32.1 The Diversity of Countries and Economies across the World

Measuring economies is crucial for understanding global development. GDP and GNI per capita help gauge living standards, while income classifications group countries by economic status. These metrics, though imperfect, provide valuable insights into a nation's economic health.

Economic development hinges on various factors. Geography, demographics, industry structure, and institutions all play key roles in shaping a country's growth trajectory. Understanding these elements helps explain why some nations thrive while others struggle to advance.

Measuring and Categorizing Economies

GDP and GNI Per Capita

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• GDP per capita measures average income and living standards divides total value of goods and services produced within a country's borders by population
• GNI per capita measures total income earned by country's residents regardless of where generated accounts for international income flows (remittances, foreign investments)
• Limitations do not account for income inequality, non-market activities (household production, informal economy), or quality of life factors (health, education, environmental sustainability)

Income Level Classification

• World Bank classifies economies by GNI per capita (2021 thresholds) low-income ($1,045 or less), lower-middle-income ($1,046 to $4,095), upper-middle-income ($4,096 to $12,695), high-income ($12,696 or more)
• Low-income countries predominantly agricultural economies limited infrastructure and human capital (Afghanistan, Haiti, Somalia)
• Lower-middle-income countries transitioning from agriculture to manufacturing and services improving infrastructure and human capital (India, Nigeria, Vietnam)
• Upper-middle-income countries diversified economies with growing service sectors relatively high levels of infrastructure and human capital (Brazil, China, South Africa)
• High-income countries advanced, service-oriented economies well-developed infrastructure and highly skilled labor force (United States, Japan, Germany)

Factors Influencing Economic Development

Economic Development Factors

• Geography climate and natural resources favorable conditions support growth while harsh climates and resource scarcity hinder development access to trade routes and markets coastal locations and navigable waterways facilitate trade and integration while landlocked countries face higher transportation costs and barriers
• Demographics population growth and age structure high growth can strain resources and slow per capita income growth while large working-age population boosts productivity and growth human capital education and skills development enhance productivity and innovation while poor health and malnutrition reduce human capital and potential
• Industry structure sectoral composition economies typically shift from agriculture to manufacturing and services as they develop with diversification reducing vulnerability to sector-specific shocks technological advancement adoption of new technologies increases productivity and competitiveness while lack of progress leads to stagnation and falling behind
• Institutions political stability and governance stable and effective governments create conducive environment for growth while corruption, conflict, and weak institutions undermine development efforts property rights and rule of law secure rights encourage investment and entrepreneurship while weak rule of law and contract enforcement deter economic activity and foreign investment