The World Bank's Classification of Countries by Income
52 Pages Posted: 20 Apr 2016
Date Written: January 4, 2016
The World Bank has used an income classification to group countries for analytical purposes for many years. Since the present income classification was first introduced 25 years ago there has been significant change in the global economic landscape. As real incomes have risen, the number of countries in the low income group has fallen to 31, while the number of high income countries has risen to 80. As countries have transitioned to middle income status, more people are living below the World Bank's international extreme poverty line in middle income countries than in low income countries. These changes in the world economy, along with a rapid increase in the user base of World Bank data, suggest that a review of the income classification is needed. A key consideration is the views of users, and this paper finds opinions to be mixed: some critics argue the thresholds are dated and set too low; others find merit in continuing to have a fixed benchmark to assess progress over time. On balance, there is still value in the current approach, based on gross national income per capita, to classifying countries into different groups. However, the paper proposes adjustments to the methodology that is used to keep the value of the thresholds for each income group constant over time. Several proposals for changing the current thresholds are also presented, which it is hoped will inform further discussion and any decision to adopt a new approach.
Keywords: Economic Theory & Research, Economic Growth, Industrial Economics, Inequality
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