Development Economies

Measuring Development

Just as there is no universally accepted definition of “developing” and “developed” countries, there is also no single measure that will allow us to accurately classify countries into one group or the other.  Accordingly, a variety of measures have been used to assess the level of development in countries around the world.

Income Per Capita

The World Bank tends to focus on income levels.  They have developed a list that contains four separate bands, and based on this they are able to classify countries into one of four stages of development.  The lowest stage is reserved for countries where the income per capita is less that US$975 per year.  (As you read these figures, you should keep in mind that they have been calculated in “purchasing power parity” terms.  This means that the statisticians have taken account of the fact that prices are different around the world.  Although the concept is complicated, the outcome is clear – imagine what it would be like to try and live on US$975 for a year in Australia.)

The next level is for countries where the overall income per capita is between US$976 and US$3,855.  People in these countries are still generally very poor, although it is important to remember that there is a great deal of inequality within the borders of a nation.  This classification is referred to as the “low-middle income” category.  If the income per capita is higher than US$3,855, but less than US$11,905, then the country will fall into the high-middle income category.

Significantly, all of the countries that have been classified so far would appear as developing countries.  It is only when income per capita exceeds US$11,905 per year that a country can be classified as developed (according to the World Bank).  By this measure, income per capita is around US$47,000 per year in the USA, US$37,000 per year in Australia, and US$268 per year in Zimbabwe.

The Human Development Index

Since 1990, the United Nations has used a composite measure called the Human Development Index to try and “rank” living standards in different countries.  This index was developed to shift the focus away from a simple dollar value, and try to include other factors that significantly affect the way in which people live.

It is impossible to move completely away from economic measures, and so the level of income per capita is still a vital part of this calculation.  Two other factors are also considered.

1.    Life expectancy: In general, people who live in developed countries will have a longer life than those who live in less developed countries.  This is an over-simplification, as often there are smaller groups within a developed society who have a shorter life expectancy, such as the Aboriginal people of Australia or the Maori population of New Zealand.

2.    Adult literacy rates: Again, it is reasonable to conclude that in a developed country a higher percentage of the adult population will be able to read and write.  While statistical variations within a population will be hidden through the use of this measure as well, the broad principle is valid.

The three factors are combined with a complicated calculation, and the end result is a figure between zero and one.  The closer the final figure is to one, the more developed the country.

During October 2009, the United Nations published the Human Development Index for 182 countries.  From this list, Australia ranked second to Norway; the HDI in this country was assessed as 0.970 (Norway’s was 0.971).  A selected list of other countries from this list could include:

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