Developed vs Developing Economies

It is relevant to notice that the definition of a developing economy is not universally agreed upon, and there is no clear agreement on which countries fit into this category. Although no strict criteria exists, for an economy to be considered developed or undeveloped, developing economies share some characteristics, for example:

  • Low levels of access to safe drinking water, sanitation and hygiene;
  • Poor infrastructures;
  • Poverty and low education levels;
  • Corruption at all government levels, and so on.

These countries have a less developed industrial base and a low Human Development Index figure because, like it was mentioned above, there is not an agreement in the criteria.

However, it is important to try and answer the question, “What makes a country undeveloped?”. According to the most reliable source, which is agreed upon by most economists: The United Nations, more specifically, the Department of Economic and Social Affairs of the United Nations Secretariat, countries have been classified by their level of development. This is measured by per capita gross national income (GNI), in other words, GDP per capita, grouping countries as high income, upper middle income, lower middle income and low income:

GNI per capita:

  • Less than $1035 = Low Income countries
  • $1036$ – $4085 = Lower middle-income countries· $4086$ – $12615 = Upper middle-income countries
  • Over $12615 = High Income countries

For countries that are difficult to categorize, economists turn to other factors to determine development status, such as standard of living measures, like the infant mortality rate and life expectancy, for instance. The Human Development Index plays a huge role in distinguishing developing economies and developed economies, by looking at three standard of living criteria:

  • Literacy rates
  • Access to education
  • Access to healthcare

Therefore, a high per capita GDP alone does not provide developed economy status without other factors. For example, the United Nations still considers Qatar, with one of the world’s highest GDP per capita, in 2018, a developing economy because the it has extreme income inequality, a lack of infrastructure, and limited educational opportunities for non affluent citizens. As a follow up to this introduction, my colleagues will discuss issues regarding developing economies and what does that entail, in regards to investors seeking to enter such markets.

Article published in our February Newsletter

Pedro Santos, BSc in Economics

Published by lisboninvestmentsociety


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