Question

Is the World Bank’s income criterion a useful way of classifying countries by their development levels?

Now we are going to turn to looking at indicators of economic growth for each country. Start off by converting GDP, gross capital formation, and gross savings (which are all in current US$) into constant or real US$ using the Consumer Price Index (CPI). Next, create indicators for GDP per capita, production (GDP) per worker (labor force), and capital (gross capital formation) per worker (labor force).

Answer 1

The World Bank has used an income classification to group countries for analytical purposes for many years.

Yes offcourse, Because country with economies are currently divided into four income groupings: low, lower-middle, upper-middle, and high. Income is measured using gross national income (GNI) per capita, in U.S. dollars, converted from local currency using the world bank atlas method. Estimates of GNI are obtained from economists in World Bank country units; and the size of the population is estimated by World Bank demographers from a variety of sources, including the UN biennial world population prospects.Countries are immediately reassigned on July 1 each year, based on the estimate of their GNI per capita for the previous calendar year. Income groupings remain fixed for the entire fiscal year (i.e., until July 1 of the following year), even if GNI per capita estimates are revised in the meantime.The World Bank uses the income classification in World Development Indicators (WDI) and other presentations of data; the main purpose is analysis.

Economic growth is an increase in the capacity of an economy to produce goods and services, compared from one period of time to another. It can be measured in nominal or real terms, the latter of which is adjusted for inflation. Traditionally, aggregate economic growth is measured in terms of gross national product (GNP) or gross domestic product (GDP), although alternative metrics are sometimes used.

Gross fixed capital formation is essentially net investment. It is a component of the Expenditure method of calculating GDP.Investment is usually highly cyclical.The recessions saw a sharp fall in gross fixed capital formation. This is because if output falls, firms expect to make lower profits, therefore they start to think of cutting back output rather than increase it.Generally speaking, developing countries often devote a higher % of GDP to investment. Countries with rapid rates of economic growth are heavily investing in more fixed assets to enable rapid economic growth. China has one of the highest rates of gross fixed capital formation.

Through Gross savings in real constant CPI  is widely used as an economic indicator. It is the most widely used measure of inflation and, by proxy, of the effectiveness of the government’s economic policy. The CPI gives the government, businesses and citizens an idea about prices changes in the economy, and can act as a guide in order to make informed decisions about the economy. CPI is a measure that examines the weighted average of prices of a basket ofconsumer goods and services, such as transportation, food and medical care. It is calculated by taking price changes for each item in the predetermined basket of goods and averaging them.

In countrt GDP per person is obtained by dividing its GDP for a particular period by its average population for the year. Labor productivity is the value that each employed person creates per unit of his or her input.An economy’s rate of productivity growth is closely linked to the growth rate of its GDP per capita, although the two are not identical. For example, if the percentage of the population who holds jobs in an economy increases, GDP per capita will increase but the productivity of individual workers may not be affected. Over the long term, the only way that GDP per capita can grow continually is if the productivity of the average worker rises or if there are complementary increases in capital.A common measure of U.S. productivity per worker is dollar value per hour the worker contributes to the employer’s output. This measure excludes government workers, because their output is not sold in the market and so their productivity is hard to measure. It also excludes farming, which accounts for only a relatively small share of the U.S. economy.