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Bized - Glossary of developing countries Category: People and society > developing countries Date & country: 11/10/2007, UK Words: 231

Absolute advantage
Exists when a country can produce more of a product per resource unit than another country. It is a basis for trade. A country with an absolute advantage is producing more efficiently than another.

Absolute Poverty
A level of poverty when only the minimum levels of food, clothing and shelter can be met.

Accelerator theory
The principle states that a given change in demand for consumer goods will cause a greater percentage change in demand for capital goods. The principle is used to help explain business cycles. The accelerator theory suggests that the level of net investment will be determined by the rate of change of national income. If national income is growing at an increasing rate then net investment will also grow, but when the rate of growth slows net investment will fall. There will then be an interaction between the multiplier and the accelerator that may cause larger fluctuations in the trade cycle.

African Development Bank
A regional bank started in 1966 to support the development of Independent African states through loans and assistance

Aggregate demand
The total of all planned expenditure in an economy at each level of prices. Aggregate demand is the total level of demand in the economy. It is the total of all desired expenditure at any time by all groups in the economy. The main groups who spend are consumers (consumption), firms (who spend on investment), government (government expenditure) and overseas (exports). Total aggregate demand is therefore:

Agricultural sector
The part of the economy comprised of farming, fishing, forestry, hunting

AIDS
Autoimmune Deficiency Syndrome

Allocative efficiency
Allocative efficiency refers to the efficiency with which markets are allocating resources. A market will be allocatively efficient if it is producing the right goods for the right people at the right price. An allocatively efficient market is therefore one which has no imperfections. This will be true when marginal cost is equal to average revenue in the market. It occurs where a firm produces at MC = AR (marginal cost pricing).

Amortization
The paying off of a loan principal

Appropriate technology
A technology that complements the factor endowments of the country.

Balance of payments
A record of the income and expenditure transactions between UK residents and persons abroad. The balance of payments accounts record all flows of money in and out of the UK. These flows might result from the sale of exports (an inflow or credit) or from the UK purchasing imports from overseas (an outflow or debit). They might also arise from other countries investing in the UK (inward investment

Balance of trade
The difference between the value of visible exports and visible imports.

Barter
The direct exchange of goods and services without the use of money.

Bilateral aid
Official development assistance that takes place between a donor country and a recipient country

Biodiversity
A variety of life forms that exist within an ecosystem

Black market
Created when buyers and sellers meet to negotiate the exchange of a prohibited or illegal good. More generally any unofficial market in which prices are inordinately high.

Budget deficit
A situation where government expenditure exceeds government income. Government income comes from taxation and other revenue and where this is less than the money the government is spending on defence, education, health, welfare and so on, this is called a budget deficit.

Buffer stock scheme
A buffer stock scheme is a form of intervention to try to stabilise the price of a commodity. Stocks of the commodity are kept and sold when the price is high to try to reduce it. When the price is low further stocks of the commodity are bought.

Capital
Man made resources e.g. machines, factories, offices. Capital is one of the factors of production.

Capital account
That part of the balance of payments accounts that measures the flows of capital in and out of the country

Capital flight
The movement of financial assets out of a country in response to an unfavourable domestic circumstances.

Capital Output Ratio
The ratio that shows the amount of units of capital that are needed to produce a certain level of output

Cartel
A group of producers who act together to fix price, output or conditions of sale

Cash Crops
Crops that are produced only for the market

Chitemene
A form of slash and burn shifting cultivation

Circular Flow of Income
The flow of income and payments between economic agents in an economy. The key agents are households and firms and the circular flow shows how money moves between them. There may also be leakages from the circular flow and injections into it.

Colonisation
The process of a country being taken over and becoming a colony of another

Command or planned economy
An economic system where the State owns and then allocates resources through some form of planning process

Commercial bank
A commercial organisation that provides a variety of banking services such as loans and savings schemes

Common External Tariff
The common tariff that members of a customs union, common market or economic union impose on non members

Common market
A customs union which permits the free movement of capital and labour between member states

Comparative advantage
This exists when a country produces a good or service at a lower opportunity cost than its trading partners

Concessional terms
A loan that is made at more favourable terms that could be obtained commercially

Consumer surplus
This occurs when people are able to buy a good for less than they would be willing to pay. They enjoy more utility than they had to pay for

Consumption
Expenditure by households on goods and services which satisfy current wants. It is a key component of aggregate demand.

Cost benefit analysis
A method of assessing investment projects which takes into account social costs and benefits

Cost push inflation
When a cost of production (e.g. wages) increases and firms put up prices to maintain profits. Cost increases may happen because wages have gone up or because raw material prices have increased. It is important not to muddle cost-push with demand-pull inflation. Cost-push inflation happens when costs have risen independently of demand.

Creditor nation
Those nations that have a balance of payments surplus

Crude birth rate
The number of children born alive each year per 1000 of the population

Crude death rate
the yearly number of deaths per 1000 of the population

Current account
Usually taken to mean the current account of the balance of payments. The current account measures flows of visible and invisible trade, that is trade in goods and services.

Current account balance
A record of a country's earnings from the sale of visible and invisible items minus its expenditure on visible and invisible items from abroad.

Current account deficit
When a country spends more on visible and invisible items from abroad than it earns from the sale of visible and invisible items.

Customary Law
A land tenure arrangement where there is communal ownership of land.

Customs union
A group of countries which removes tariff barriers between member countries and also imposes common external tariffs on non-members

Death rate
The number of deaths per thousand of the population in a year

Debt for equity swap
A mechanism where indebted LDCs swap shares in domestic firms for private foreign debt

Debt for nature swap
A mechanism where foreign debt is exchanged for domestic debt enabling resources to be released to finance environmental conservation

Debt service
The total amount of interest payments and repayments of principal on external public debt

Debt service ratio
The ratio of interest and principle payments as a proportion of exports for a given year

Debt servicing
The repayment of interest and principle to external creditors

Debtor nation
A country with a balance of payments deficit

Deflationary policy
Policies designed to reduce aggregate demand

Deforestation
The clearing of forested land

Demand
Demand is the want or need or desire for a product that is backed by an ability to pay. Demand is measured over a given time period. It is determined by a number of factors including income, tastes and the price of complementary and substitute goods.

Demand pull inflation
Occurs when aggregate demand exceeds aggregate supply. If there is an excess level of demand in the economy, this will tend to cause prices to rise. This type of inflation is called demand-pull inflation and is argued by Keynesians to be one of the main causes of inflation. Demand-pull inflation is essentially 'too much money chasing too few goods.'

Demerit goods
A product, such as alcohol, which consumers may overvalue but which the government believes may be harmful for consumers.

Demographic transition
Changes in population growth rates over time due to changes in birth and death rates

Dependency ratio
The ratio of dependent population (the young and the elderly) to the working age population

Deregulation
The removal of controls on a particular market aimed at improving the economic efficiency of that market and therefore the performance of the economy at the microeconomic level. Deregulation is generally considered a supply side policy. An example would be the abandonment of a licensing system for taxis.

Devaluation
Occurs when the government lowers the value of the exchange rate from one fixed rate to another

Development
The process of improving the quality of all people lives within a country

Development trap
The vicious cycles of poverty that prevent a country from developing

Diminishing Returns
When the addition of a variable factor of production results in a fall in marginal product. Diminishing returns refers to a situation where a firm is trying to expand by using more of its variable factors, but finds that the extra output they get each time they add one gets progressively less and less. This usually arises because their capacity is limited in the short-run and the combination of the fixed and variable factors becomes less than optimal. Diminishing returns is the main reason why the short-run aggregate supply curve is upward sloping.

Disbursement
The transfer of financial resources and or good and services from a donor to a recipient country

Diversification
A firm increasing the range of products it produces

Dual exchange rate
A system where there is a fixed official exchange rate and an illegal market determined parallel exchange rate

Dumping
The sale of goods in a foreign country at a price below that charged in the home market.

Economic Growth
Typically refers to an increase in a country's output of goods and services. It is usually measured by changes in real GDP.

Economies of scale
A reduction in long run unit costs which arise from an increase in production. Economies of scale occur when larger firms are able to lower their unit costs. This may happen for a variety of reasons. A larger firm may be able to buy in bulk, it may be able to organise production more efficiently, it may be able to raise capital cheaper and more efficiently. All of these represent economies of scale.

European Investment Bank
The European Investment Bank is the largest financial institution in the world. It gives loans for regional development particularly in the less developed areas of Europe.

Exchange control
A government policy where the amount of foreign currency available to domestic firms and citizens is controlled

Exchange rate
The price of one currency in terms of another currency. For example, the exchange rate between the £ and the $ may be £1=$1.65. This means that you need to pay a price of £1 to get every $1.65. Exchange rates can be fixed or floating. Fixed means that they stay at the same value as set by the government. Floating means that they fluctuate day to day according to the market. More generally the term can also refer to the price at which any good is being traded for another good.

Exchange rate mechanism
An adjustable peg system which involved EU countries maintaining the value of their currencies within limited margins but being allowed to float their currencies against non member currencies. The ERM was the forerunner to the implementation of the Euro.

Export promotion
The government attempts to stimulate exports by giving incentives to exporting firms

Exports
Goods, services and capital assets sold abroad. The sale of exports results in the earning of foreign exchange for the country and credits on the balance of payments accounts.

External benefits
These are also known as positive externalities. They are impacts on `outsiders` that are advantageous to them and for which they do not have to pay. Externalities occur where the actions of firms and individuals have an effect on people other than themselves. In the case of positive externalities the external effects are benefits on other people. There may be external benefits from both production and consumption. If these are added to the private benefits we get the total social benefits. An example of positive externalities would be the side effects of production processes.

External costs
They are also known as negative externalities. They are impacts on `outsiders` that are disadvantageous to them and for which they receive no compensation. The externalities are occurring where the actions of firms and individuals have an effect on people other than themselves. In the case of negative externalities the external effects are costs on other people. There may be external costs from both production and consumption. If these are added to the private costs we get the total social costs. An example of negative externalities would be the side effects of production processes e.g. the pollution (noise, dust, vibration) endured by people living next to a quarry.

External debt
the total amount of private and public foreign debt owed by a country

Externalities
The spillover effects of production or consumption for which no payment is made. Externalities can be positive or negative. For example all fax users gain as new users become connected (positive); and smoke from factory chimneys (negative).

Factors of production
The factors of production are the resources that are necessary for production. They are usually classified into 4 different groups:

Family planning
The process whereby parents plan and regulate their family size

Fertility rate
The number of children born alive per thousand fertile women per year

Fixed exchange rate
A fixed exchange rate system is one where the value of the currency against other currencies remains exactly the same. A fixed exchange rate doesn't stay fixed on its own. Governments have to hold large stocks of foreign exchange, so that they can actively intervene to hold the value of the currency stable. Monetary and fiscal policies will also have to be directed to keeping the rate constant.

Floating exchange rate
A currency exchange rate that is determined by buyers and sellers without government intervention. A floating exchange rate system is where the external value of the currency is allowed to find its own value against other currencies. The value will be determined by supply and demand in the foreign exchange market. The value will then rise or fall according to changes in supply and demand.

Foreign Aid
The international transfer of public and private funds in the form of loans or grants from donor countries to recipient countries

Foreign Capital Flows
Financial and capital assets that flow between countries

Foreign Direct Investment
Overseas investment by multinational enterprises

Foreign exchange gap
When a country's balance of payments on current account deficit is greater than the value of capital inflows

Free market economy
A system where resources are owned by households: markets allocate resources through the price mechanism; and income depends upon the value of resources owned by an individual.

Freehold land
A land tenure arrangement where the land is permanently owned and not leased

GATT
the General Agreement of Tariffs and Trade set up in 1947 to reduce barriers to free trade

GDP
A measure of economic activity. Gross Domestic Product (GDP) is a measure of National Income. It is the total value of all goods and services produced over a given time period (usually a year) excluding net property income from abroad. It can be measured either as the total of income, expenditure or output.

Gini Coefficient
A numerical measure of income inequality ranging from 0 (absolute equality) to 1( absolute inequality)

GNP
A measure of economic activity. Gross National Product (GNP) is a measure of National Income. It is the total value of all goods and services produced over a given time period (usually a year) including net property income from abroad. It can be measured either as the total of income, expenditure or output.

Goods in competitive supply
Good that can be produced using the same factors of production

Grant
A form of foreign aid that involves a direct transfer payment from one country to another.

Gross Domestic Product
A measure of economic activity. Gross Domestic Product (GDP) is a measure of National Income. It is the total value of all goods and services produced over a given time period (usually a year) excluding net property income from abroad. It can be measured either as the total of income, expenditure or output.

Gross National Product
Gross National Product (GNP) is a measure of National Income and therefore economic activity. It is the total value of all goods and services produced over a given time period (usually a year) including net property income from abroad. It can be measured either as the total of income, expenditure or output.

Hard currency
A currency of an industrialised country that has general convertibility