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Political Economy of Latin America
Patrice Franko's The Puzzle of Latin American Economic Development
Terms in this set (148)
School of orthodox economic policies that places the market at the center of the development equation. The neoclassical tradition says that the key to development policy is making sure economic agents face accurate price incentives, to make the best possible economic decisions.
Economists in Latin America who thought state intervention was critical to promoting development
the process of meeting the basic needs of the population and enhancing options for how economic resources will be allocated today and in the future to increase the choices citizens have in their daily lives
the simultaneous existence of modern and traditional economies, usually characterized by an expanding industrial sector and a large self-subsistence agricultural sector. Dualistic models tend to benefit the elite and marginalize the poor.
the full participation of beneficiaries in their own development process
access to equal opportunities within a nation. although growth may increase inequality, models of growth that attempt to promote a more equal distribution of income. It also refers to ownership of capital (a very different use of the same term)
a simultaneous gradual increase in quantities such as GDP, population, saving, and wealth. If the benefits of growth are not widely shared, it may not be considered development.
a vision of development policy that accords a strong role for nonmarket institutions. It assumes that markets are not perfect; that people are not purely rational, self-interested maximizers; and that economic power rather than efficiency will shape outcomes. access and control over technology is seen as an important ingredient of dynamic (or sluggish) growth.
a vision of development policy that accords a strong role to a nation's government to jump start economic change.
development strategies that will meet today's needs without sacrificing the ability of future generations to meet their own needs.
the key to economic development, it allows for new combinations of capital and labor to create more efficient production.
As industry A grows, demand for inputs to produce industry A's product will increase. This increase in demand can spur investment in a new industry B that will produce inputs for industry A. Central to the thought of A.O. Hirschman, investing in industries with strong ____________ on the supply chain should promote growth.
spanish word for the landlords of large agricultural estates prevalent in the Latin American colonial period
A term used by Victor Bulmer-Thomas that describes the export-oriented pattern of the late 1800s, when most Latin American countries were dependent on one export good, such as nitrates in Chile, coffee in Brazil, and tin in Bolivia
Named after Holland's experience with natural gas, the term describes a country's inclination to concentrate its financial resources into a few profitable sectors. This behavior was prevalent throughout Latin American history with investments in oil and sugar, and it contributed to the unbalanced development of the region as other important sectors were ignored.
lands that had been held communally for centuries before the introduction of private property. These are the predominant form of peasant landholding in Mexico.
industries, in isolation from the rest of the economy, that fail to spur domestic investment, employment, and income.
land received by conquistadors or other Spanish settlers from the Spanish Crown that was accompanied by the deeding of Indian labor to work this land.
when the increase in the demand for agricultural goods is slower than an increase in income (that is, there is a low income elasticity of demand), exporters of agricultural goods lose ground to producers of manufactured goods. When a low income elasticity for agricultural products exists, this means that if individuals experience an increase in their income, they will not increase their consumption of food or commodities by the same proportion. Theres is, for example, only so much coffee or sugar one will consume, no matter the increase in income. _______________ was used by economists such as Raul Prebisch to explain why the developing world, which tends to export agricultural commodities, experiences declining terms of trade.
a term associated with the Prebisch-Singer thesis, stating that exports alone cannot be the engine of growth because of the effect of declining terms of trade.
large fuedal estates, similar to the hacienda in Spanish America, during the colonial period in Brazil
the production of a good that is complementary to another industry may spur the development of that new sector; such development is called a ___________. As opposed to "its opposite", which calls for the production of critical inputs, a ___________ moves ahead in the production chain. Roadside restaurants might be a forward linkage to automobile production, whereas tires would be considered "the opposite".
golden age of primary product exports
the period in Latin American history from the late 1800s to the early 1900s, when primary product exports boomed and contributed to the economic growth of the region
large landholdings in Spanish America
feudal estates in Spanish Latin America, which stood in great contrast to the small parcels of land used by peasant farmers. The __________ also served as a form of political, social, and economic organization and later contributed to a pattern of concentrated landholdings and power
a system by which communities, most often indigenous, were forced to provide workers for harvest when there were labor shortages, often under brutal working conditions
the small parcel of land used for subsistence farming by Latin American peasants during the colonial period and whose remnants can still be seen today.
monopoly control over mines and land in the New World was accorded through the encomienda system, which gave land rights to colonists, with a share of the output or __________ owed in return back to the home country
declining terms of trade
Terms of trade are the price of exports relative to the price of imports, mathematically expressed as Px/Pm, an index of export prices divided by an index of import prices. ____________________ are reflected in a decrease in the ratio, meaning that the price of imports is increasing relative to the price of exports. Under these conditions, countries must export increasing amounts of their own goods (often agricultural goods or commodities) to pay for imports (more likely to be machinery and high-tech items).
Despite different emphases by scholars, the central theme behind _________________ is the proposition that a country does not develop because of its natural endowments; its growth is constrained by centers of power in the international system. Industrialized countries (the center) advance at the expense of the third world (the periphery), causing underdevelopment in the region through exploitation of cheap labor and extraction of resources. Underdevelopment was seen as linked to the relationship between the elite of Latin America and the center in their search for short-term profits as opposed to long-term growth.
__________________ is patterned after the behavior of many charismatic Latin American leaders, such as Juan Peron in Argentina, whose programs were symbolically designed to attend to the needs of the poor. Industry was pacified with large subsidies. The welfare of future generations is sacrificed for the welfare of current generations through excessive current spending to satisfy pressure groups. In a desire to increase the standard of living today, this kind of behavior ignores external balance of payments constraints and large fiscal deficits, conditions that make inflation nearly inevitable.
import substitution industrialization
______________ was the dominant economic policy in Latin America during the 1950s, 1960s, and 1970s as a response to dependency and structuralist theories. It represented a shift away from the outward orientation of export promotion, to an inward looking orientation. ________________ was designed to replace imports with domestic production under the guiding hand of the state. Governments used activist industrial, fiscal, and monetary policy to achieve growth
neoclassical economic theorists believe that when left on its own, the market will promote economic growth. When the it fails to promote growth, primarily because of information constraints or ineffective price signals, _______________ occurs.
overvalued exchange rate
Under a fixed exchange rate system, a rate is overvalued when inflation has eroded the true value of the money but a new par or official rate has not been established. For example, if inflation in country A is 25% a year higher than in country B and their currencies are fixed in terms of each other, the country experiencing inflation will have a currency that is 25% overvalued at the end of one year. Over-valuation of currency is not sustainable because it encourages imports and discourages exports. If it is not corrected by contracting the economy, people will expect a devaluation, or adjustment in the currency price. As reserves to pay for the current account imbalance are drawn down, people will begin to vote with their feet, moving capital to currencies without the risk of devaluation.
Drawing on the work of the ECLA under Raul Prebisch, ______________ begin from the assumption that the underlying structure of developing economies differs from that of more industrialized nations. macro policy for ______________ rests on the premise that relatively concentrated industrial elites can pass on price increases, resulting in inertial inflation. Structuralists tend to downplay the importance of fiscal balance in favor of an activist state policy to redress production bottlenecks. ____________ and their intellectual descendants, the neo_____________, have little faith in the ability of the market to generate spontaneous or equitable growth. Borrowing from dependency analysts, structuralists believe that the position of countries in the international system especially their access to technology, limits possibilities for autonomous growth. Although neo____________ appreciate the benefits of international trade and finance, they caution that states should intervene to mitigate the social and environmental costs of openness.
Also known as multinational corporations (MNCs) and transnational enterprises (TNEs), they are firms with central offices located in one country but with operations abroad. _______________ are the primary form of foreign direct investment. _____________ bring capital, expertise, and jobs but also may thwart the growth of local industries and have been accused of exploiting low-wage workers.
Domestic consumption of goods both produced at home and imported from abroad. The IMF promoted the ______________ approach, or the reduction of domestic utilization of resources to release them for export to earn hard currency to finance a country's debt.
large outflows of domestic capital into safer or more stable foreign banks and foreign stock markets to protect the value of that capital. This phenomenon is associated with countries suffering from severe inflation or the likelihood of devaluation. Individuals opt to invest abroad when they lose confidence in their country's currency.
A term associated with the prerequisites necessary for disbursal of IMF funds to developing countries. Countries seeking loans from the IMF must first implement tough stabilization policies such as a decrease in fiscal spending, tight monetary policy, and strict trade policies. ______________ is strongly debated because it forces a government to contract its economy and imposes social costs.
A win-win method used by firms, banks, and indebted countries to reduce exposure to the debt crisis. A firm wishing to invest in a particular country would buy the country's debt at a discount from a bank through the secondary market. Owing the firm and not the bank, the country could pay the firm in local currency, as opposed to dollars, which the firm then used to buy local supplies and pay workers. Banks got risky loans off their books, countries were released from the need to earn hard currency to service the debt, and firms were repaid the full value of the loan bought at a discount. The plan was limited, however, by inflationary risk and the demand for equity investments.
An environmental twist on debt-for-equity swaps, in which international organizations buy a country's discounted debt from the secondary market. Debts are reduced or canceled in exchange for a country establishing nature preserves or otherwise protecting the environment. A financial commitment to long-term management of the parks, sometimes through a trust fund, was an important element of success.
when long-term projects are financed through short-term debt issues, countries may find themselves paying more in interest and principal than they are receiving in new money. Initially, the borrower is able to finance the project as well as pay the principal and interest with new lending each year. With each coming year, new lending available for investment dwindles because some of the money from new loans is used to pay the principal and interest on previous loans. The debt trap sets in when the new lending is not enough to pay for the principal and interest and the project is not yet generating significant returns to make up the difference.
highly indebted poor country initiative - Through the ____ initiative, nominal debt service relief of more than US$59b has been approved for twenty-nine countries, reducing their net present value of external debt by approximately two-thirds. Of these countries, nineteen have reached the completion point and have been granted unconditional debt service relief of more than US$37b
a condition in which cash flow does not match financial obligations. As opposed to insolvency, when an economic entity cannot and will not ever likely meet its obligations, ____________ may be a temporary condition in which revenues do not cover costs of debt service. In the first stage of the debt crisis, countries were thought to have temporary ___________ problems; it was later seen that fundamental restructuring and debt relief were called for.
during the debt crisis, _______________ described the process of rolling over the principal and interest payments due on a loan into new (usually more expensive) loans to give countries breathing room to meet their financial obligations. It was believed that after their economies became more productive through the tough measures required by the IMF, these countries would then be able to pay off their debt. Banks preferred to package the interest and principal due into a new loan because it kept the loan in the "performing" category rather than having a past-due amount trigger a classification of this asset as nonperforming and therefore worth less.
a response by banks to the debt crisis whereby they would set aside profits (before dividend payments) against risky loans so as to reduce their exposure.
A market for a financial instrument that separates the initial debt issuer from the eventual lender. During the debt crisis, many banks were pessimistic about the ability of Latin American countries to repay loans. In particular, small- and medium-sized banks wanted to unload risky loans and offered them for resale below their face value in the ________________. Larger banks (with a greater likelihood of being repaid) or multinational corporations interested in operating in a foreign market might choose to assume this credit risk at a discounted price. The larger bank or firm might, for example, pay 50 cents for a piece of paper saying that the borrowing country owed it a dollar. The greater the risk of default, the lower the _______________ price. Buyers of the debt could earn a substantial profit if a Latin American country paid off its debt in full, or in any proportion higher than what the debt was bought for.
an increase in the money supply by the mere printing of more currency, usually for the purpose of financing government spending. A government can profit from such an operation because it results in inflation. The government then is able to repay its debts in currency that is worth less than the currency that was borrowed. The result of monetary expansion might be short-run expansion of output, but eventually the increase in money will mean only an increase in prices.
the backing of a national government (collateralized by national assets) in the extension of a loan
often supported by the World Bank and the IMF, these programs are designed to address internal and external balance by decreasing domestic expenditure, enhancing revenue collection, promoting exports, and limiting luxury imports. These programs changed the shape or structure of economies from the inward-oriented import substitution model to an externally oriented export promotion program, simultaneously privatizing state industries, decreasing government expenditures, and encouraging inflows of foreign capital.
Named after the new currency put in place in Argentina in 1985, it was designed to combat inflation. It was labeled as heterodox but included some orthodox measures. To attack the inertial component of inflation, the administration declared a price freeze in June of 1985, froze wages, and implemented exchange-rate controls. These measure were taken to convince the population that prices would not increase, but the plan fell apart after people lost confidence in the ability of the government to manage the economy.
A follow-up to the Cruzado plan, the Brazilian use of heterodox policy to combat inflation in 1987. Wages were frozen, mini-devaluations were used to manage the exchange rate, and interest rates were targeted above the rate of inflation. Citizens were deputized as price inspectors. Despite initial success, shortages and external balance problems caused by excess consumer spending reignited inflation once again.
introduced in 1991 in Argentina, this policy to combat inflation tied the Argentine peso to the U.S. dollar and used a currency board to constrain monetary policy by law. The money supply could not increase unless there was a parallel increase in dollar reserves. Inflation was almost eliminated, but at a high cost in terms of recession and unemployment.
certain conditions or external shocks such as food shortages or increasing oil prices that will fuel inflation through the interaction with powerful labor organizations or a concentrated industry structure. Rising costs are seen as pushing up prices.
Based on a structural diagnosis of inflation, the first ___________ in Brazil, in 1986, focused on the intertial component of inflation and implemented heterodox measures by freezing prices, wages, and exchange rates. Brazilians were deputized as fiscais, or price inspectors, to police the price freeze in supermarkets and shopping malls. Indexation of contracts with less than one year's duration was prohibited. A new currency, the cruzado, was created at a value of 1,000 cruzeiros. After a devaluation, the cruzado was fixed at 13.84 cruzados to the dollar. A neglect of tough fiscal adjustments combined with passive monetary policy that accommodated domestic deficits resulted in the re-eruption of inflation.
monetary and fiscal policies grounded in the belief that one of the primary components of inflation is the inertia built into an economic chain, with wages increased in anticipation of future price increases, making inflation a self-fulfilling prophecy. ________________ attempt to combat inflation by neutralizing expectations through price and wage freezes.
under a system of indexation, countries will revise wages and financial prices upward by taking into account expected as well as past inflation. When indexation occurs, countries have embraced inflation and it becomes a part of daily life. Because incomes are protected, the inflation is less painful.
implies that inflation is not driven solely by an increase in the money supply, but by expectations as well. As individuals anticipate inflation, they will demand higher wages or set prices accordingly, which will push prices upward.
The expectations of a society, based on past experience, of future rates of inflation. When they anticipate future price increases, economic actors demand higher wages or set prices higher to cover the inflation they expect in the future, making the expectations a self-fulfilling prophecy. Inflationary expectations are a large part of inertial inflation.
The process by which inflation erodes the true value of tax receipts because of the time lag between assessment of tax liability and actual collection.
Introduced by Brazilian president Henrique Fernando Cardoso when he was minister of the economy, the ___________ redenominated wages, prices, taxes, and the exchange rate in a new accounting unit called the urv. Later, a new currency, the real, was introduced. Contractionary monetary policies were undertaken. Unlike many previous attempts, the Real Plan proved to be successful, neutralizing inflationary expectations and curbing inflation.
velocity of money
the amount of national output supported by the money supply; mathematically, it is expressed as GDP/M, or gross domestic product divided by the money supply. __________is higher when a small stock of money supports a higher level of output. The higher the __________, the larger the effect of any increase in the money supply.
a situation where one side of a deal has more information than another, leading to the selection of an undesirable outcome
Foreign Direct Investment
describes the investment by foreigners through ownership of equity shares or setting up production facilities within a country. The most common type of foreign direct investor is the multinational corporation
a situation that occurs when borrowers have more information than lenders about their own likely behavior after the sale. If sufficient collateral is not secured prior to the loan, the borrower has incentive to pursue high-risk behavior because the gains will be high if the project succeeds but will be shared by the lender if it fails. Can also be applied to other situations when agents are not forced to internalize costs.
adherents of this school of economic thought do not believe that the market alone will spur development; the state should intervene in those areas where there has been market failure. Concentration of economic power in both the domestic and international arenas requires selective intervention to promote equitable development. The principal difference between ________________ and their predecessors is that they place a greater emphasis on outward-looking export development as opposed to the inward-looking policies that defined ISI.
new institutional economics
A philosophy that argues that culture matters in defining the ways the economy provides for society. Followers of ________________ claim that certain institutional arrangements are necessary to reduce transaction costs that arise in imperfect markets. The arrangements may include improving property rights, providing effective and impartial judicial systems, and instituting transparent regulatory frameworks.
new political economy
It grounds its assumptions in the material self-interest and rational calculus of economic actors. Intervention by the state will serve only to interfere with market signals and the allocation of resources. The state should, therefore, play a minimal role in the market.
value added tax
a consumption tax levied on the value added at each stage of production. The advantage over other tax instruments is its self-regulating mechanism. Each producer requires a receipt from its supplier to demonstrate that taxes already have been paid on the earlier levels of production.
mechanisms such as licensing of foreign exchange used to limit imports or reduce capital flight, or taxation on short-term foreign investments to reduce the volatility of short-term capital flows
the purchase of stock by foreigners
short-term financial instruments held in emerging market portfolios that make a country vulnerable to quick movements of international capital flows.
this includes the "hot" capital flow of portfolio bonds and stocks that may be moved from country to country in a internationally linked global financial system with the stroke of a keyboard.
a dollar-denominated treasury bond offered by the Mexican government during the Mexican financial crisis. The bonds were structured to convince investors to keep their capital in Mexico by eliminating exchange risk. After a series of political events that deepened the crisis and scared capital away, the tesobono led to a further depletion of dollar reserves because the Mexican government had to cover its dollar-based obligations.
Central American Common Market
Formed in the early 1960s, this attempt at integration among Central American countries to take advantage of economies of scale in production was set back in the 70s and 80s by political strife. The 90s saw new commitment to strengthening the legal and institutional framework, joint actions to reduce debt, and cooperation on sectoral issues.
Central American Free Trade Agreement
A comprehensive trade agreement among Costa Rica, the DR, El Salvador, Guatemala, Honduras, Nicaragua, and USA. It was signed in August 2004, and as of 2006 all but Costa Rica had ratified the agreement. It creates the second largest free trade zone for the USA after NAFTA.
A form of integration in which countries coordinate policy-making measures in such areas as agriculture and the social sector, along with establishing a common external tariff.
Community of Andean Nations
Signed in 1960, this treat allowed for free commerce among Bolivia, Ecuador, Colombia, Venezuela, and Peru with a common external tariff.
A form of regional trade integration in which a common external tariff is established for the group.
A group of countries that have moved beyond a common market to embrace common sectoral policies. Common monetary policies and a common currency constitute an additional step toward an economic community. Mercosur is therefore an economic union, whereas the European Community has moved a step beyond.
factor price equalization
As a country opens to trade, the demand for its products, made with its most abundant (and cheap) factor, should in theory over time result in an increase in the price of this factor to world levels. Global factor prices should therefore become more uniform.
free trade area
A form of regional integration in which trade restrictions are abolished between participating countries, but each country maintains an independent trade policy and separate tariff rates with the rest of the world.
Free Trade Area of the Americas
An effort to unite the thirty-four democracies economies of the Americas into a single free trade area in which barriers to trade and investment will be progressively eliminated began at the Summit of the Americas, which was held in December 1994 in Miami and missed its targeted completion date of 2005.
A key theoretical construct in international trade that suggests that a country should trade the good that uses relatively intensively that country's most abundant factor.
The South American common market comprising Argentina, Brazil, Uruguay, Venezuela, and Paraguay as well as associate members Chile and Bolivia
North American Free Trade Agreement
Signed by the United States, Canada, and Mexico in 1994. It sought to reduce tariffs within a ten-year period, increase trade in the region, promote cross-border investment, and introduce environmental and labor standards across the region.
Promoted by ECLAC, this policy encourages the formation of regional and subregional trading units without excluding trade initiatives with other parts of the world.
Preferential Trade Agreements
Trade agreements such as free trade arrangements or customs unions that promote economic activity within a region by favoring trading partners within that region over those outside it.
The matching of economic and other policies within a region. The simplest form is a free trade area covering goods, with lower (or no) tariffs on goods exchanged within the region. The next level would include an FTA with services and perhaps regulations in other areas such as the environment or social concerns. A customs union deepens the commitment with a common external tariff. A common market permits the movement of factors of production among member countries, and an economic union expands on this to cede sovereignty over commercial, fiscal, and monetary policy to a supranational authority. It may make the liberalization process politically palatable through playing on sentiments of reciprocity of neighbor markets, and it may improve the confidence of investors because policies of openness have been locked in by treaty.
As the price of the more abundant (and cheaper) factor rises after an opening of trade, the owners of this factor - in the case of the developing countries, labor - will accrue the largest gain. Trade should therefore make owners of the cheapest factor better off.
theory of comparative advantage
This theory states that to maximize global output, each country should apply its resources to producing those goods that it can produce relatively most efficiently.
A benefit of economic integration whereby a trade agreement leads to an increase in overall trade. An integration agreement has positive effects if ___________ exceeds trade diversion.
An effect of economic integration, when trade with a more efficient global producer is discontinued in favor of products from a regional trading partner.
Business Competitiveness Index
A composite index using the context for firm strategy and rivalry, the quality of local demand conditions, and the presence of local and supporting industries, it highlights the microeconomic factors crucial to firm performance.
Global Competitiveness Index
Expanding on the Growth Competitiveness Index, this measure incorporates a broader range of factors, including health, education, labor market rigidities, and the sophistication of financial institutions.
Growth Competitiveness Index
This composite index attempts to capture the collection of factors, policies, and institutions that can determine the level of prosperity of an economy by weighting the quality of the macroeconomic environment, the state of public institutions, and the level of technological readiness in an economy.
labor market distortions
Movements away from free labor markets, these include government intervention in setting wages, high costs of dismissal, high payroll taxes, and the contentious nature of labor-management relations.
A measure of output produced by workers. The productivity of workers, conditioned by their education, health, and access to complementary inputs such as machinery and technology, is an important ingredient of growth. If productivity is rising faster than prices and population, a society will have more goods to distribute and welfare should improve.
Describes a state of workplace vulnerability where employment for some has become less remunerative, less regulated by government, and less subject to the collective control of workers.
agricultural extension programs
Programs to introduce new agricultural practices to peasant farming communities.
demand-driven rural investment funds
The allocation of central government funds to local governments or communities to promote local control of agricultural development. Certain eligibility requirements must be met, and beneficiaries must contribute to the cost of the projects, often through volunteer labor.
dualistic structure of production
A bimodal pattern of agricultural production in which large corporate farming practices crowd out peasant farming, lowering employment and the production of basic foodstuffs in favor of lucrative export crops.
Markets in developing countries that do not efficiently convey price signals to buyers or sellers. This may be due to lack of information, a limited number of participants, or the market infrastructure. When markets do not adjust smoothly, transactions costs rise and economic activity is compromised. Neostructuralists and new institutionalists suggest a role for the state in supplementing economic activity in these situations.
insecure property rights
When owners of property are not sure of their rights to use or dispose of their property. When institutions guaranteeing land titles are inefficient or nonexistent, farmers may underinvest in developing property because there is a good chance that the returns from efforts will be appropriated by another. _____________________ are an important cause of environmental damage, because economic actors may exploit land and natural resources now if they assume that they will not, or may not, continue to have access to these inputs in the future.
Given unequal patterns of landholdings created by colonial patronage, some governments have attempted to redistribute land. These movements have been revolutionary at times, taking tracts of land from the rich and giving them to the poor, as well as progressive, where only land that has been idle or unproductive is reassigned to those who might use it more intensively.
non traditional export production
Policies such as agricultural extension training or preferential credit to promote goods that are not in the traditional export profile. By diversifying exports, countries are able to capture new markets and be less dependent on price swings in traditional commodities.
segmented credit markets
Different groups of borrowers are assigned different prices for loans, and barriers between the groups prevent arbitrage from evening out the spread in interest rates. These barriers might be geographic distances or may be cultural or social differences that keep one group - perhaps poor minority women - separated from another portion of the population.
A critical element in agricultural policy. Access to _______________, if accrued on the basis of seniority or local power, often interferes with the efficient allocation of resources (water) in an agricultural community.
A devolution of governmental responsibilities from centralized bureaucracies to state and local levels. The ability to raise revenues is sometimes also moved to the local level, although systems of fiscal accountability need to be tightened to improve internal balance.
A policy approach advocated by the neostructuralists that promotes prioritizing and allocating limited government funds to areas that will produce the highest social returns.
Although levels vary by the local cost of living, those subsisting on roughly less than $1 a day are considered to be living in _______________. Moderate poverty is roughly $2 per day, or between $50 and $60 a month.
A measure of income inequality that gauges the difference between a hypothetical society where income is perfectly equal and the actual income distribution. It is derived from the Lorenz curve. The higher the ______________, the more extensive is income inequality.
The proportion within a country's population falling below the poverty line.
Human Development Index
The United Nations calculates _______________ as a composite of life expectancy at birth, educational attainment (measured by adult literacy and school enrollments), and income.
A measure of poverty that captures the difference between actual incomes and incomes at the officially designated poverty line.
Small-scale business operations such as selling goods on street corners or providing cleaning services in homes. The _______________ operates outside the official, taxed economy. It is characterized by a low capital-labor ratio, family-intensive production, and worker-owned means of production. The _____________ can be divided into three areas - microenterprise employment, own-account workers, and domestic services
Addressing poverty by means of growth policy and social policy, as suggested by the Economic Commission for Latin America and the Caribbean.
A graphical, U-shaped representation that illustrates income inequality initially increasing with economic growth, but later decreasing after economic growth has reached a certain level. At first economies may be equal but poor; equality may fall during rapid growth, but as economies mature, equality should rise again.
A graphical representation of income distribution. The population is sorted by income, usually deciles, and the percentage of income that each portion of the population holds is plotted. For example, in the _____________ for Latin America, the first 20 percent of the population holds 2.5 percent of the income, and the first 40 percent a cumulative 8.6 percent. Altogether, the bottom 60 percent accounts for 19.6 percent of income, with the top 20 percent holding nearly two thirds of the total.
Banking services that reach down to the small-scale entrepreneur. Collateral for loans is often provided by an investment circle that guarantees repayment of members. ____________ makes investment over time possible for the poor, but some question whether, because of the amounts involved and the repayment structure, __________ makes a significant difference in people's lives.
A standard of living corresponding to income of about $50-$60 a month, or $2 a day. Roughly 40% of the population of Latin America lives in ______________.
The minimum income required to purchase the goods necessary for subsistence. Although this varies by location, $2 per day is the global benchmark for moderate poverty and $1 a day for extreme poverty.
social investment funds
Targeted emergency aid for poverty reduction.
A method of allocating social expenditures by identifying and distributing funds to those most in need. Targeted policies have often replaced general programs such as price subsidies on tortillas or milk that could not distinguish between the needy and the well-ff. An example of a targeted policy would be a food debit card that is replenished when a mother brings a child to a clinic for preventive child care.
global public goods
________ transcend national boundaries, are difficult to exclude people from consuming, and the consumption by one does not diminish the good for another. A good example is clean air.
Health for All HFA
A program promoted by the World Health Organization mobilizing efforts to provide basic health services for all by the year 2000.
Investment in public goods such as education and health that have benefits for society in general.
The gap between Latin America and the rest of the world in educational attainment and years of schooling. The 4.2 years of schooling Latin American children receive is roughly half of that of counterparts in the United States, Japan, and Germany, and two-thirds those in the Asian newly industrialized countries.
A pervasive problem of educational systems in Latin America. Nearly one third of all school children repeat their grades annually, primarily because of poor educational inputs.
A comprehensive agenda for environmental action established at the 1992 United Nations Conference on the Environment and Development held in Rio de Janeiro
command and control measures
Government regulations and penalties used to reduce environmental pollution.
A form of environmental assessment that asks people to assign a value to their willingness to pay to preserve a natural resource.
An important technique for project appraisal, the tool helps value direct and indirect costs adjusted for the time value of money against potential gains.
A criterion used to decide among competing priorities, especially in the environmental arena. Programs with broad impact and low cost are more desirable than programs of limited scope and high cost.
direct government investment
In addition to command and control measures and market-based initiatives, this is a third policy option available to states to promote sound environmental practices.
An impact statement identifying the likely environmental effects of development policy. Most new development projects today require _________________ prior to approval.
Global Environmental Facility
Assists developing countries in funding projects and programs to protect the global environment and promote sustainable development. Established in 1991, __________ is the designated financial mechanism for international agreements on biodiversity, climate change, and persistent organic pollutants. __________ Also supports projects that combat desertification and protects international waters and the ozone layer.
In addition to command and control measures and direct government investment, one of three types of tools used in environmental policy. Instruments such as tax incentives are used to encourage market investments in such areas as recycling and use of solar power as a means of promoting sustainable development. The premise behind _______________ is that if someone can profit from doing environmental good, the policy is more likely to endure over time.
safe minimum standard
The highest level of pollution that a society can safely tolerate with the reasonable expectation that future generations will not be made worse off by the choice.
The growth of large cities. The high levels of urban living in Latin America, with rates in Argentina, Brazil, Venezuela, Uruguay, and Chile higher than that of the United States, create enormous environmental difficulties.
World Summit on Sustainable Development
In Johannesburg during 2002, the __________________________ brought together tens of thousands of participants, including heads of state and government, national delegates and leaders from NGOs, businesses, and other major groups to focus global attention and direct action toward meeting difficult development challenges, including improving people's lives and conserving our natural resources in a world that is growing in population, with ever-increasing demands for food, water, shelter, sanitation, energy, health services, and economic security.
Refers to investments in human capital, improvements in productivity and system design, and greater efficiency in the use of resources within economic, political, and social institutions
The constitutions, laws, and written regulations that structure economic activity
Values and norms that condition and are conditioned by the process of economic change.
Rules that shape the behavior of organizations and individuals engaged in economic activity.
The first and often very painful stage of macroeconomic adjustment designed to bring macroeconomic fundamentals into line.
The second stage of economic adjustment designed to change the shape of the economy, particularly with respect to decreasing the active role of the state and increasing the economy's orientation to the international market.
A policy principle that encourages governments to implement effective anticorruption laws and policies, promotes reform through international organizations, and raises public awareness of the business of governance.
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Becky and Sarah are sisters who share a room. Their room can easily get messy, and their parents are always telling them to clean it up. Here are the costs and benefits to both Becky and Sarah, of taking the time to clean their room: If both Becky and Sarah clean, they each spends two hours and get a clean room. If Becky decides not to clean and Sarah does all the cleaning, then Sarah spends 10 hours cleaning (Becky spends 0) but Sarah is exhausted. The same would occur for Becky if Sarah decided not to clean—Becky spends 10 hours and becomes exhausted. If both girls decide not to clean, they both have a dirty room. a. What is the best outcome for Becky and Sarah? What is the worst outcome? (It would help you to construct a prisoner’s dilemma table.) b. Unfortunately, we know that the optimal outcome will most likely not happen, and that the worst one will probably be chosen instead. Explain what it is about Becky’s and Sarah’s reasoning that will lead them both to choose the worst outcome.
Many small boats are made of fiberglass, which is derived from crude oil. Suppose that the price of oil rises. a. Using diagrams, show what happens to the cost curves of an individual boat-making firm and to the market supply curve. b. What happens to the profits of boat makers in the short run? What happens to the number of boat makers in the long run?
If a monopolist finds that demand is elastic at the level of output where marginal revenue is equal to marginal cost, the monopolist will A. maintain that level of output. B. increase output. C. decrease output. D. raise the price. E. lower the price.
If an economy experiences long-run economic growth, which of the following is true of its potential output? A. It has increased. B. It has decreased. C. It is greater than actual output. D. It is less than actual output. E. It is no longer equal to LRAS
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U-shaped because during the process of growth most countries experience an increase in income inequality that is followed by an eventual decrease.