Development Economics Cheat Sheet

The core ideas of Development Economics distilled into a single, scannable reference — perfect for review or quick lookup.

PiqCue — piqcue.com/development-economics/cheatsheet

Quick Reference

Poverty Trap

A self-reinforcing mechanism where countries or individuals remain stuck in persistent poverty because the conditions of poverty themselves prevent escape. Low income leads to low savings, which leads to low investment, which perpetuates low income.

Human Development Index (HDI)

A composite measure developed by the United Nations that evaluates a country's development based on three dimensions: life expectancy at birth, education (mean and expected years of schooling), and gross national income per capita.

Structural Transformation

The long-run reallocation of economic activity from agriculture to manufacturing and services, accompanied by urbanization, demographic transition, and rising productivity across all sectors.

Import Substitution Industrialization (ISI)

A trade and economic policy in which a developing country attempts to replace foreign imports with domestic production by erecting trade barriers and subsidizing local industries to foster self-sufficiency.

Microfinance

The provision of small loans, savings accounts, insurance, and other basic financial services to low-income individuals and entrepreneurs who lack access to conventional banking. It aims to promote entrepreneurship and self-sufficiency among the poor.

Foreign Aid and Official Development Assistance (ODA)

Financial, technical, or material assistance provided by governments and multilateral institutions to developing countries with the aim of promoting economic development and welfare. Its effectiveness remains one of the most debated topics in the field.

Conditional Cash Transfers (CCTs)

Government programs that provide cash payments to poor families on the condition that they meet certain behavioral requirements, such as keeping children in school, attending health checkups, or receiving vaccinations.

Institutions and Governance

The formal and informal rules, norms, and enforcement mechanisms that shape economic behavior in a society. Strong institutions including property rights, rule of law, and accountable governance are considered essential for sustained development.

Dual Economy Model

A theoretical framework introduced by W. Arthur Lewis describing an economy with two sectors: a traditional agricultural sector with surplus labor and low productivity, and a modern industrial sector that absorbs labor and drives growth.

Capability Approach

A framework developed by Amartya Sen that defines development not merely as income growth but as the expansion of individuals' real freedoms and capabilities to live lives they have reason to value, including health, education, political participation, and personal security.

Key Terms at a Glance

Absolute Poverty:A condition where individuals lack the minimum income or resources necessary to meet basic needs such as food, shelter, and clothing. The World Bank defines extreme poverty as living on less than $2.15 per day (2017 purchasing power parity).

Brain Drain:The emigration of highly trained or qualified people from a developing country to a developed one, depleting the source country of its human capital and reducing returns on public education investment.

Capital Flight:The large-scale movement of financial assets and capital out of a country due to political instability, economic uncertainty, or unfavorable policies, reducing the domestic resources available for investment and development.

Convergence:The hypothesis that poorer economies will tend to grow faster than wealthier ones over time, eventually closing the income gap. Conditional convergence accounts for differences in institutions, policies, and human capital.

Debt Trap:A situation where a developing country borrows heavily, struggles to service its debt obligations, and must take on additional debt to repay existing loans, diverting resources from development and creating a cycle of indebtedness.

Demographic Transition:The shift from high birth and death rates to low birth and death rates as a country develops, typically moving through stages of declining mortality followed by declining fertility, with population growth in between.

Dutch Disease:An economic condition where a surge in revenue from natural resource exports causes the national currency to appreciate, making other sectors of the economy less competitive and potentially leading to deindustrialization.

Export-Led Growth:An economic development strategy that emphasizes producing goods for international markets as the primary engine of growth, leveraging comparative advantages and economies of scale, as exemplified by the East Asian Tigers.

Foreign Direct Investment (FDI):Investment made by a firm or individual in one country into business interests in another country, typically involving establishing operations or acquiring tangible assets, bringing capital, technology, and management expertise.

Gini Coefficient:A statistical measure of income or wealth inequality in a population, ranging from 0 (perfect equality) to 1 (perfect inequality), commonly used to compare inequality across countries and over time.

Green Revolution:The period from the 1960s to 1980s when advances in agricultural technology, including high-yield crop varieties, chemical fertilizers, and irrigation, dramatically increased food production in developing countries, particularly in Asia and Latin America.

Gross National Income (GNI):The total income earned by a country's residents and businesses, including investment income flowing from overseas, used as an alternative to GDP for measuring a country's economic performance and standard of living.

Human Capital:The economic value of a worker's skills, knowledge, experience, and health. Investment in human capital through education and healthcare is considered essential for long-term economic development.

Infant Industry Argument:The economic rationale for protecting new domestic industries from international competition through tariffs or subsidies until they achieve economies of scale, gain experience, and become competitive on world markets.

Informal Economy:Economic activities that are not regulated, taxed, or monitored by the government, including street vendors, domestic workers, and small-scale producers. In many developing countries, the informal sector accounts for a majority of employment.

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