INDICATORS OF COMPARATIVE DEVELOPMENT

Classification according to levels of income
Posted by Abd. Ghafar Arif RM

The simplest way in which economics can be classified is according to the value of their Gross National Product (GNP) per capita. Every economy can be classified as low income, middle income, (subdivided into lower and upper middle), or high income. Low-income and middle-income economies are sometimes known as developing economies. Classifying economies in this way is convenient, but as we have seen the level of development of a country goes beyond relative levels of income. It can also be misleading if it is assumed that all countries classed as 'developing' are at the same stage of development. In fact economies grouped together in terms of income may well be at completely different stages of development. Nevertheless, categorizing economies according to their levels of income provides a simple and measurable way of grouping economies.

The income groups were categorized as follows in 2000:

LOW INCOME                  $755 or less

MIDDLE INCOME            $756 to $2,995 (lower middle)

                                            $2,996 to 9,265 (upper middle)

HIGH INCOME                 $9,266 or above

The thresholds between the categories are updated each year to account for international rates of inflation. As a result the thresholds are constant in real terms overtime.

Classification according to levels of indebtedness

Sometimes it is useful to classify developing economies according to the degree of their indebtedness. These categories are: severely (or highly) indebted, moderately indebted and less indebted. The categorization depends upon a number of measures of international indebtedness, the most important of which is the proportion of GNP which is devoted to servicing the debt. The fact that such a categorization is used is a reflection of the extent to which international indebtedness is an obstacle to economic development.

Source: Colin Bamford, Keith Brunskill, Gordon Cain, Sue Grant, Stephen Munday, Stephen Walton, As Level and A Level Economics, University of Cambridge, 2002

ECONOMIC GROWTH and DEVELOPMENT

Posted by Abd. Ghafar Arif RM

Economic Growth

In strictly economic terms, economic growth occurs when an economy achieves an increase in its national income, measured by Gross National Product (GNP), in excess of its rate of population growth. This will lead to an increase in GNP per capita. For many years it was assumed that the existence of poverty in many of the world's poorer economies could be eradicated if these countries managed to sustain economic growth over a period of time. As a result of economic growth was seen as synonymous with economic development. If economies grew they would also experience development. It was assumed that increased availability of goods and services in an economy would lead to a 'trickle down' effect which would have an impact upon all, including the poorer members of society, in terms of jobs and other economic benefits. In reality however, despite the fact that in recent years many developing countries have achieved quite high growth rates, it has been observed that, although economic growth has resulted in benefits for poorer members of society in some countries, in others the levels of living of the mass of the population remained unchanged. In some cases this level may even have deteriorated. As a result a wider perception of economic development is now accepted which is related to, but distinct from, economic growth.