Economic Development: Classification by National Income Level

This section explores how countries are classified based on their level of national income, a key indicator of economic development. The classification typically follows a widely used framework developed by the World Bank.

Classification of Economies

Economies are broadly categorized into three main groups based on their Gross National Income (GNI) per capita:

• Low-Income Countries
• Middle-Income Countries
• High-Income Countries

Detailed Classification

Category	GNI per capita (2022)	Characteristics
Low-Income Countries	$1,135 or less (2022)	Limited infrastructure (e.g., roads, electricity, sanitation). High poverty rates. Weak institutions and governance. Dependence on agriculture and/or natural resource extraction. Vulnerable to economic shocks.
Middle-Income Countries	$1,136 - $9,845 (2022)	Growing economies with increasing industrialization. Improving infrastructure and healthcare. Rising middle class. Increased investment in education and human capital. Greater exposure to global markets.
High-Income Countries	$9,846 or more (2022)	Highly developed economies with advanced infrastructure. High levels of human development (e.g., life expectancy, education). Strong institutions and stable governance. Diversified economies with a focus on services and technology. High levels of innovation and productivity.

Key Indicators

The World Bank uses GNI per capita as the primary indicator for classifying economies. GNI per capita is calculated as:

$$ \text{GNI per capita} = \frac{\text{Gross National Income}}{\text{Population}} $$

Other indicators used to assess economic development include:

• Human Development Index (HDI): A composite index measuring life expectancy, education, and per capita income.
• Infant Mortality Rate: Reflects healthcare and living conditions.
• Literacy Rate: Indicates the level of education and human capital.
• GDP per capita: While GNI is used by the World Bank, GDP per capita is another common measure of economic output per person.

Limitations of GNI per capita

While GNI per capita is a useful indicator, it has limitations:

• Doesn't reflect income inequality: A high GNI per capita can mask significant disparities in wealth distribution.
• Doesn't account for non-market activities: Household work and unpaid care are not fully captured.
• Can be influenced by exchange rate fluctuations: Changes in exchange rates can distort comparisons between countries.