Development Economics Glossary - R to W

Glossary of some key terms in development economics - R to W

Randomized controlled trial

Studies that use one randomly selected test group and one randomly selected control group to create a fair comparison – these can be used to evaluate the effectiveness of a specific government intervention or project

Real exchange rate

The product of the nominal exchange rate (the dollar cost of a euro, for example) and the ratio of prices between the two countries

Real interest rate

Real rate of interest = nominal rate of interest – rate of inflation E.g. if the inflation rate is 2% and nominal interest rate is 6% then real interest rate is 4%


A process of changing the nature of economic growth and development. For example a country might try to increase reliance on domestic demand (especially from consumers), achieve a more equal income distribution and introduced policies and incentives for environmental sustainability

Regional Development Banks

Development Banks which serve particular regions e.g. the African Development Bank or European Bank for Reconstruction and Development


Output which might be necessary but does not add to (and might detract from) the quality of life, e.g. expenditure on armaments and commuting

Relative poverty

The relative position of some economic unit (e.g. individual, household, racial group) compared to another economic unit.  A person can be relatively poor but not absolutely poor – is really to do with distribution of income in a country


When migrants send home part of their earnings in the form of either cash or goods to support their families. Remittances tend to be countercyclical—increasing during economic downturns or after a natural disaster in the migrants’ home countries, when private capital flows tend to decrease

Rent-seeking behaviour

Behaviour by producers in a market that improves the welfare of one but at the expense of another. A feature of monopoly and oligopoly

Reserve currency

A foreign currency that is held in countries' official reserves because of its global importance as a medium of exchange and its inherent stability

Resource efficiency

Achieving more with less, i.e. producing more goods and services but with a lower environmental footprint

Resource rent

Resource rent is a measure of the financial return from operating in a natural resource industry – for example in the fishing sector, it is what remains after fishing costs and subsidies are deducted from revenue

Revealed comparative advantage

Calculated as the share of footwear in the economy’s exports divided by the share of footwear in global exports. The comparative advantage of a particular economy is ‘revealed’ when this ratio is greater than 1

Rural urban migration

The migration of people from rural areas to urban areas

Savings surplus

The excess of aggregate savings over domestic investment, where investment is in fixed capital and inventories by both the public and the private sectors.


Abbreviation for special economic zones

Social cohesion

Similar to social capital, social cohesion is about how united, connected, trustful, cooperative and tolerant of cultural diversity society is

Social exclusion

Social exclusion occurs when people are denied access to goods opportunities considered ‘normal’ in a society

Soft commodities

Commodities which can be grown, such as coffee, sugar or maize

Soft infrastructure

The financial system and regulation, education system, the legal framework, social networks, values and other intangible structures in an economy

Soft loan

A loan made to a country on a concessionary basis with a lower rate of interest

Sovereign debt crisis

Broad term for the widespread problem of high government fiscal deficits and rising national debts in many developed countries especially in the vulnerable countries inside the single European Currency

Sovereign wealth fund (SWF)

A government or state run fund usually created by profits from natural resources. Highly secretive, their assets grew dramatically when oil prices rose to record levels. Some of the largest SWFs are in the oil-rich Middle East

Special drawing rights

A unit of money created by the IMF. Each member country can borrow SDRs at favourable interest rates from the IMF's reserves when they are needed


When individuals, regions or countries concentrate on making one product to create a surplus to trade

Subsistence farming

Farming where output is produced for consumption of the farmer and its family members and not for cash sale

Sustainable development

To leave future generations the option or capacity to be as well off as we are

Sustainable growth

Growth which meets the needs of the present without compromising the ability of future generations to meet their own changing needs and wants. Each generation should bequeath to its successor at least as large a productive base as it inherited from its predecessor

Terms of Trade

The terms of trade (also known as the real exchange rate) is the real value of countries exports in terms of their imports. Thus it is a function of the price levels in the domestic and foreign country and the nominal exchange rate

Trading bloc

A group of countries co-operating to liberalize trade between each other

Transition economies

Former countries of the Eastern Bloc that have been engaged in a transition from being largely command economies to market systems with a greater role for private enterprise and resource allocation via the price mechanism

Trend growth

Trend growth is the long term non-inflationary increase in output (GDP) caused by an increase in productive capacity i.e. LRAS

Trickle down

The process whereby the economic gains from economic growth pass down throughout the entire society eventually giving rise to development

Unbalanced economy

Imbalances are a common feature of most modern economies. For example imbalances between: (i) savings and investment (ii) domestic and external demand (iii) public and private sectors (iv) formal and informal economic activity (v) balance of payments deficits and surpluses


When people want to work full time but find that they can only get part-time work – the result is a loss of hours that the economy can use

Under-nourished people

People whose food intake is chronically insufficient to meet their minimum energy requirements.


The economic and demographic processes involved in the growth of towns and cities

World Bank

The World Bank promotes the institutional, structural and social development of Less Developed Countries (LDCs) providing low interest loans for domestic investment projects and technical assistance

World Trade Organisation

The WTO polices free trade agreements, and decides on trade disputes between countries. It arranges trade negotiations to liberalize trade for member countries by mutually agreed reductions in  tariffs & quotas and opening domestic markets up to foreign competition

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