Grouping by income
Definition
Gross national income (GNI) per capita: the total income earned by a country's residents at home and abroad, divided by the population.
World Bank Atlas method: the technique that converts GNI per capita into US dollars using a smoothed exchange rate, so countries can be compared on one scale.
- Economies are commonly grouped by their national income per head.
- The World Bank uses gross national income (GNI) per capita to place each country in a band.
- This gives a broad indication of a country's stage of development and living standards.
The income bands
- Low-income economies
- The poorest countries, with very low GNI per capita, for example around $1,145 or less on recent World Bank thresholds.
- Middle-income economies
- A broad group split into lower-middle and upper-middle income, covering most of the world's population.
- High-income economies
- The richest countries, with advanced living standards, for example above roughly $14,005 per head.
Example
- A country has GNI of $600,000 million and a population of 50 million.
- GNI per capita is $12,000, which falls in the upper-middle-income band rather than the high-income one.
Note
- The threshold values are reviewed and updated each year, so the exact cut-offs shift over time.
- A country can move between bands as its income and exchange rate change, for example Nigeria sitting in the lower-middle band.
Only a starting point
- An average income per head says nothing about how income is distributed, so it can hide deep inequality.
- It ignores non-income aspects of development such as health, education and freedoms.
- It can be distorted by exchange rates and by unrecorded output in the informal economy.
- Broader and composite measures such as the Human Development Index give a fuller picture, so income is a first step not a verdict.
Exam technique
- State that countries are grouped by GNI per capita and name the bands.
- Explain that this is only a broad indicator of development.
- Point to wider measures such as the Human Development Index for a fuller judgement.
Common Mistake
- Do not treat income per head as a complete measure of development.
- It hides distribution, health and education.
- Do not confuse growth with development when using these bands.
Self review
- Which measure does the World Bank use to classify economies by income?
- Name the four income bands.
- Why is income per head only a starting point for judging development?
- Which composite measure captures development more fully?
