Developing Countries: Definitions, Concepts and Comparisons

Publication Date: December 2002

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Economics

Type:

Abstract:

What is a developing country? How does one know whether a country is actually developing or not? This report looks at this issue from several perspectives. Using a series of reports by various organizations, it shows how countries rank in their levels of development according to different criteria. Countries ranking high according to one measure may rank lower according to another. It was once commonly believed that raising a country's average per capita income level would lead to improvements in most other areas. Time and experience have shown, however, that social conditions and the general well-being of people may not necessarily improve when a country's average income level increases. Countries with relatively high levels of per capita income may rank lower in their social and structural development. By contrast, some poor countries rank with the advanced countries in their governance and levels of individual and economic freedom.

This report examines four criteria which are often used today to rank and assess countries' levels of development. They are: (1) per capita income; (2) economic and social structure; (3) social conditions; and (4) the prevailing level of economic and political freedom. Specific indices or quantitative studies are explained and applied to each criteria and the differences among the various measures are explained.

Jan Tinbergen, the Dutch economist and Nobel laureate (1969), argued that a separate tool or instrument is needed to achieve individual economic objectives. Two goals cannot be achieved effectively with the same policy tool. When applied to the field of development, the Tinbergen rule suggests that one needs a separate program or procedure for each objective if one wants to achieve multiple goals. There is little evidence, despite the claims of some authors, economic growth will lead by itself to improvements in social indicators, economic freedom, governance, or political and civil liberty. Likewise, though many argue that strong emphasis needs be placed on improving social indicators and basic human needs, there is little evidence that improvements in these areas will lead necessarily to increased economic growth or improved governance. According to Tinbergen's rule, one likely needs a variety of programs, each targeting a particular objective, if one wants to successfully pursue a variety of different goals.

Balancing the costs of achieving these various goals - maintaining or increasing expenditures for programs targeting social goals, conserving and improving infrastructure and capital facilities and avoiding macroeconomic instability through prudent monetary, fiscal and foreign exchange policies - is one of the great challenges facing developing countries today.

Congress will consider major bills dealing with development issues in the coming year. Some of the controversy on these issues comes from different views about U.S. interests and goals. However, much of the debate about the goals and effectiveness of development aid stems from different concepts about the development process itself. This report seeks to provide background and information which may be of use to Congress in that context.