Are richer countries polluting more than poorer ones? What progress in poverty reduction has been made in countries affected by fragility and conflict? To help shed light how different groups of countries are doing, the World Bank categorizes countries based on various characteristics, such as geography, lending eligibility, fragility, and average level of income. When it comes to income , the World Bank divides the world's economies into four income groups: high, upper-middle, lower-middle, and low. The income classification is based on a measure of national income per person, or GNI per capita, calculated using the Atlas method. In 1978, the first World Development Report introduced groupings of "low income" and "middle income" countries using a threshold of $250 per capita income as threshold between the groups. In the 1983 WDR, the "middle income group" was split into "lower middle" and "upper middle" groups, and in 1989 a "high income" country definition was introduced. Since then, the thresholds to distinguish between the income groups have been adjusted for prices over time. As of 1 July 2019, low-income economies are defined as those with a GNI per capita, calculated using the World Bank Atlas method, of $1,025 or less in 2018; lower middle-income economies are those with a GNI per capita between $1,026 and $3,995; upper middle-income economies are those between $3,996 and $12,375; high-income economies are those with a GNI per capita of $12,376 or more. The chart shows how the thresholds, and various countries' economies have evolved over time. As seen in the above chart, many countries' incomes have transcended the income group thresholds over time. Because most parts of the world have experienced considerable economic growth in recent decades, and the classification thresholds are held stable in real terms, there are now fewer low-income countries and more countries have gained middle or high-income status. Just since 2003, the number of low-income countries has nearly halved, declining from 66 to 31 in 2019. The number of high-income countries is currently 80, up from less than 50 in the 1990s. The number of middle-income countries is 107 (60 UMICs and 47 LMICs) and has not changed much as countries have transitioned both in and out of this group. The chart below summarizes the number of countries in each group over time. The changes are even starker when looking at the share of the world population that live in each type of countries. The vast majority (75 percent) of people currently live in countries defined as lower or upper-middle income countries. As large countries, such as India and China, have transitioned from low income countries to middle income countries, the population shares have shifted dramatically. In the 1990s, more than 6 in 10 people of the world's population lived in low-income countries, while today it is just about 1 in 10. With only a small share of the world currently classified as "low income" and as the thresholds not having changed since 1988 (in real terms), critics argue that these income groups are losing relevance, and are somewhat arbitrary and dated. There are many ways of grouping economies and organizing analysis of development data, and the income classification is only one of many. Yet, the absolute nature of the thresholds, and the long history of the classification scheme, provide a useful way of tracking progress over time. And analysts can always select and analyze data for custom groupings using data from our Databank. It is important to emphasize that the income classifications are intended to aggregate and analyze data for groups of similar economies. Among other things, income classifications are used in the WDI and SDG Atlas to shed light on the following questions: Until recently, the World Bank only used the income classifications for analytical purposes, but they now also affect some operational policies. Starting on July 1, 2018, there are surcharges in IBRD loan pricing for high income countries as described in the Development Committee Paper "Sustainable Finance for Sustainable Development."
"Third World" is an outdated and derogatory phrase that has been used historically to describe a class of economically developing nations. It is part of a four-part segmentation that was used to describe the world’s economies by economic status. Third World falls behind First World and Second World but was ahead of Fourth World, though Fourth-World countries were hardly recognized at all. Today, the preferred terminology is a developing nation, an underdeveloped country, or a low- and middle-income country (LMIC). There can be a few ways to divide up the world for purposes of economic segmentation. Classifying countries as First, Second, Third, and Fourth World was a concept created during and after the Cold War, which ran from approximately 1945 to the 1990s. In general, nations are typically characterized by economic status and key economic metrics like gross domestic product (GDP), GDP growth, GDP per capita, employment growth, and an unemployment rate. In developing countries, low production rates and struggling labor market characteristics are usually paired with relatively low levels of education, poor infrastructure, improper sanitation, limited access to health care, and lower costs of living. Developing nations are closely watched by the International Monetary Fund (IMF) and the World Bank, which seek to provide global aid for the purposes of projects that help to improve infrastructure and economic systems comprehensively. Both organizations refer to these countries as lower-middle or low-income countries. Developing nations, or LMIC, can be the target of many investors seeking to identify potentially high returns through possible growth opportunities, though risks are also relatively higher. While developing countries are generally characterized as performing poorer economically, innovative and industrial breakthroughs can lead to substantial improvements in a short amount of time.
The classification of nations as First World or Third World emerged during and after the Cold War. First-World countries were known as the most highly industrialized nations whose views aligned with the North Atlantic Treaty Organization and capitalism. Second-World countries supported communism and the Soviet Union. Most of these countries were formerly controlled by the Soviet Union. Many countries of East Asia also fit into the Second-World category. Third-World countries included nations in Asia and Africa that were not aligned with either the United States or the Soviet Union. Now, in part because the Soviet Union no longer exists, the definition of Third World is outdated and may be considered offensive to many. Alfred Sauvy, a French demographer, anthropologist, and historian, is credited with coining the term Third World during the Cold War. Sauvy observed a group of countries, many former colonies, that did not share the ideological views of Western capitalism or Soviet socialism. "Three worlds, one planet," wrote Sauvy in a 1952 article published in L'Observateur. In the modern-day, most countries on Earth fall into one of three general categories that some refer to as developed, emerging, and frontier. The world segmentations have somewhat migrated to fit within these categories overall. The developed countries are the most industrialized with the strongest economic characteristics. The emerging countries are classified as such because they demonstrate significant strides in various economic growth areas though their metrics are not as stable. The frontier markets often closely mirror the old Third-World classification and often show the lowest economical indicators. The evolutions of the worldly segmentations have become historic and obsolete. As such, one barometer for assessing a list of developing countries is MSCI’s Frontier Markets Index. This index includes the following countries:
The World Trade Organization (WTO), also provides another point of reference. The WTO divides countries into two classes: developing and least developed. There are no criteria for these classifications so countries self-nominate, though statuses can be contested by other nations. The WTO segregation comes with certain rights for developing country status. For example, the WTO grants developing countries longer transition periods before implementing agreements that aim to increase trading opportunities and infrastructure support related to WTO work. As an offshoot of the WTO, the Human Development Index (HDI) is another economic status metric developed by the United Nations to assess the social and economic development levels of countries. The HDI measures and then ranks a country based on schooling, life expectancy, and gross national income per capita. The World Health Organization and the United Nations uses Least Developed Countries (LDC) to describe a set of 48 countries with low socioeconomic developmental indicators. This list is reassessed every few years. These indicators are a combination of gross national income, human assets (nutrition, life expectancy, secondary school education, adult literacy), and economic vulnerability (population size, remoteness, merchandise export concentration, agriculture, exports, and natural disaster preparedness).
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Which of the following statements best describes an underdeveloped country?
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