Development Theories Econ 333 Week 2

Vocabulary flashcards covering key terms from the Development Theories lecture notes.

Production function

A technological relationship between output and inputs: Y = A F(L, K, H, N).

Output (Y)

Total quantity of goods and services produced.

Technology (A)

The level of knowledge or methods that determine how inputs are converted into outputs.

Labor input (L)

The total amount of labor used in production.

Physical capital (K)

Stock of equipment, tools, and structures used to produce goods and services.

Human capital (H)

Knowledge, skills, health, and abilities of workers that affect productivity.

Natural endowments (N)

Natural resources and environmental factors available to a country.

Productivity

Output produced per unit of input, especially per worker.

Productivity per worker (Y_L)

Output per unit of labor; output per worker.

Physical capital per worker (K_L)

Physical capital stock per worker.

Human capital per worker (H_L)

Human capital per worker (education, health, skills per worker).

Natural endowments per worker (N_L)

Natural endowments per worker.

Resource curse

Abundance of natural wealth tends to correlate with worse development outcomes due to diversification, governance, and inequality challenges.

Diversification

Having a variety of economic activities rather than dependence on a single resource.

Social strife

Conflict or social tensions that can accompany natural resource wealth.

Undemocratic governance

Governance lacking democratic processes, often linked to the resource curse.

Income inequality

Unequal distribution of income across members of a society.

Brain drain

Emigration of highly educated workers from developing to developed countries.

Human capital

Knowledge, skills, and health that workers possess, gained through education, training, and experience.

Education

Formal instruction that builds knowledge and skills, increasing human capital.

Training

Programs (on-the-job or formal) to improve workers’ skills.

Direct cost of education

Out-of-pocket costs such as tuition, books, supplies, and transportation.

Opportunity cost

Value of the next best alternative forgone (e.g., wages foregone while studying).

Lifetime earnings

Total earnings expected over the course of a given level of education.

Harrod-Domar model

Growth model linking saving, investment, and growth with a (constant) capital-output ratio.

Saving (s)

Fraction of national income saved rather than spent on consumption.

Investment (I)

Change in the capital stock; I = ΔK.

Capital (K)

Total stock of physical capital used in production.

Capital-output ratio (k)

The amount of capital needed to produce one unit of output (k = K/Y).

Growth rate (g)

The rate at which output grows; g = ΔY/Y; in Harrod-Domar, g ≈ s/k.

ΔK and ΔY

Change in capital stock (ΔK) and change in output (ΔY) over a period.

Structural transformation

Process of shifting an economy from agriculture-dominated to industrialized production.

Lewis theory

Surplus labor from traditional agriculture moves to industry, promoting industrialization.

MPL (marginal product of labor)

Additional output generated by adding one more unit of labor, holding other inputs constant.

Diminishing marginal product of labor

With fixed land, MPL decreases as more labor is added.

Surplus labor

Rural workers whose MPL is zero or very low; not contributing to total output.

Average product of labor (APL)

Total output divided by number of workers; average productivity of labor.

Total product of labor (TPL)

Total output produced by all labor.

Real wage

Wage adjusted for inflation; in some models, equal to MPL.

Modern (industrial) sector

Urban, capital-intensive sector focused on manufacturing.

Traditional (agricultural) sector

Rural, subsistence sector with low productivity.

Surplus rural labor absorption

Process by which the industrial sector expands to absorb surplus rural labor.