Grouping Countries by Income Levels Developed vs. Developing?

 Grouping Countries by Income Levels
Developed vs. Developing? Several systems have been devised to group
countries according to their levels of per capita income. The United Nations
Statistical Yearbook notes that there is no “common agreement in the United Nations
system concerning the terms ‘developed’ and ‘developing’, when referring to the
stage of development reached by any given country or area and its corresponding
classification in one or the other grouping.”7 The yearbook divides the world into
two groups. Countries in North America, Europe and the former U.S.S.R., Japan,
Australia and New Zealand are said to be “developed.” All others are “developing.”
By dividing the world into two large blocks, the above system tends to obscure
the differences within each group and to emphasize differences between them. In its
United Nations. World Economic and Social Survey, 1999. New York: U.N., 1999. See, for
instance the table on output and per capita income on p. 256.
The thresholds and ceilings for the U.N. categories would be higher they were expressed
in U.S. dollars for 2000.
10Source: World Bank, World Development Report, 2002, p. 241.
annual global economic and social survey, the U.N. uses a somewhat different
classification system. It separates the former Soviet republics and the former
communist countries of Eastern Europe into a third group called “economies in
transition.”8 In effect, these countries are grouped together – despite wide disparities
among them – on the basis of their history rather than their level of development.
Income Categories. The U.N. also uses a number of other systems for
categorization. To help identify the countries most affected by the world oil crisis,
the U.N. divided them into three groups – 44 “least developed” countries, 88 non-oil
exporting “developing nations” and 13 members of the Organization of Petroleum
Exporting Countries (OPEC). This showed generally which countries were likely to
be helped or hurt by increases in world oil prices.
For other purposes, the U.N. has grouped the developing countries into five
categories. (1) The Least Developed Countries (“LLDC”) are 29 low-income
countries with per capita GNP levels below $761 (in 1998 U.S. dollars) and have
major problems in terms of their economic diversification and social development.
This group of countries is different from the 44 “least developed” countries
mentioned above. (2) Low-Income Countries (LICs) are poor countries which meet
the prior income test but do not have the same severe local conditions. (3) Lower
Middle-Income Countries (LMICs) have GNP per capita levels between $761 and
$3,030. (4) Upper Middle-Income Countries (UMICs) have annual GNP per capita
levels between $3,031 and $9,360. (5) High-Income Countries (HIC) have GNP per
capita levels greater than $9,360.
The World Bank uses the same basic framework, though it pegs the threshold
for each category lower than does the U.N.9 Using the foreign exchange method of
calculating income, the World Bank divides countries into five groups. Low-income
countries are those with per-capita income levels below $755 (in 2000 U.S. dollars).
Lower middle-income countries have incomes between $756 and $2,995. Upper
middle-income countries have income levels between $2,996 and $9,265 annually,
while high-income countries have per capita income levels above the latter amount.10
The average PPP per capita income for countries in the low income group was $1,990
annuallyin 2000, while those for countries in the lower-middle group was $4,580 and
the upper-middle group was $9,170. By comparison, the average PPP income levels
for countries in the upper income group was $27,450. The PPP income level for the
United States was $34,260 in 2000. The average person in the low-income group has
a standard of living comparable to that which could be purchased in the United States
with an annual $1,990 net income. Table 1, in the Appendix, organizes countries
according to the World Bank framework, adjusted to show those countries with very
low income levels.
11For example, see: P. Dasgupta, An Enquiry into Well-being and Destitution. Oxford (UK):
Oxford University Press, 1999, chapters 4 and 5.
Other Categories. Some analysts have grouped countries further according
to certain dynamic qualities of their economies. Newly Industrializing Countries
(NICs) are those where the industrial and manufacturing sector is growing rapidly
and where these products comprise a growing portion of their foreign sales. At
different times, countries at various levels of per-capita income – Mexico, Greece,
Singapore, Portugal and Spain – have been included in this group. Emerging Market
Countries (EMC) are those whose participation in world trade is growing rapidly.
They are successful in attracting foreign investment and in establishing their
creditworthiness for private commercial loans. Middle-income countries comprise
most of the participants in this group, but China is also generally included as well.
In some cases, countries may be dropped from the list of NICs or emerging
market countries for reasons not necessarily linked to their economic performance.
This suggests that their level of “development” according to that system of
categorization is less a function of their own condition and more a function of their
relationship with foreign markets or other countries. For example, countries in
Eastern Europe would likely no longer be considered developing countries or NICs
if (like Spain and Portugal in the past) they joined the European Union. Likewise,
countries may find their status as successful emerging market economies may be
reduced for reasons not entirely of their own making. These include recessions in the
developed countries which cut their export markets or financial crises where events
in one emerging market country have a “contagion” effect. In the latter situation,
investors or lenders may reduce their exposure in emerging market countries
generally, seemingly without much regard for the situation in particular countries.

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