Income Per Capita in Under-developed, Developing Countries and

Developed Countries:
The World Bank has utilized a income characterization to aggregate nations for explanatory
purposes for a long time. The technique was introduced in the primary World Development
Report (World Bank, 1978), and its causes can be followed considerably further back. In 1965,
for example, a distributed paper "The Future of the World Bank" utilized gross public item
(GNP) per capita to arrange nations as extremely poor, poor, center income, and rich.

The current type of the income grouping has been utilized since 1989. It partitions nations into
four gatherings—low income, lower middle incomes, upper middle incomes, and higher income
— utilizing gross national income (GNI) per capita esteemed yearly in US dollars utilizing a
three years normal conversion scale (World Bank, 1989). The cutoff focuses between every one
of the gatherings are fixed in genuine terms: they are changed every year in accordance with
value expansion.

The World Bank utilizes the income order in World Development Indicators (WDI) and different
introductions of information; the principle reason for existing is investigation. The grouping is
frequently mixed up just like equivalent to the Bank's operational rules that set up loaning terms
for nations (International Development Association, 2012). While the income order itself isn't
utilized for operational dynamic by the World Bank and without anyone else has no conventional
authority importance, it utilizes similar techniques to compute GNI per capita and change the
edges that are utilized in the operational rules.

Various clients, going from strategy producers, the business network, media, and understudies,
have gotten comfortable with the Bank's datasets and income grouping. After some time, it has
become a piece of the advancement talk, and the scholarly world and the news media every now
and again think that it’s a valuable benchmark to break down improvement patterns. The
grouping is utilized by other worldwide associations and respective guide organizations for both
scientific and operational purposes.

Country Type Group GNI Per Capita (US$)

Under developed Low income <1,035

Developing Lower-middle income 1,036-4,045
Upper-middle income 4046-12,535
Developed High income >12,535

While it is perceived that GNI per capita doesn't quantify government assistance or
accomplishment in the battle against neediness, GNI per capita is found to relate intently, as far
as the two qualities and rankings, with various acknowledged pointers of improvement results,
for example, auxiliary school enlistment, hindering (lack of healthy sustenance), births went to
by gifted staff, and the destitution headcount proportion.

There are, notwithstanding, issues of information quality identified with the GNI gauges that
may bring about orderly predisposition. To begin with, rare change of the public bookkeeping
system in nations going through quick auxiliary change may influence information quality.
Second, the estimation of casual, illicit and resource exercises is frequently inexact in helpless
nations, yet is probably going to be a generally bigger portion of GNI than in higher pay nations.
Third, nations with more vulnerable factual frameworks may likewise need sufficient
information sources and assessment strategies for precisely estimating conventional exercises;
business enlists—a key apparatus for directing an example study of organizations—might be
inadequate and obsolete, and overview reaction rates might be poor. It is conceivable that, in
certain nations, under-assessment of formal exercises might be as extensive as under-assessment
of casual exercises.

To be helpful for grouping purposes, GNI per capita appraises must be changed over into typical
cash so they can be looked at on a similar premise. The current explanatory nation order
framework, and the connected operational rules, utilizes the US dollar as the basic cash or
numeracies. Transformation factors are assessed from market trade rates, acclimated to reduce
the effect of any huge passing changes. An away from of utilizing market trade rates contrasted
and buying power equality trade rates is that they are promptly accessible on a yearly reason for
practically all nations.

Economic Growth vs Poverty

Economic growth means the increase in the inflation-adjusted market value of the goods and
services produced by an economy over time. Statisticians conventionally measure such growth as
the percent rate of increase in real gross domestic product, or real GDP. On the other hand,
Poverty is the state of not having enough material possessions or income for a person's basic
needs. Poverty may include social, economic, and political elements. Absolute poverty is the
complete lack of the means necessary to meet basic personal needs, such as food, clothing, and
shelter. We are going to discuss economic growth vs poverty in terms of developed country,
developing country and underdeveloped country. We select Chile as a developed country,
Mexico as developing country and Zimbabwe as a under developed country. First of all, in terms
of Chilie;
 Year Economic growth Poverty head count Poverty head
(%) ratio at national count at
poverty line (% of $5.5 a day (2011
population) PPP)
( % of population)
2010 5.8
2011 6.1 22.2 12.4
2012 5.3
2013 4 14.4 6.9
2014 1.8
2015 2.3 11.7 5.2
2016 1.7
2017 1.2 8.6 3.7
2018 3.9
2019 1.1

After 2012 Chile’s GDP growth has been decreasing over the year. On the other hand, poverty
rate is decreasing. The reasons of GDP growth rate decreasing are inequality in income,
disruption in economic activities, social unrest, decreasing in export and decreasing in foreign
investment. Reductions in poverty have been mainly the consequence of economic growth and
that social Olavarria-Gambi policy has had a low impact on poverty since it mainly consists of
non-cash benefits. Although there is no question about the important role of economic growth in
fighting poverty, there are several indications that other factors might be equally important.
Lustig and Deutsch (1998), in an analysis of poverty reduction in Latin America, suggested that
economic growth would be ‘‘essential but not enough’’, especially in a context of high
inequality, and that investing in human capital was also essential. De Janvry and Sadoulet
(1999), in a study on 12 Latin American countries found that growth was effective if initial
levels of poverty were not too high and if initial levels of secondary school enrolment were
sufficiently high; inequality could erase the effect of growth. there has been a tendency in the
debate on Chile’s poverty reduction process to separate the effects of growth and distribution,
and to attribute the increase in people’s income to economic growth, mainly through the
intermediary of the labour market. It is usually said that growth impacts on poverty through two
main mechanisms: the labour market and greater government capacity for social spending.
Greater economic activity increases the demand for labour, producing a scarcity of workers, a
consequent increase in wages and, ultimately, an improvement in the situation of the poor.
Government capacity to increase social spending because of higher tax returns.

In terms of Mexico,
 Year Economic growth Poverty head count Poverty head
(%) ratio at national count at $5.5 a
poverty line (% of day (2011 PPP)
population) ( % of population)
2008 1.1 44.4 33.4
2009 -5.3
2010 5.1 33.3
2011 3.7
2012 3.6 45 31.6
2013 1.4
2014 2.8 46.2 33.3
2015 3.3
2016 2.9 43.6 25.4
2017 2.1
2018 2.1 41.9 22.7

After 2010 the growth of economy becomes slow because of inequality in income, decreasing in
export and decreasing in foreign investment. Progress towards poverty reduction and shared
prosperity has been moderate, reflecting low economic growth and significant income and
growth disparities. The official multidimensional poverty rate which combines income poverty
with six indicators of social deprivation shows only a slight decline between 2008 and 2018; 41.9
percent of the population was classified as multidimensionally poor in 2018 compared to 44.4
percent in 2008. A new poverty series beginning in 2016 shows a decline in moderate poverty (at
US$5.50/day per capita in 2011 PPP) from 25.7 percent in 2016 to 23 percent in 2018, with 29
million people continuing to be poor. In addition, although it has narrowed slightly since 2008,
income inequality remains high. Between 2016 and 2018 growth has been pro-poor, leading to a
slight decline in inequality. However, with a Gini of 45.4 in 2018, inequality in Mexico is still
among the highest in OECD countries. There are large differences between the industrialized
north and the less well-developed south, with limited convergence between them. In 2018, 69
percent of the extremely poor lived in only six of Mexico's thirty-two states. Rural areas suffer a
vicious cycle of low productivity, low investments in physical and human capital, and high
poverty rates, particularly in the south of the country. At the same time, most of Mexico's poor
live in urban areas with challenges in the provision of services.

In terms of Zimbabwe:

Year Economic growth Poverty head count Poverty head

 (%) ratio at national count at $5.5 a
poverty line (% of day (2011 PPP)
population) ( % of population)
2010 19.7
2011 14.2 22.5 74
2012 16.7
2013 2
2014 2.4
2015 1.8
2016 0.8
2017 4.7 30.4 81.3
2018 4.8
2019 -8.1 38.03

According to the World Bank, Zimbabwe has been experiencing an economic and social crisis
since 1997, this crisis happened because of declining prices for its key exports, poor economic
policies, a large fiscal deficit and loss of investor confidence arising from uncertainty about
domestic policies. A combination of two successive years of drought, the government's fast-track
land acquisition programme, the impact of HIV/AIDS and a collapse in social services left more
than half the population in need of food aid. The country's political and economic crises have
resulted in high poverty rates. The hard years between 2000 and 2008 saw poverty rates increase
to more than 72%, according to the World Bank. It also left a fifth of the population in extreme
poverty. Extreme poverty, estimated to have fallen from 2009 to 2014, is now projected to have
risen again substantially. There are some several reasons for increasing poverty , these are
massive de-industrialization, company closures, foreign investor flight, job losses, and decline in
agricultural productivity and escalation in poverty levels and it happened between 2000 to 2014.
As a result, it is said that this county’ unstable and poor economic growth leads to increase the
poverty level.

Income Convergence or Persistent Inequalities among Countries

Income inequality has become an issue of major concern for citizens and Governments around
the world. The recent literature on the subject has documented a clear trend for income inequality
to increase within most countries. One exception to this trend is in Latin America where income
inequality actually decreased in most countries between 2000 and 2010. Two factors contributed
to this result: an improvement in the level of education of workers entering the labor force and
the adoption of large transfer income programs for poverty reduction (Lustig, 2015). Despite the
improvement seen in Latin America, the issue of income inequality remains at the center of the
political debate in the region. In contrast to the trend seen in within-country inequality, income
inequality between countries has been on a general trend towards convergence between
developed and developing countries since 1990 (Bourguignon, 2015; Milanovic, 2010

The trend towards convergence, initially led by China and India during the 1980s and 1990s, has
become a generalized pattern for the rest of Asia3 in the last ten years—a remarkable
achievement to the extent that these countries roughly represent 50 per cent of the world
population. Nonetheless, global income convergence has been largely limited to this particular
region, with some additional convergence seen in Latin America and the Caribbean in the last
decade. Nonetheless, the income gap between poor and rich countries remains large, even in fast-
growing Asian countries. That’s why the gap between developed and developing countries
reduced over the year. It indicates an improvement in the level of education of workers entering
the labor force and the adoption of large transfer income programs for poverty reduction in Asia
region & other developing counties over the year.
 Income of Other Developing Regions is Stagnating or Lagging Behind
Excluding Asia, income differentials between developed and developing countries remain large
and have not changed significantly. Average per capita income in Africa in 1990 was equivalent
to 12 per cent of per capita income in developed countries; by 2014 that ratio was unchanged.
Income per capita in Oceania experienced a slight regression, from 15 per cent of the income in
developed countries in 1990 to 14 per cent in 2014.

Income convergence or divergence

Unfortunately, there is a more complex reality behind aggregate income gaps between developed
and developing countries. According to Milanovic (2010), the “catch up” growth of China and
India has been a strong force for income convergence between developing and developed
countries. Data on GDP per capita1 for 116 developing countries and 30 developed countries
indicate that rapid growth of income per capita in Asian countries has been the main source of
global income convergence (see figure 1).2 The gap in income between the Asian region and
developed countries declined from 14 per cent of the average income of developed countries in
1990 to 25 per cent in 2014. Being the developing region with the highest living standards, the
income per capita of countries in Latin America and the Caribbean4 averaged approximately 36
per cent relative to developed countries in the period 1990-2014, but with a marked cyclical
behaviour that ranged from a low of 34 per cent in 2003 and a high of 39 percent ten years later.

Conclusion:
Clearly, rapid and sustained growth in Asia has led to fast poverty reduction, major improvement
in living standards in the region, and a global process of income convergence. As emphasized in
the literature, the major source of global income inequality is increasing income inequality
within countries. Most developing countries, however, have not succeeded in closing the income
gap with respect to developed countries. Moreover, even in a context of average convergence
across countries, the gap between developed and developing countries in terms of living
conditions remains large. In the region with the highest income per capita, Latin America and the
Caribbean, per capita income is less than 40 percent of that of developed countries. In fast
growing Asia, average income is less than one third of that of developed countries’ income. And
the income of the average person in Africa is only slightly over 10 percent of the average person
in a developed country.
 Developed, Developing and Underdeveloped Countries
Countries in the world are classified into different groups by different organizations in the world
based on the different indicators and factors. Development is a concept that is difficult to define;
it is inevitable that it will also be challenging to construct development taxonomy. Countries are
placed into groups to try to better understand their social and economic outcomes. The most
widely accepted criterion is labeling countries as either developed or developing countries. There
is no generally accepted criterion that explains the rationale of classifying countries according to
their level of development. This might be due to the diversity of development outcomes across
countries, and the restrictive challenge of adequately classifying every country into two
categories.

History
The developing/developed countries taxonomy became common in the 1960s as a way to easily
categorize countries in the context of policy discussions on transferring resources from richer to
poorer countries (Pearson et all, 1969). For want of a country classification system, some
international organizations have used membership of the Organization of Economic Cooperation
and Development (OECD) as a main criterion for developed country status. Though not
expressly stating a country classification system, the preamble to the OECD convention does
include a reference to the belief of the contracting parties that “economically more advanced
nations should co-operate in assisting to the best of their ability the countries in process of
economic development. This consequently resulted in about 80-85 percent of the world’s
countries labeled as developing and 15-20 percent as developed. Due to the absence of a
methodology in classifying countries based on the level of development, this article will focus on
the development taxonomies of the UNDP, World Bank and IMF.

Among all of them, more reliable and well-known organizations are UNDP, World Bank and
IMF who have their own ways of classification. So, Let’s discuss how these three organizations
determine or classify the countries.

United Nations Development Program’s (UNDP) Country Classification System

The UNDP’s country classification system is calculated from the Human Development Index
(HDI), which aims to take into account the multifaceted nature of development. HDI is a
composite index of three indices measuring countries achievement in longevity, education and
income. It also recognizes other aspects of development such as political freedom and personal
security. The 2013 report which follows on from the 2010 report used the Gross National Income
per capita (GNI/n) with local currency estimates converted into equivalent US dollars. It also
uses equal country weights to construct the HDI distribution. In the classification system,
developed countries are countries in the top quartile of the HDI distribution. Developing
countries consists of countries in the high group (HDI percentiles 51-75), medium group (HDI
percentiles 26-50), and the low group with bottom quartile HDI. Currently, 47 countries out of
186 compared.

To identify high HDI achievers and consequently developed countries, the UNDP used a number
of factors. One way is longevity to look at countries with positive income growth and good
performance on measures of health and education relative to other countries at comparable levels
of development. Another way was to look for countries that have been more successful in closing
the “human development gap,” as measured by the reduction in their HDI shortfall (the distance
from the maximum HDI score).

The World Bank’s Country Classification Systems

The classification tables include all World Bank members, plus all other economies with
populations of more than 30,000. The World Bank’s classification of the world’s economies is
based on estimates of gross national income (GNI) per capita. Previous World Bank publications
might have referred to this as gross national product, or GNP. The GNI is gross national income
converted to international dollars using purchasing power parity rates. An international dollar has
the same purchasing power over GNI as a U.S. dollar has in the United States. The GNI per
capital is also used as input to the Bank’s operational classification of economies, which
determines their lending eligibility. The most current World Bank Income classifications by GNI
per capita (updated July 1 of every year) are as follows:
Low income: $1,025 or less
Lower middle income: $1,026 to $4,035
Upper middle income: $4,036 to $12,475
High income: $12,476 or more
Low- and middle-income economies are usually referred to as developing economies, and the
Upper Middle Income and the High Income are referred to as Developed Countries.
The World Bank adds that the term is used for convenience; ‘it is not intended to imply that all
economies in the developing group are experiencing similar development or that other
economies in the developed group have reached a preferred or final stage of development’.

The IMF’s Country Classification Systems

The main criteria used by the IMF in country classification are i) per capita income level ii)
export diversification iii) degree of integration into the global financial system. The IMF uses
either sums or weighted averages of data for individual countries.
However, the IMF’s statistical explains that this is not a strict criterion, and other factors are
considered in deciding the classification of countries
The IMF refers to the classification of countries as Advanced and Emerging and Developing
Economies. Advanced Economies are sub-categorized into Euro Area, Major Advanced
Economies (G7), Newly Industrialized Asian Economies, Other Advanced Economies
(Advanced Economies excluding G7 and Euro Area), and the European Union. The Emerging
and Developing Economies are sub categorized into Central and Eastern Europe, Commonwealth
of Independent States, Developing Asia, ASEAN-5, Latin America and the Caribbean, Middle
East and North Africa, Sub-Saharan Africa.

Economic Growth and the Investment Decision

Preconditions for development
1. Savings and investments are decidedly corresponded with monetary turn of events. For nations
to develop, private and public area venture must give an adequate degree of capital per specialist.
In the event that a nation has deficient homegrown reserve funds, it must pull in unfamiliar
interest so as to develop.

2. Monetary business sectors and delegates enlarge financial development by effectively

apportioning assets in a few different ways. To start with, money related business sectors figure
out which possible clients of capital offer the best profits for a danger changed premise. Second,
monetary instruments are made by middle people that furnish financial worker with liquidity and
open doors for hazard decrease. At long last, by pooling modest quantities of reserve funds from
financial worker, middle people can back activities for bigger scopes than would somehow be
conceivable. Some caution is in order, however. Financial sector intermediation may lead to
declining credit standards and/or increases in leverage, increasing risk but not economic growth.

3. The political strength, rule of law, and property rights climate of a nation additionally impact
monetary development. Nations that have not built up an arrangement of property rights for both
physical and protected innovation will experience issues drawing in capital. Essentially, financial
vulnerability brought about by wars, defilement, and different disturbances presents inadmissible
danger to numerous speculators, decreasing likely monetary development.

4. Interest in human resources, the interest in abilities and prosperity of laborers, is believed to be
correlative to development in actual capital. Thusly, nations that put resources into training and
medical care frameworks will in general have higher development rates. Created nations
advantage the most from post-auxiliary training spending, which has been appeared to cultivate
development. Less-created nations advantage the most from spending on essential and optional
training, which empowers the labor force to apply the innovation grew somewhere else.
5. Duty and administrative frameworks should be great for economies to create. All else
equivalent, the lower the assessment and administrative weights, the higher the pace of monetary
development. Lower levels of guideline encourage enterprising action (new businesses), which
have been demonstrated to be decidedly identified with the general degree of efficiency.

6. Streamlined commerce and unlimited capital streams are likewise decidedly identified with
monetary development. Streamlined commerce advances development by giving rivalry to
homegrown firms, hence expanding generally speaking productivity and decreasing expenses.
Also, streamlined commerce opens up new business sectors for homegrown makers. Unhindered
capital streams moderate the issue of lacking homegrown reserve funds as unfamiliar capital can
expand a nation's capital, taking into account more prominent development. Unfamiliar capital
can be put straightforwardly in resources, for example, property, actual plant, and hardware
(unfamiliar direct venture), or put in a roundabout way in budgetary resources, for example,
stocks and bonds.

Relation between the long-run rate of stock market appreciation and the
sustainable growth rate of the economy:
Over the long haul, we need to perceive that development in income comparative with GDP is
zero; work will be reluctant to acknowledge an ever-diminishing portion of GDP. Essentially,
development in the P/E proportion will likewise be zero over the long haul; financial worker
won't keep on addressing an ever-expanding cost for a similar degree of profit perpetually (i.e.,
the P/E proportion can't develop uncertainly). Consequently, throughout an adequately long-
lasting skyline, the potential GDP development rate rises to the development pace of total value
valuation. Potential GDP speaks to the most extreme yield of an economy without squeezing
costs. Higher potential GDP development expands the potential for stock returns yet additionally
builds the credit nature of all fixed-pay ventures, all else equivalent.

Potential GDP and its growth rate matter:

Development in potential GDP speaks to the principle driver of total value valuation. All the
more for the most part, potential GDP likewise has suggestions for genuine loan fees. Positive
development in potential GDP shows that future pay will rise comparative with current pay. At
the point when purchasers anticipate that their earnings should rise, they increment current
utilization and spare less for future utilization (i.e., they are more averse to stress over financing
their future utilization). To urge buyers to defer utilization (i.e., to empower reserve funds),
ventures would have to bring to the table a higher genuine pace of return. Accordingly, higher
potential GDP development infers higher genuine loan fees and higher genuine resource returns
when all is said in done.
For the time being, the connection between real GDP and potential GDP may give understanding
to both value and fixed-pay financial worker with respect to the condition of the economy. For
instance, since real GDP in abundance of potential GDP brings about rising costs, the hole
between the two can be utilized as a figure of inflationary weights—valuable to all financial
worker yet of specific worry to fixed-pay speculators. Moreover, national banks are probably
going to embrace money related approaches reliable with the hole between likely yield and real
yield. At the point when genuine GDP development rate is higher (lower) than potential GDP
development rate, worries about swelling increment (decline) and the national bank is bound to
follow a prohibitive (expansionary) financial approach.

Capital deepening investment and technological progress effect on economic

growth and labor productivity:
Work efficiency is like GDP per capita, a way of life measure. The past condition has significant
ramifications about the impact of capital speculation on the way of life. Accepting the quantity of
laborers and α stay consistent, increments in yield can be picked up by expanding capital per
specialist (capital extending) or by improving innovation (expanding TFP). Created advertises
ordinarily have a high money to work proportion and a lower α which means capital contrasted
with creating markets, and accordingly created markets remain to increase less in expanded
efficiency from capital developing. Nonetheless, as innovative advancement happens, both
capital and work can create a more elevated level of yield. An interest in capital prompting
innovative advancement upgrades the efficiency of existing work and capital. Innovative
advancement, accordingly, can prompt proceeded with increments in yield regardless of reducing
minimal efficiency of capital. Mechanical advancement moves the profitability bend upward and
will prompt expanded efficiency at all degrees of capital per worker.