You are here

Rich and Poor Nations

25 April, 2016 - 09:12

The World Bank, an international organization designed to support economic development by providing financial assistance, advice, and other resources to poor countries, classifies over 200 countries according to their levels of per capita gross national income. The categories in its 2008 report, as shown in Table 33.1, were as follows:

  • Low-income countries: These countries had per capita incomes of $935 or less in 2007. There ere 49 countries in this category. About 20% of the world’s total population of about 6.5 billion people lived in low-income countries in 2007.
  • Middle-income countries: There were 95 countries with per capita incomes of more than $936 but less than $11,455. Middle-income countries are further subdivided into lower middle-income and upper middle-income countries. Roughly two-thirds of the world’s population lived in middle-income countries in 2007. We should note that the percentage of the world’s population living in middle-income countries increased dramatically (and the percentage living in lowincome countries decreased dramatically) when China and India moved from being low-income to middle-income countries.
  • High-income countries: There were 65 nations with per capita incomes of $11,456 or more. Just 16% of the world’s total population lived in high-income countries in 2007.

Countries in the low- and middle-income categories are often called developing countries. A developing country is thus a country that is not among the high-income nations of the world. Developing countries are sometimes referred to as third-world countries.

How does the World Bank compare incomes across countries? The World Bank converts gross national income (GNI) figures to dollars in two ways. One is to take GNI in a local currency and convert using the exchange rate, averaged over a three-year period in order to smooth out the effects of currency fluctuations. This type of comparison can, however, be misleading. A country could have a relatively high standard of living but, for a variety of reasons, a low exchange rate. The per capita GNI figure would be quite low; the country would appear to be poorer than it is.

A better approach to comparing incomes converts currencies to dollars on the basis of purchasing power. This measure is reported in what are called international dollars. An international dollar has the same purchasing power as does a U.S. dollar in the United States. This is reported in the column labeled “2007 International $” in the following Table 33.1.

The Table 33.1 below shows the World Bank’s 2007 classifications for 30 representative nations selected from among the more than 200 nations in the World Development Report. Nations whose per capita GNI in 2007 was $935 or less were classified as low income, those whose per capita GNI was from $935 to $11,455 were classified as middle income, and nations with higher levels of per capita GNI were classified as high income.

Table 33.1 World Incomes, Selected Countries

Gross National Income per Capita, 2007

Low-income countries

Middle-income countries

High-income countries

Countries

2007 $

2007 Internationa l $

Countries

2007 $

2007 Internationa l $

Countries

2007 $

2007 International $

Burundi

110

330

India

950

2,740

Czech Republic

14,450

22,020

Sierra Leone

260

660

China

2,360

5,370

Saudi Arabia

15,440

 

Mozambiqu e

320

690

Thailand

3,400

7,880

Israel

21,900

25,930

Bangladesh

470

1,340

Iran

3,470

10,800

Greece

29,630

32,330

Haiti

560

1,150

Jamaica

3,710

6,210

Japan

37,670

34,600

Uzbekistan

730

2,430

Costa Rica

5,560

10,700

France

38,500

33,600

Vietnam

790

2,550

Brazil

5,910

9,370

Canada

39,420

35,310

Zambia

800

1,220

Argentina

6,050

12,990

United States

46,040

45,850

Pakistan

870

2,570

Russian Federation

7,560

14,400

Ireland

48,140

37,090

Nigeria

930

1,770

Turkey

8,020

12,350

Norway

76,450

53,320

 

Average

578

1,494

Average

2,872

5,952

Average

37,566

36,100

     

Ave., lower middle

1,887

4,543

     
     

Ave., upper middle

6,987

11,868

     
 

Source: World Development Indicators database, World Bank, revised October 17, 2008.

The international dollar estimates typically show higher incomes than estimates based on an exchange rate conversion. For example, in 2007 Mozambique’s per capita GNI, based on exchange rates, was $320. Its per capita GNI based the international dollars was $690.

Ranking of countries, both rich and poor, by per capita GNI differs depending on the measure used. According to the per capita GNI figures in the Table 33.1, which convert data in domestic currencies to dollars using exchange rates, the United States ranked fifteenth of all countries in 2007. Using the international dollars method, its rank is tenth. China is ranked at 132 when per capita GNI is based on the exchange rate conversion method but rises to 122 based on the international dollar method.