutions: Norms, rules of conduct, and generally accepted ways of doing things. Economic
institutions are humanly devised constraints that shape human interactions, including both formal
and informal ‘rules of the game’.
Historically development was seen as an economic phenomenon in which rapid gains in overall and
per capita GNI would either trickle down to the masses in terms of jobs or create the necessary
conditions for the wider distribution of the economic and social benefits of growth.
,Amartya Sen’s capability approach
Sen argues that poverty cannot be properly measured by income or even by utility as conventionally
understood; what matters fundamentally is not the things a person has – or the feelings these
provide – but what a person is, or can be, or can do. What the consumer can and does make of
commodities. (like a book is of little value to an illiterate person)
Functionings: What people do or can do with the commodities of given characteristics that they
come to possess or control. Like self-esteem and freedom of choice.
5 sources of disparities between actual advantages and (measured) real incomes
Personal heterogeneities, such as age, illness or gender
Environmental diversities, like heating and clothing requirements w.r.t climate
Social climate, like crime and ‘social capital’
Distribution within the family, girls typically get less etc.
Differences in relational perspectives. Goods that are essential because of local customs
and conventions.
External capabilities: the capacity to maintain valued social relationships and to network.
‘the functioning of a person is an achievement’, a functioning is different both from having goods
and having utility. (bicycling has to be distinguished from owning a bike)
Capabilities: the freedoms that people have, given their personal features and their command over
commodities.
> ‘growth without development’: when there are high levels of income but poor health and
education.
Inner meaning of development can be explained by the core values – sustenance, self-esteem, and
freedom – which represent common goals sought by all individuals and societies.
Sustenance: The basic goods and services, such as food, clothing, shelter, that are necessary
to sustain an average human being at the bare minimum level of living
Self-Esteem: The feeling of worthiness that a society enjoys when its social, political and
economic systems and institutions promote human values such as respect, dignity, integrity
and self-determination.
Freedom: A situation in which a society has at its disposal a variety of alternatives from
which to satisfy its wants and individuals enjoy real choices according to their preferences.
,Chapter 2)
Newly Industrializing Countries (NIC’s): Countries at a relatively advanced level of economic
development with a substantial and dynamic industrial sector and with close links to the
international trade, finance, and investment system.
Least developed countries: designation of countries with low income, low human capital, and high
economic vulnerability.
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.
Value added: the portion of a product’s final value that is added at each stage of production.
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.
Purchasing Power Parity (PPP): the number of units of a foreign country’s currency required to
purchase the identical quantity of goods and services in the local country.
Human Development Index: an index measuring national socioeconomic development, based on
combining measures of education, health and adjusted real income per capita.
The new human development index ranks each country on a scale from 1 to 10 on three goals or end
products of development; health-education-income
H: A long and healthy life (measured by life expectancy at birth)
E: Knowledge (average schooling as well as expected years of schooling for kids)
I: Standard of living (real per capita income adjusted for PPP)
Each of these have Diminishing marginal utility; The concept that the subjective value of additional
consumption lessens as total consumption becomes higher.
Actual Value−Minimum Value
Dimension index:
MaximumValue−Minimum Value
The NHDI uses an Geometric mean instead of an Arithmetic mean (adding up the component
indexes and dividing by 3). The arithmetic mean implies there is perfect substitutability between the
dimensions. In contrast, the Geometric mean ensures that poor performance in any dimension
directly affects the overall index. Thus, allowing for imperfect substitutability is a beneficial change.
Dependency burden: the proportion of the total population aged 0-15 and 65+. Which are
considered economically unproductive and therefore not counted in the labor force.
Low-income countries often have higher degrees of 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.
, Some aspects of market underdevelopment is that they often lack:
- A legal system that enforces contracts and validates property rights
- A stable and trustworthy currency
- Infrastructure
- A well developed and efficiently working Banking and insurance system
- Market information for consumers and producers about prices, quantities and qualities of
products and resources.
- Social norms that facilitate successful long-term business relationships.
All these factors imply that the markets are highly imperfect: markets 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.
Property rights: The acknowledged right to use and benefit from a tangible or intangible entity that
may include owning, using, deriving income from, selling, and disposing.
Absolute poverty: When being unable or barely able to meet the subsistence essentials of food,
clothing, shelter and basic healthcare. Often measured when PPP is < 1 $.
Relative Poverty: When Households receive 50% less than average households / when below the
national poverty line; the minimum requirement for living.
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.
Development: The process of improving the quality of all human lives and capabilities by raising
people’s levels of living, self-esteem and freedom.
Traditional economics: An approach to economics that emphasizes utility, profit maximization,
market efficiency, and determination of equilibrium.
Political economics attempt to merge economic analyses with practical politics, to view economic
activity in its political context.
Development economics: The study of how economics are transformed from stagnation to growth
and from low-income to high-income status, and overcome problems of absolute poverty. While
also dealing with the economic, social, political and institutional mechanisms, both public and
private.
Globalization: The increasing integration of national economies into expanding international
markets.
Social system: The organizational and institutional structure of a society, including its values,
attitudes, power structure and traditions.
Values: Principles, standards or qualities that a society or groups within it consider worthwhile or
desirable.
Attitudes: The states of mind or feelings of an individual, group, or society regarding issues such as
material gain, hard work, saving and sharing wealth.
Institutions: Norms, rules of conduct, and generally accepted ways of doing things. Economic
institutions are humanly devised constraints that shape human interactions, including both formal
and informal ‘rules of the game’.
Historically development was seen as an economic phenomenon in which rapid gains in overall and
per capita GNI would either trickle down to the masses in terms of jobs or create the necessary
conditions for the wider distribution of the economic and social benefits of growth.
,Amartya Sen’s capability approach
Sen argues that poverty cannot be properly measured by income or even by utility as conventionally
understood; what matters fundamentally is not the things a person has – or the feelings these
provide – but what a person is, or can be, or can do. What the consumer can and does make of
commodities. (like a book is of little value to an illiterate person)
Functionings: What people do or can do with the commodities of given characteristics that they
come to possess or control. Like self-esteem and freedom of choice.
5 sources of disparities between actual advantages and (measured) real incomes
Personal heterogeneities, such as age, illness or gender
Environmental diversities, like heating and clothing requirements w.r.t climate
Social climate, like crime and ‘social capital’
Distribution within the family, girls typically get less etc.
Differences in relational perspectives. Goods that are essential because of local customs
and conventions.
External capabilities: the capacity to maintain valued social relationships and to network.
‘the functioning of a person is an achievement’, a functioning is different both from having goods
and having utility. (bicycling has to be distinguished from owning a bike)
Capabilities: the freedoms that people have, given their personal features and their command over
commodities.
> ‘growth without development’: when there are high levels of income but poor health and
education.
Inner meaning of development can be explained by the core values – sustenance, self-esteem, and
freedom – which represent common goals sought by all individuals and societies.
Sustenance: The basic goods and services, such as food, clothing, shelter, that are necessary
to sustain an average human being at the bare minimum level of living
Self-Esteem: The feeling of worthiness that a society enjoys when its social, political and
economic systems and institutions promote human values such as respect, dignity, integrity
and self-determination.
Freedom: A situation in which a society has at its disposal a variety of alternatives from
which to satisfy its wants and individuals enjoy real choices according to their preferences.
,Chapter 2)
Newly Industrializing Countries (NIC’s): Countries at a relatively advanced level of economic
development with a substantial and dynamic industrial sector and with close links to the
international trade, finance, and investment system.
Least developed countries: designation of countries with low income, low human capital, and high
economic vulnerability.
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.
Value added: the portion of a product’s final value that is added at each stage of production.
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.
Purchasing Power Parity (PPP): the number of units of a foreign country’s currency required to
purchase the identical quantity of goods and services in the local country.
Human Development Index: an index measuring national socioeconomic development, based on
combining measures of education, health and adjusted real income per capita.
The new human development index ranks each country on a scale from 1 to 10 on three goals or end
products of development; health-education-income
H: A long and healthy life (measured by life expectancy at birth)
E: Knowledge (average schooling as well as expected years of schooling for kids)
I: Standard of living (real per capita income adjusted for PPP)
Each of these have Diminishing marginal utility; The concept that the subjective value of additional
consumption lessens as total consumption becomes higher.
Actual Value−Minimum Value
Dimension index:
MaximumValue−Minimum Value
The NHDI uses an Geometric mean instead of an Arithmetic mean (adding up the component
indexes and dividing by 3). The arithmetic mean implies there is perfect substitutability between the
dimensions. In contrast, the Geometric mean ensures that poor performance in any dimension
directly affects the overall index. Thus, allowing for imperfect substitutability is a beneficial change.
Dependency burden: the proportion of the total population aged 0-15 and 65+. Which are
considered economically unproductive and therefore not counted in the labor force.
Low-income countries often have higher degrees of 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.
, Some aspects of market underdevelopment is that they often lack:
- A legal system that enforces contracts and validates property rights
- A stable and trustworthy currency
- Infrastructure
- A well developed and efficiently working Banking and insurance system
- Market information for consumers and producers about prices, quantities and qualities of
products and resources.
- Social norms that facilitate successful long-term business relationships.
All these factors imply that the markets are highly imperfect: markets 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.
Property rights: The acknowledged right to use and benefit from a tangible or intangible entity that
may include owning, using, deriving income from, selling, and disposing.
