Question

Defining the Developing World (How Can We Compare Countries' Economic Performances) GDP (As a sign of political power) GDP per capita (As a sign of productivity and wealth)

Answer 1

Low and middle income groups taken together identified on the basis of Gross National Income (GNI) per-capita are referred to in the World Bank (and elsewhere) as the “developing world". A developing country, is a country with a less developed industrial base and a low Human Development Index relative to other countries.

Countries economic performance can be compared and evaluated based on different parameters. Rate of change of GDP though is considered as the key indicator of the economic performnace, however, it completely depends on what we consider as a parameter to judge the economic performance of a country.

Below are brief guidelines for country comparisons:

Compare countries: income levels. One can use GDP per capita in dollar terms to compare incomes across countries. However, the comparison may be somewhat misleading because consumers face different prices in various countries. One thousand U.S. dollars can buy much more in Mexico compared to the U.S. since prices in Mexico are lower. To account for the differences in prices, one should look at the GDP per capita in Purchasing Power Parity terms. In that way, one compares countries in term of real income (what can be purchased) as opposed to the dollar income.

Compare countries: level of development. The most basic comparison is between GDP per capita levels or the levels of GDP per capita in terms of Purchasing Power Parity. However, GDP can be a misleading measure as it may not capture other aspects of the quality of life such as crime, education, environmental quality, etc. The Human Development Index published by the UN is a composite measure that accounts for a broader set of development factors.

Compare countries: economic structure. One should look at the shares of Agriculture, Industry, and Services in the overall value added of the economy. Generally, lower income countries have a larger share of agriculture and the share of services expands as they develop.

Compare countries: unemployment. The unemployment rate is the standard variable used to compare countries. However, one may want to look at youth and long-term unemployment as well. Both indicators suggest deeper, longer-term problems in the labor market.

Compare countries: corruption. There are two indexes that can be used. One is the Corruption Perceptions Index from Transparency International and the other is the Corruption index from the World Bank. The two institutions apply different methodologies to measure corruption and while the results are similar, they are not the same.

Compare countries: rule of law and governance. The best data to look at are the World Bank governance indicators. They can be used to compare countries in terms of the quality of the bureaucracy, the efficiency of the public administration, and more.

Compare countries: financial development. One can chart the level of private credit as percent of GDP and stock market capitalization as percent of GDP. The first measure shows the development of credit markets while the second one is a measure of stock market development.

Compare countries: economic freedom. The Heritage Foundation publishes several indexes of economic freedom in different areas of economic life: labor market, financial markets, and others. Each of them reflects the degree of government interference and the efficiency of the regulatory and legal system.

Compare countries: globalization. The Globalization Index from the KOF Institute in Switzerland provides well-known and widely used measures of economic, social, and political globalization. Each index reflects the degree of integration of a country with the rest of the world.

Compare countries: internal and external balances. The three most commonly analyzed balances are the Current Account balance, the Trade Balance which is part of the Current Account, and the fiscal balance measured as government revenues minus government spending. If a country has persistent deficits in any one of those balances exceeding 4 percent of GDP, that could suggest the need to rebalance the economy.

Compare countries: infrastructure development. One could look at a number of indicators to compare countries including the spread of mobile phones, the number of passenger cars, the length of railroads, the capacity of ports, etc.

Compare countries: energy production and use. The energy statistics are abundant making it possible to compare countries along many dimensions. Some of the most popular comparisons are the use of energy per capita, the share of green energy used, the retail petrol prices, and the energy used per unit of GDP.

Compare countries: health and education. The country comparison could be multi-dimensional looking at inputs such as health spending per capita and outcomes such as birth/death rates and disease prevalence. Similarly, one can look at the inputs to education including spending and the outputs including literacy rates and school completion rates.

GDP per capita is a measure of a country's economic output that accounts for its number of people. It divides the country's gross domestic product by its total population. That makes it the best measurement of a country's standard of living. It tells you how prosperous a country feels to each of its citizens. GDP per capita is a good way to compare the economic output of a country as experienced by its residents.

That's because it divides a country's economic output by its population.