Developing Countries: Definitions, Concepts and Comparisons

CRS Report for Congress
Developing Countries: Definitions, Concepts
and Comparisons
Jonathan E. Sanford
Specialist in International Po litical Economy
Fo reign Affairs, De fense, and Trade Division
Research Associate
Fo reign Affairs, De fense and Trade Division

Congressional Research Service ˜ The Library of Congress

Developing Countries: Definitions, Concepts
What is a devel oping country? How does one know whet her a count ry is
actually developing or not? This report l ooks at this issue from s everal perspectives.
Using a series of reports by various organiz ations, i t s hows how count ries rank in
their l evels o f d evelopment according t o d if f e r e n t c riteria. Countries ranking high
according t o one measure m ay rank l o w e r acco rding to another. It was once
commonly b elieved t hat raising a country’s average p er capita income level would
l ead t o i m p rovem ent s i n m ost o t h er areas. T i m e and ex p eri ence h ave s hown,
however, t hat s ocial conditions an d t h e general well-being o f p eople m ay not
necessarily improve when a country’s a v e r a g e i ncome l evel increases. C ountries
w i t h relativel y high l evel s of per capita income may rank l ower in thei r social and
structural development. By contrast, s ome poor countries rank w i t h t h e advanced
countries in their governance and l ev els o f i ndividual and economic freedom.
This report ex amines four criteria which are o ft en used t oday t o rank and assess
countries’ l evels o f d evel opment. They are: (1) p er capita income; (2) economic and
social structure; (3) s ocial conditions; a nd (4) t he prevailing l evel of economic and
political freedom. S peci fic i ndices or quantitative s tudies are ex plained and applied
t o each cri t eri a and t h e d i fferences am ong t h e v ari ous m easures are ex p l ai n ed.
J an Tinbergen, t he Dutch economist and Nobel l aureate (1969), argued t hat a
separate tool or instrument is needed to achieve individual economic o b jectives.
Two goals cannot be achieved effectively with the s ame policy t ool. W hen applied
to the field of developm ent, the Tinbergen rule suggests t hat one needs a separate
program o r p rocedure for each obj ect i v e i f one want s t o achi eve m u ltiple goals.
Ther e i s l i ttle evidence, despite the claims of some authors, economic growth will
lead by itsel f t o improvements i n s ocial i ndicators, economic freedom, governance,
or political and civil liberty. Likewise, though m any argue that strong emphasis
needs b e p laced on improving social indicat ors and basic human needs, there i s little
evi d ence t h at i m p rovem ent s i n t hese areas wi l l l ead necessari l y t o i n creased
econo mic growth or improved governance. According t o T inbergen’s rule, one likely
needs a vari et y o f p rogram s, each t arget i n g a part i cul ar obj ect i v e, i f one want s t o
successfully pursue a v ariety of different go als.
Balancing t he costs of achieving thes e various goal s – maintaining or i ncreas ing
ex penditures for programs targeting s o c i a l goals, conserving and improving
infrastructure and capital facilities and avoi ding macroeconomic instability through
prudent monetary, fiscal and f o r e i gn e x change policies – is one of the great
challenges facing developing countries today.
Congress w i l l consider major bills dealing with development i ssues in the
co m i ng year. S ome o f t he controversy o n t hese issues comes from d ifferent views
about U.S. interests and go al s . H o w e ver, much of the d ebate about the goals and
effectiveness o f d e v e l opment aid stem s from d ifferent concepts about the
development pro cess itself. This report s eeks t o p rovide background and i nformation
which m ay be of use t o C ongress in that contex t.

Congress andDevelopment ..........................................2
Incomeas aMeasureofDevelopment ..................................3
MeasuringPerCapitaIncome ....................................4
Fo reign Ex change C onversion M ethod .........................4
PurchasingPowerParity ....................................4
Discussion ...............................................5
Grouping Countries by In come Levels ............................5
Developed vs .Developing? ..................................5
IncomeCategories .........................................6
OtherCategories ..........................................7
IncomeDistribution ............................................7
Gini Index ...............................................8
Discussion ...............................................8
Economic and S ocial S tructure
as aMeasureofDevelopment ....................................9
Changes i n t he Structure o f t he Economy ...........................9
Urbanization .................................................10
DemographicChanges .........................................11
EnvironmentalChange .........................................13
Ex port C omposition ...........................................15
Phys ical Quality of Li fe as a
MeasureofDevelopment .......................................16
Social Indicators ..............................................16
Phys ical Quality of Li fe Index ...................................17
HumanDevelopmentIndex .....................................17
OtherMeasures ..............................................18
Freedom as aMeasureofDevelopment ................................19
Freedom as aGoaland Means ...................................19
EconomicFreedom ...........................................21
Political Freedom .............................................24
GoodGovernance ........................................24
Political and C ivil Li berties .................................25
Conclusion ......................................................26

Figure1. PercentofWorkforcein Agriculture ..........................10
Figure2. UrbanizationandImprovedSanitation ........................10
Fi gure 3. Bi rth R ate and Population C omposition for Income Groups ........12
Fi gu re 4. Carbon Diox ide Emissions and C ountry In come Levels ...........14
Fi gu re 5. Primary Products as a P ercent o f T otal Ex ports ..................15
Table 1 . R anking Selected Country
byLevels ofPerCapitaIncome ..................................29
Table 2. R anking Selected Countries
by Phys ical Standards and Quality of Li fe ..........................31
Table 3 . C omparing Country Ranks for Economic Freedom ...............33
Table 4 . R anking Countries by Political Freedom ........................35

Developing Countries: D efinitions, C oncepts
and Comparisons
W h at is a “developing country? ” How does one know whether a country is
actually developing? How can we measure t he progress countri e s a r e m a k ing i n
development? There are many measures used which s e ek t o i dentify and rank
countries in terms o f t heir levels of development. Most focus o n i ncome l evels, due
to the premise t hat countri es are m ore devel oped when t heir annual l evels of per
cap i t a income rise. Others ex amine social, struct ural and other criteria, due to the
premise t hat t hese are also important attributes of development. In general,
development i s a multi-dimensional concep t t hat encompasses economic, s ocial and
political criteria. This report s ee k s t o cl ari fy how some of the m aj or criteria are
m easured and d efi n ed.
This is not merely a t heoretical issue. The 108th Congress will be considering
legi slation rel ating t o t his i ssue. This will incl ude, among other t hings, foreign aid
appropriations, authorizations for U.S. contributions to multilateral devel opment
banks and t he proposed Millennium Challenge Account (MCA). Typically, t here has
been much debate about the goals and p riorities t o be emphasized and the criteria t o
be used for d etermining w h ether developm ent aid programs have been effective i n
accom p l i s hi ng desi red goal s . S om e o f t he di sagree m e n t appears t o s t em from
differing concepts about development and the d evelopment p rocess.
Every country i s uni que. N evert h el es s , count ri es oft en can be grouped accordi n g
to thei r economic, social and political situat i o n . In s o me cases, i t i s important to
rank countries i n o r d e r t o s ee which are e ligible for b enefits established b y l aw or
international agreement. Fo r ex ample, s ome l ess d eveloped countries are eligible for
trade o r foreign aid b enefits which are not available t o countries at high er levels of
devel opm ent . T h e s e i ncl ude access t o grant s and l o w-cost concessi onal ai d from
international financi al institutions and s ome bilateral aid programs and t ariff
ex emptions under t he W o rld Trade Organiz ation's General Schedule o f P references
(GS P ). Likewise, a n a l ys ts often group countries according t o t heir levels of
development i n o rder to study their i nt ernal dynamics a n d d e t e rmine which
development policies o r m ethods might be most appropriate for a gi ven country.
This report evaluates development from s everal di fferent perspect i v es. Usi ng
a s eries of reports which are issued peri odically by various organiz ations, i t s h o w s
h o w c o unt ri es rank i n t h ei r l evel s o f d evel opm ent accordi n g t o d i v erse cri t er i a .
Countries that rank high according t o o n e m e a s ure m ay rank lower according t o
another. At one time, i t was commonly b elie ved t hat raising a country’s average p er
capita income level would l ead t o improvements i n m ost other areas. Time and
ex perience have shown, however, t hat s ocial conditions and t he general well-being
of people m ay not necessarily improve when a country’s average i ncome l evel
increases. T he link b etween countries’ l ev els o f p er capita income and t heir levels
of social development (measured by health and educational criteria) is not necessarily

strong. C ountries with relatively h igh l evels o f p er capita income may rank l ower in
their s ocial and structural development. By contrast, s ome poor countries rank with
the advanced countries in their s ys tems of governance and t heir levels of individual
and economic freedom.
This report ex amines four criteria which are o ft en used t oday t o rank and assess
countries’ l evels o f d evelopment. These are: (1) per capita income; (2) economic and
soci al struct ure; (3) s ocial conditions; (4) the prevailing l evel of governance and
freedom. S pecific s tudies or annual reports relevant for each category are cited and
discussed. At the end of the d iscussion, a few comments are made about the possible
relationship o f t hese concepts. A series of st atistics and tables are p rovided at t he end
Congress and D evelopment
Since t he onset of the M arshall P lan i n 1948, there h as been much congressional
debate concerning the bes t way that growth and devel opment can be stimulated and
sustained. Large amounts o f foreign ai d h ave b een provided t o d eveloping nations
(though not nearly as much in real dollar t erms or as a s hare of the donor countries’1
economy as i n t he decade s tarting i n 1948). T h e p ersistence of poverty,
malnutrition, disease and illi t e r a c y in developing countries has b een a continuing
source of concern t o m any donor and recipient countries.
In recent d ecades, C ongress and t he Ex ecutive Branch h ave p roposed a v ariety
of new p rograms which many thought would b e effective i n p romoting d evelopment.
The p rogram s s peci fi ed a w i d e v ari et y of different go als which ought to be pursued.
In 1989, a t ask force of the House Foreign Affairs C ommittee found that the b asic
law undergirding the U.S. bilateral foreign aid p rogram (the Fo reign Assistance Act
of 1961) contained 3 3 d ifferent go als for the U.S. b ilateral aid program and the U.S.2
aid p rogram identified 7 5 p riority areas which s hould b e emphasiz ed. Others have
been enact ed since t hat time. S imilarly, a broad variet y of goals and policy concerns
have been written i nto t he two bas ic laws (the International Financi al Institutions Act
of 1977 and t he Bretton W oods Agreements Act) which govern U.S. participation i n
the International M o n e t ary Fund and t he multilateral devel opment banks. The
variet y of U.S. go a l s i n thes e bilateral and multilateral program s has sometimes
blurred t he fo cu s and encouraged confusion about the priorities, design and
ev a l uation o f t he development aid programs funded b y t hese agencies. The strong
argu ments which often o ccur during d iscu ssions about foreign aid and d evelopment
policy often seem rooted in differences over goals and priorities and much o f the
disagreement s tems from conflicting v iews about the n ature o f d evelopment and the
best way i t can be m easured and achi eved.

1 For a discussion of U.S. foreign a id p r o gr a ms o ver the years, see CRS Report 98-916 F,
Foreign Aid: An I ntroductory Overview of U.S. Programs and Policy , by Curt T arnoff a nd
Larry Nowels, updated April 6, 2001 and CRS Report 97-62 F, The M arshall Plan: Design,
Accomplishments and Relevance t o t he Present , by Curt T arnoff, J a nuary 6, 1997.
2 U.S. Congress. House of Representatives. Committee on Foreign Affairs. Report of t he
Task Force on Foreign Assistance. 101st Congress, 1st Session, Docume nt 101-32. February


In 2003, Congress will consider legi slation authoriz ing U.S. participation in n ew
multilateral funding plans for the International Development Association (IDA) – t he
concessional aid window of the W orld Bank – and other m ultilateral aid programs.
This includes contributions of $2.85 billion over t hree years t o IDA and roughly $ 1
billion over several years to the other multilateral programs. Questions abou t t he
effectiveness, priorities and goal s for IDA and the other MDB program s are likel y
to be important considerations in those d el i b erat i ons. T h e r e has b een consi d erabl e
controversy, over t he years, about the policies, priorities a nd relative s uccess o f
multilateral bank program s.
In 2003, Congress will also likely consider legi s l ation which would change
some key elements of t h e U . S . bilateral assistance program. Pres ident Bush i s
ex pected to propose t hat t he United S tates s hould provide an additional $5 billion i n
targeted foreign a id in 2006 – over and above the regular U.S. aid p rogram – t o
promote economic growth and fight poverty i n t h e w o rld’s poorest countries. A
limited number o f countries which m eet st rict eligibility and p er f o rmance
requirements would b e t argeted. T o qualify, countries will need to be promoting
good governance, figh ti n g corruption, respecting human righ ts and adhering to the
r u l e o f law. They should b e i nvesting i n p eople, through adequate health a n d
education p rogra m s t hat m eet the n eeds o f t heir population. They should also b e
pursuing policies aimed at fostering privat e enterprise and entrepren e u rship,
promot i n g o pen m arkets and m aintaining sustainable budgets. Under t he MCA
program, aid would b e t argeted t o countries that are “good performers,“ apparently
without regard to other U.S. forei gn policy o r s trategic objectives. 3
Many ex pect that , when t he MCA proposal is submitted t o C ongress, efforts will
likel y be m ade by t he House and Senate t o reco n s ider some of its basic criteria.
Some say m ore emphasis s hould be given to social factors (see b elow) and to poverty
alleviation. Others argu e t hat m ore attention s hould b e given to the n eeds o f p eople
in poor countries which fall s hort o f t he MCA eligibility requirements.
Disagreement about U.S. foreign policy goals and U.S. i nterests will likely b e
an underlyi ng factor in the d ebates about the m ultilateral b anks, t he MCA and other
development p rograms. However, disagreement about the appropriate standards and
cri t eri a for assessi ng t h e effect i v eness o f d evel opm ent ai d program s wi l l al so l i k el y
be an important consideration. This report s eeks t o p rovide background and
information which may be of use to Congress in that contex t.
Income as a M easure of Deve lopment
Comp ari n g c o untries in terms of t heir levels of per capita income is the m ost
com m o n m et hod used for assessi ng rel a t i v e l evel s o f d evel opm ent . Thi s has t he
advan t age o f b eing straightforward and – unlike s ome o f o ther measures – t he
necessary numbers are u s u a l l y a v ailable. As discussed b elow, however, t here are
important omissions built into this methodology.

3 See CRS Repor t RS21209, The M illennium Challenge Account: Bush Administration
Foreign Aid Initiative, by Larry Nowels, J une 21, 2002.

M easuring Per Capita I ncome
Foreign Exchange Conversion Method. There are two b as ic ways that
per capita income can be measured. T he first calculate s a country’s per capita
income in local currency – div i ding the val ue of its total i ncome or its total output
b y its population – and then converts t hat figure i nto U.S. dollars or another wo r l d
currency using the prevailing exchange rate. This facilitates the comparison of
countries at similar s tages o f d evelopment a nd provides a rough m easure o f t he gross
disparities b etween rich and poor c ountries. In m any count ries, t hough,
determination o f an accurate figu re fo r t he gross domestic product i s d i f f i c ult,
particularly when much economic activity is outside the m oney o r formal economy.
In such situations, i nter-country comparisons can be only approx imate.
Fo r m ost countries, t he dollar GDP figu re is simple to calculate. Howev e r , i t
provides little information about living s tandards i n m ost countries. Nobody can live
on a dollar a day i n a dollar-based economy, but people o ften do survive i n poor
countries on the d aily local currency equivalent of a dollar, since t he cost of most of
the items they purchas e with local currency are co m p arat ivel y l ow. The foreign
ex change value o f a currency i s s et in the i nternational s ector of a country’s economy.
H o wever, most of the t hings which people buy locally (particularly in dev e l o p i n g
countries) are not traded in world m arkets (housing, local food, local services, etc.)
Im ported goods or other t r a d ed goods, whos e p rices reflect the foreign ex change
value o f t he local cu rrency, generally co mpri se only a small s hare of their purchases.4
Purchasing Pow e r P arity. Th e s econd m et hod seeks i nst ead t o m easure
t h e i ncom e p eopl e recei ve i n t h ei r l ocal currenci es i n t erm s of a com m o n s t andard of
purch as ing power. The purch as ing power parity (PPP) method converts t he prices
of common items in different countries into a common s tandard price, regardless of
thei r s tated cost i n l ocal market s. An international dollar i n a PPP comparison has
the s ame purchasing v a l u e i n a c o untry that a dollar would h ave when s pent in the
United S tates. Thus, people with a per capita PPP income of $4,000 in a developing
country would h ave roughly t he same standard of living t hey would h ave i f t hey lived
in the United S tates with that income and t hey bought that basket of goods.
The P P P m et hod al l o ws anal ys t s t o com p are m ore accurat el y t h e s t andards o f
living t hat p eople i n d ifferent countries can purchase with their l ocal income. W hile
t h e concept u al case for usi n g P P P rat es o f ex change i s cl ear, p ract i cal i ssues rem ai n .
The P P P m et hod does n o t a c curat el y refl ect the actual dollar v alue of the i ncome
people receive in developing countries. An item i n t he market basket might be valued
at $1, under t he PPP system, for ex ample, ev en though i t m ay cost 50 Indian rupees

4 An additional complication s tems from t he fact that the dollar itself may change in value
relative t o other currencies because of changes i n t he American economy or i n t he its maj or
commercial partners. In real terms, measured in local currency, a f oreign country mi ght be
experiencing rapid economic gr owth but the dollar equivalent of its income may f all because
the dollar declined in value compared t o other currencies. T r end data calculated on t his basis
can be particularly mi sleading. T he problem remains no matter what currency one uses to
convert l ocal figures t o an i nternational s tandard. T he World Bank a nd other s ources seek
to smooth out fluctuations by using t hree-year averages and other devi ces. Still, exchange
rate fluctuations remain a problem for i nternational comparisons.

i n t h e l ocal m arket pl ace. Those rupees woul d not l i k el y b e wort h t h e equi val ent of
$1 if the purchaser tried t o s pend them on a p roduct which is not in the PPP market
basket . PPP data al so take much time to cal culate. From a practical perspective, al l
countries cannot be surveyed annually. T herefo re, i t i s d ifficult to use t hem for inter-
country comparisons or to monitor ongoing changes i n i ncome l evels.
Di scussion. The PPP method and t he foreign ex c h a n g e m ethod are both
useful for com pari ng t h e i ncom e l evel s t hat p eopl e recei ve i n di fferent devel opi ng
countries. T hey cannot be used interchangeably, however. Income l evels m easured
by one procedure cannot be accurately compared to the i ncome l evels d etermined by5
the o ther methodology. The World Bank and United Nations publish annual data
calculating per capita income levels for most countries using the foreign exchange
and t he PPP methods. R eference might be made, for ex ample, to the W orld Bank’s
annual publication, Wo rl d Devel opment Indi cat o rs and t he Human Devel opment
Report issued annually by the U.N. Development P rogramme (UNDP). The i ncome
numbers in the Human Devel opment R eport are calculated annually for t he UNDP
by the W orld Bank. However, for d a t a a n d p rocedural reasons, t hey are often not
di rect l y com p arabl e. 6
Gr oupi ng Countr i es by I ncome Level s
Deve loped vs. Developing? Several s ys tems have been devised t o group
countrie s according t o t heir levels of per capita income. The United Nations
Statistical Y earbook not es t h at t h ere i s n o “com m o n agreem ent i n t he Uni t ed N at i ons
syst em concerni ng t h e t erm s ‘devel oped’ and ‘devel o ping’, when referring to the
stage o f d e v e l opment reached by any given country or area and its corresponding
classification i n one or the o ther grouping.”7 The yearbook di v i d e s t h e world i nto
two groups. C ountries in North America, Eu rope and t he former U.S.S.R., J apan,
Aust ral i a and New Zeal and are sai d t o be “devel oped.” Al l o t h ers are “devel opi ng.”
By dividing the world into two l arge blocks, t he above system tends to obscure
t h e d i fferences wi t h i n each group and t o em phasi z e di fferences bet w een t h em . In i t s

5 T his can b e observe d i n T able 1. T a ble 1 shows per capita national i ncome by both t he
exchange rate and PPP calculation, ranking c ountries by income gr oups. Norma lly, t he PPP
figure is larger. In a few i nstances, t hough, a country’s PPP income is less than the exchange
rate total. T his is true for many high i ncome countries. In some developing countries with
similar i ncome l evels by t he exchange rate method, the PPP disparities are very gr eat.
Compare, for e xample, Poland a nd Lebanon, T a j i ki stan and Niger, Uzbekistan a nd K e nya,
Panama and South Africa, or Nige ria a nd Cambodia.
6 T he W orld Bank emphasize s data s howing countries’ Gross National Income ( GNI) per
capi t a usi n g bot h t he f o r e i gn e xchange a nd t h e PPP me t hod. By cont r a st , t he UNDP r e por t
shows PPP data for c ountries’ Gross Dome stic Product ( GDP) per capita. T he GDP figure
shows t he va lue a dded or produced by the r esidents of a c ountry plus any t axes (less
subsidies) not included i n t he total. The GNI figure includes both t he GDP and t he net value
of any i ncome derived from work or property a broad. GDP shows t he productive capacity
of an economy w h e r e as GNI measures the t otal income available t o t he its residents. T he
W o r l d Ba n k a nd UNDP a l s o of t e n u s e di f f e r e nt ba s e ye a r s f or t h e i r c a l c u l a t i ons .
7 United Nations. Statistical Y earbook, Forty-fifth Issue . New York: U.N., 2001, p. 3.

annual global economic and social s urvey, the U.N . u s e s a somewhat different
cl assification s ys tem. It separates t he form er Soviet republics and the former
communist countries of Eastern Europe into a t h i rd group called “economies i n
transition.”8 In effect, t hese countries are grouped t ogether – despite wide disparities
among them – o n t he basis o f t heir history rather t han t heir level o f d evelopment.
Income Ca te gories. The U.N. also u ses a number o f o ther systems for
categoriz ation. To help identify t he countri es most affected by the world oil crisis,
the U.N. d ivided them into three groups – 4 4 “least d eveloped” countries, 8 8 non-oil
ex porting “developing nations” a n d 1 3 members of t he Organization of P et roleum
Ex porting C ountries (OPEC). This s howed generally which countries were likely t o
be helped or hurt b y i ncreases in world o il prices.
Fo r o ther purposes, t he U.N. has grouped t he develop i n g c o u n tries i nto five
c atego ries. (1) The Least Developed C ountries (“LLDC”) are 29 low- i n c o m e
countri es with per capita GNP levels below $761 (i n 1998 U.S. dollars ) and have
major problem s i n t erms of thei r economic diversification and social development.
This gr o u p o f countries is different from t he 44 “least d eveloped” countries
mentioned above. (2) Lo w-In come Countri es (LIC s) are poor countries which m eet
the p rior income test but do not have the s a m e s e v e r e l ocal conditions. (3) Lo wer
Middle-Income C ount ri es (LMICs) have GNP per capita levels between $761 and
$3,030. (4) Upper M iddle-In come Countries (UMICs) h ave annual GNP per capita
levels between $3,031 and $9,360. (5) High-In come Countries (HIC ) h ave GNP per
capita levels greater than $9,360.
The W orld Bank uses the s ame b asic framework, t hough i t p egs t he threshold9
for each cat egory l ower t h an does t he U.N. Using t he foreign ex change m ethod of
calculating i ncome, the W orld Bank divides countries into five groups. Low-income
countries are t hose with per-capita income levels below $755 (in 2000 U.S. dollars).
Lower middle-income countri es have incomes bet ween $756 and $2,995. Upper
middle-income countries have income levels between $2,996 and $9,265 annually,
while high -income countries have per capita income levels above the l atter amount.10
The average PPP per capita income for countries in the l ow income group was $1,990
annually in 2000, while those for countries in the l ower-middle group was $4,580 and
the upper-middle group was $9,170. By comparison, the average PPP income levels
for countries in the upper i ncome group was $27,450. The PPP income level for the
United S tates was $34,260 in 2000. The average person in the l ow-income group has
a s tandard of living comparable t o t hat which could be purchased in the United S tates
with an annual $1,990 net i nco m e . T a b l e 1 , i n t he Appendix , organiz es countries
according t o t he W o rld Bank framework, adjusted t o s how those countries with very
low i ncome l evels.

8 United Nations. World Economic and Social Survey, 1999. New York: U.N., 1999. See, for
instance the t able on output and per capita income on p. 256.
9 The t hresholds and ceilings for t he U.N. categories would be higher t hey were expressed
in U.S. dollars for 2000.
10Source: World Bank, World Development Report , 2002, p. 241.

Other Categories. S o me analys ts have grouped countries further according
to certain dynamic qualities of t heir economies. Newly Industrializing C ountries
(NIC s) are t hose where the i ndustrial a nd manufacturing s ector is growing rapidly
and where these p roducts comprise a growing portion o f t he i r f o reign s ales. At
different times, countries at various levels of per-capi t a income – M ex ico, Greece,
Singapore, Portugal and S pain – h ave b een included i n t his group. Emergi ng Market
Countries (EMC) are those whos e p articipa tion i n world trade i s growing rapidly.
They are s uccessful i n at t ract i n g forei gn i n vest m ent and i n est abl i s hi ng t h ei r
creditworthiness for private commercial l oans. M iddle-income countries comprise
most of the participants in this group, but China i s also gene r a l ly included as well.
In some cases, countries may b e d ropped from t he li s t o f N IC s or emergi ng
market countries for reasons not necessar ily linked t o t heir economic performance.
Thi s suggest s t hat t hei r l evel o f “devel opm ent ” acco r d i n g t o t hat s ys t em o f
cat egorization i s l es s a function of t heir own condition and more a function of t heir
relationship with foreign m arkets or other countries. For ex ample, countries in
Eastern Europe would likely n o l onger be c onsidered developing countries or NICs
if (like S pain and P ortu gal i n t he past) t hey j oined t he European Union. Li kewise,
countries may find t heir statu s a s succe ssful emergi ng market economies m ay be
reduced for reasons not entirely o f t heir own m aking. These i nclude recessions in the
developed countries which cut their ex port m arkets or financial crises where events
in one emergi ng market country have a “cont agion” effect. In t he latter s ituation,
investors o r l e n d e rs may reduce t heir ex posure i n emerging m arket countries
generally, s eemingl y without much regard fo r t he situation i n p articular countries.
Income Distribution
The i ncome m easures discussed above all report average per capita income
level s f o r t h e different groups of countri es. However, t he way t hat i ncome i s
distributed within a country may h ave a v er y s ubstantial impact on overall living
standards. People living i n a low-income country w h e r e i ncome i s relatively well
distributed may have a better quality of life overall than those l i v ing i n a higher-
income country where m uch o f t he income go es to a s mall segm ent o f t he population
and where most people h ave i ncome l evels b elow those available t o people living i n
countries with lower average per capita incomes.
Individuals have different skills, aptitudes, histories and conditions; t hese may
have a s ubstantial impact on income distribution patterns. Nevertheless, soci al and
political relationships can al s o have an effect – directly or indirectly – on i ncome
distribution. Argu ably, i ncome p atterns can be influenced by public policy, including
effort s t o improve skills and p roductivity and to expand opportunities for a
population. Many analys ts would v iew steps taken i n t hose d irect i o n t o h ave a
positive effect on development.11

11For e xample, s ee: P. Dasgupta, An Enquiry into Well-being and Destitution. Oxford (UK):
Oxford University Press, 1999, chapters 4 a nd 5.

Gini I ndex. To measure t he overall pattern of i n c o me within a country,
economists use a statistical m eas u re called a “Gini index .”12 Accordi n g t o t hi s
measure, a country would h ave a Gini i ndex o f z ero i f i ncome were d istributed with
perfect equality; i t would have a Gini i ndex of 100 if income were distributed with
p e r fect inequality. S tarting with the l owest i ncome i ndividuals or households, t h e
anal ys i s det erm i n es what share o f t he overal l nat i onal i ncom e accrues t o t he bot t o m
10% (decile) of t he population. The s am e assessment is done fo r t he other nine
deciles o f t he population. Much attention i s o ften paid to the s hare of total n ational
income a ccruing to the t op and bottom 10% of the population. However, the
distribution pattern for t he middle portions of the population i s also very important.
Table 1 in the Appendix s hows t he Gini index for many countries. M any analysts
believe that the distribution pattern is an important indicat or of real income levels as13
well as indicator of the country’s overall stability and cohesion.
Di scussion. Many popular discussions tend to mix together the i ssue s o f
poverty reduction and inequality reduction. They are related but distinct concepts.
Many anal ys ts contend t hat i ncome i nequality will increas e during t he earlier s tages
of the growth p rocess but will diminish as countries achieve high er levels of per
capita income.14 Poverty l evels, by contrast, t end to fall as n ational i ncome l evels
rise. 15 Many economists believe that growing i nequalit y m a y b e a function o f t he
devel opm ent p rocess, as rewards accrue unevenl y t o i ndi vi dual s based o n thei r soci o-
economic situation, thei r s kills and functions and t heir degree of parti c i p at i on.
In come distribution s eems t o b roaden as c ountries become more wealthy. There i s
disagreement, though, whether t his i s due more t o e conomic or to public policy
consi d erat i ons. M any b el i eve t h at econom i c growt h can be enhanced and s ust ai n ed
(as s een in many middle- and h igher-incom e countries) when i ncome i s d istributed
more broadly and more people p articip ate and benefit from t he process.16 17

12It is also called t he Gi ni coefficient or Gini r atio.
13 For example, s ee Amartya Sen, “The Concept of Development,” i n Hollis Chenery and
T.N. Sr inivasan (eds.) Handbook of Development Economics ,vol.1.Amsterdam:North-
Holland, 1986, chapter 2. However, s ome others believe that income distribution i s not an
important c o n cern. See, for i nstance: Danny Quah and S. Durlauf, The New Empirics of
Economic Growth. London: London School of Economics a nd Political Science, Ce nter for
Economic Performance, 1998.
14T he principal focus here i s on i ncome a nd consumption e qualit y. H o w e ver, when
discussing the r elationship between inequality and growt h, two other types – asset i nequality
and s ocial/political i n e q uality have also been found to have significant consequences.
Political inequality is discussed below. A common example of changes i n asset i nequality
is the r edistribution of l and which took place in East Asia following independence from
collonialism and its maj or contribution t o t hat r egion’s good economic performance.
15 See, for e x a mp l e : N . Heston a nd R. Summe rs, “ T he PennWorld T a ble ( Mark 5): An
Extended Set of International Comparisons, 1950-88.” Quarterly J ournal of Economics ,v.

106 (1991), pp 327-68.

16See, for e xample: G. M anki w, D. Rome r a nd Davi d Weil, “A Contribution t o t he Empirics
of Economic Growth.” Quarterly J ournal of Economics , v. 107 (1992), pp. 407-38.
17T here i s a substantial literature supporting both views. Nevertheless, it should be noted

It is difficult to discern a direct relationship b etween income distribut i o n and
countries’ l evels o f p er capita income. For ex ample, as seen in Table 1, t he United
States, C hina, Turkmenistan, Ghana, Cam bodia and Ethiopia all have essentially the
same Gini score, despite major differen ces in thei r l evel s of devel opment. The
relationships b e t w e e n economic growth, average per capita income and i ncome
distribution are subtle. In t he long run, economic growth will improve average l evels
of per capi t a i n com e. However, t he rel ation s hip b etween growth and i ncome
distrib u t i o n i s l ess clear. By itsel f, growth does not seem to have a clear positive
impact on income distribution patterns.
Economic and S ocial S tructure
as a M easure of Deve lopment
Few reports encapsulate in a s ingl e i ndex t he change s i n e conomic and s ocial
conditions w h i c h a ccompany d evelopmen t. Nevertheless, the m any connotations
w h i c h s urround the concept o f “moderniz ation” demonstrate t hat changes in t h e s e
areas are o ften intrinsic t o t he developm ent p rocess. Few countries have been able
to raise t heir income level, their p roductive cap a c i t y a n d t heir standard of living
without ex periencing some major ch a n ges in social patterns and the underlyi ng
structure o f t heir economy.
Changes i n t he Str uctur e of t he Economy
Generally, as economic development occurs, t he struct u r e o f t he economy
changes. Capital and skilled l abor are substituted for u n s k i lled l abor and an
increas ed share of t he work force i s c o n cen trat ed in manufact uring and skilled
servi ces. 18 There s eems t o b e a t endency i n m ost countries that, as i ncome l evels and
soci al conditions improve, t he locus of economic activity shifts from rural to urban
areas. T otal output from agriculture may ex p and, as productivity levels in agriculture
increase. However, the s hare of the workfor ce involved i n agriculture tends to shrink
and agriculture’s share o f n ational output declines.

that the data i n Table 1 cast doubt on both propositions. Overall, as suggested above,
mi ddle-income countries seem to have higher levels of income disparity than do countries
above or below them on the i ncome l adder. (T he data are not adj usted for population
gr o w t h . ) However, the disparities among the countries in each gr oup are greater than t h e
differences among the groups, s o i t i s hard t o discern a cross-national t rend. Likewise, as
proposed above, it appears t hat many middle-income countries experienced faster rates of
gr owth during t he 1990s than did l ow-i ncome countries. Some l ow-i ncome c ountries gr ew
f a s t e r , t hough, than did s ome middle- or hi gh-i ncome c ountries. Growth occurred i n
countries with both high and low l evels of i ncome disparity. Growth r ates were not higher
for count r i e s a t t h e t op end of t he income scale as i ncome distribution patterns widened.
T he r elationships discussed i n t he literature may be t rue within countries and among some
countries over time. T hey are l ess evi dent, however, i n t he current inter-country data.
18 See, for e xample: A. Banerj e e a nd A. Ne wman, “ Occupational Choice and t he Process of
Deve lopment.” Journal of Political Economy , v. 101 (1993), pp. 274-298.

Thi s can be seen i n Fi gure 1. According t o W orld Bank statistics, about 4% of
men and 2% of women i n h igh i ncome countries were em p l o ye d in agricultures,
while the ratios i n upper middle-income countries were 22% for m en and 21% for
Figure 1 . P ercent of
Workforce i n Agriculture
women. Data for l ower income countries are m ore s ketchy. Howe v e r , B ank d ata
show that portion for lower middle-income countries ranges between 30% and 60%19
and t he percentages for lower-income countries is likely m uch h igher.
Ur bani z a ti on

Fi gure 2. Urbanization and
Improved S anitation
19 Data fo r most l ow-i ncome c ountries are l acking. Data for many from t he early 1980s
show that 70% to 80% of the population or more was employed in agriculture. M ore r ecent
data are available f or only a few countries. T he se sugge st, however, t hat t h e shares for
many countries have not changed greatly. Sri Lanka moved from 49% male and 51% female
in agriculture to 38%/49% during t he past two decades. M adagascar went from 73%/93%
to 77%/76% during t he same period, the male agr icultural r ate being higher in the end.

Li kewise, t here seems t o b e a t endency for people t o m ove towards u rban areas
as development o ccurs. T he share o f t he popul ation i n u rban areas and i n l arge cities
generally increas es as income levels increas e for middle-income and higher-income
countries. This i s s hown i n Fi gure 2. Among other t hings, urbaniz ation i ncreases
t h e e fficiency of i nfrastruct ure ex penditures, it reduces transaction costs and i t
generates positive ex t ernalities. Upper middle-income countries often h ave a l arger
share o f t heir population i n t heir largest city than do high income countries, p erhaps
because the l atter h av e i n frastructure and commercial b ases which facilitate20
simultaneous growth in several m ajor urban areas.
An important consideration i s t he degree to which u rban gr owth outstrips the
capacity of developing countries to cope with the n eeds o f t heir growing u rban areas.
One ex ample is t h e s hare of the u rban population which has access t o improved
sanitation facilities. As shown on Fi gure 2 , t he rat e of urbani z at i o n o ft en ex ceeds
the construction of adequate sanitation i n t he middle ranges of devel opment. In low-
income countries, t he share o f t he populatio n i n u rban areas and t he share with
adequate sanitation are about the s am e . A s i n come levels increase for developing
countries, however, t he gap b etween the s iz e o f t he urban population and the s hare
of the populatio n with access t o adequate sanitation i ncreases. It i s p articularly
pronounced for upper middle-income countries . The gap disappears for high -income
countries. 21 This suggests t hat t h e p r es sures of urbanization t end t o outstrip t he
resources available i n d eveloping countri es to cope with basic u rban needs. Though
adequate data are not available, it would appear that similar rel ationships al so ex ist
for public access t o adequate housing and for t ransport congestion and pollution i n
countries ex periencing rapid u rban growth.
Demogr aphi c Changes
A wide range of social changes also o ccu r as countries become more developed.
It is difficult to capture in statistics t he altered patterns of s ocial rel ationships and t he
shifts in institutional behavior which often accompany t he development p rocess.
However, some data on population changes might be cited. Changes i n b irth
dynamics and the age structure o f t he population refl e c t s h i f ts which are go ing o n
within the family and i n society generally.

20 Henderson observes t hat t he costs of urban concentration i ncre a s e s ubstantially after a
point because the costs of excessive concentration ( congestion, pollution) outstrip t he city’s
capacity to deal with them. Economic a ctivity is more spread out, he says, in a mature
system of cities. This implies t hat t he development t rend in this area moves beyond massive
aggl omerations towards a more diffu s e d pattern. V ernon Henderson. “Urbanization i n
Developing Countries.” The World Bank Research Observer 17:1 ( Spring 2002), pp. 89-112.
21 T he f igure f or access t o s anitation i n high-inc o me countries is based on data f or
“developed c ountries” published by t he U.N. Departme nt of Economic and Social Affairs.
See: [ unsd/mi/mi_results.asp?row_id=668].

Overal l , bi rt h rat es decl i n e as c o u n t ry p er capi t a i n com e l evel s i n crease.
Li kewise, t he average age of the population i ncreases as one go es from l ow- t o h igh-
income countries, as young people comprise a s maller and older p eople a l arger s hare
of the population. Fi gure 3 shows both t he crude birth rates for groups of countries
and also t he age d istribution for those groups. The height of each bar s hows average
birth rates for each inco m e group. The d rop from l ow-income t o l ower middle-
income countries is pronounced, as i s t he furt her d ecline for high -income s tates. The
average b irth rate for all middle-income countries was 1.8% (1 8 b i r t h s p er 1,000
residents.) M any countries in the l ower mi ddle-income group are n ations making the
transition from communism to market economics. Fo r h istorical reasons, t heir birth
rates are more similar t o t hose for high -income r at h e r t han developing countries.
T h i s considerably reduces the averages for that income group. As these countri e s
pass into the upper middle-income group, one may ex p ect to see t he average for that
group decline and the average for t he lower middle-income country rise.
Fi gure 3. Birth Rate and Population
Comp osition f or Income Groups
The s ubdivisions within each column in Fi gure 3 show the age composition of
the population for each income group. The s ubdivisions within each column show,
from bottom t o t op, the s hare of the population composed of young people, working-
age p eople and older p eople. 22 Generally, as countries develop, their average
po p u lation b ecomes o lder. P eople under 1 5 years o f age comprise a s maller s hare

22T he s hares are not measured by the percentage figures at t he left of the chart. Rather, the
numbers in each column show the percentage of the population i n each category whose age
falls within certain ranges. T he relative heigh t o f t h e four columns i s not relevant to this
presentation. Due t o s pace constraints, no fi gure is shown f or the portion of t he population
in the oldest a ge gr oup. T hose portions can be determined, however, by s ubtraction.

and p eople over 6 5 a larger share o f t he popul ation. Again, the p attern is somewhat
different for countries i n t h e l ower middle-income group, as a m ajor body of the
countries in that group have low b irth r a t e s and a s maller s hare of children i n t heir
population t han i s normal for the group.
Envi r onmental Change
In creased levels of pollution and environme n t a l d amage also are often
associ at ed wi t h i n creased l evel s of per capi t a i n com e. T he concept o f s ust ai n abl e
development suggests t hat i t might be possible t o r ed u ce or eliminat e t he link
between pollution and growth. However, t here appears t o b e n o s pecific i ndex which
ranks countries in their l evels o f s ustainable development, though s ome efforts are
being m ade i n t hat d irection. 23 The d at a i ndi cat e t hat envi ronm ent al d am age s eem s
to be linked t o i ncome growth. Table 4 shows t hat carbon diox ide (CO2) emissions
increase p er capita as country income levels increase. High inco me countries created
nearly 13 times t he CO2 output (million m etric t ons) p er capita in 1998 as did l ow-
income countries. However, i ncreased levels of country wealth also may h elp limit

23 The United Nations is seeking t o create an i ndex f or measuring s ustainable development.
However, it is currently in the conceptual stage of development. As conceived, i t would
encompass a wi de variety of s ocial, envi ronmental, economic, and institutional variables.
Some mi ght argue that the s cope of the effort is too broad and t hat – because the underlyi ng
data are s o disparate – a single index number based on th i s d a t a would be of limited use.
See: United Nations. Division of Sustainable Development. Indicators of Sustainable
Development: Guidelines and Methodologies. 200 1. Available ( vi a t he link t o i ndicators)
from t h e D i vi sion web s ite (at [ esa/sustdev/ ]. T he World Bank’s
Envi ronmentally and Soc ially Sustainable Development network promotes sustainable
deve lopment i n a range of a reas. No e ffort seems t o be underway, howe ve r , t o c reate a
ge n e r a l i n d ex. See t he link t o s ustainable development on t he Bank’s web page titled
“ T opi c s i n De ve l opme n t : [ h t t p : / / www.wor l dba nk.or g/ ht ml / e xt dr / t h e ma t i c .ht m] . Se e a l s o
the discussion of “Sustainable Devel o p me n t ” at The World Bank Institute’s web page at
[ h t t p : / / www.wor l dba nk.or g/ wbi / s us t a i n a b l e de ve l opme n t / ] .

this phenomenon. Table 4 also shows t hat, when the C O2 emissions (in kilogram s)
for l ow - a n d middle-income countries ar e assessed, the output was h igher for each
income group as the s iz e of its gross domestic product (GDP) i ncreased in PPP dollar
Fi gure 4. Carbon Dioxide
Emissions and Country Income
terms.24 However, the emission rate for h igh-income countries was t he same (per PPP
dollar o f GDP) as t hat for low-income count ries. This s uggests t hat economic growth
need not lead to high er pollution when countri e s a r e able t o u se some of their
national wealth to hold their rates o f undesirable emissions in check.
Other areas of environmental d amage s eem less tied t o i ncome growth. The
W orld Bank s hows, in its 2002 Wo rl d Devel opment Indi cat o rs report, for i nstance,
that China i s t he world l eader in the emission of organic wat er pollutant s , w i th 7
million k ilograms (Mkg) a d ay. The United S tates i s s econd, with 2 . 5 ( M k g ),
f o llowed i n d ecreasing l evels b y India, J apan, Indonesia, and Braz il. This l a r g e l y
reflects population s iz e. W h en kilograms p er day p er worker are assessed, China, the
United S tates and J apan all had t he same level (0.14 kg), while India, Indonesia and
Braz il had progressively higher daily levels. Other areas , s u ch as impact on
biodiversity and d eforestation are also important factors b u t ones where country
scores are l i k ewi s e h et erogeneous. In s om e respect s, t h ese m i ght be t reat ed m o re as
soci al condi t i ons (see bel o w) t h an as st ruct ural aspect s o f t he devel opm ent p rocess.

24T he r ates are 0.5 kg. per dollar of GDP (computed by t h e P P P me t h od) for l ow-i ncome
countries, 0.7 kg. for l ower mi ddle-income countries, 0.8 kg. for upper middle-income
countries, and 0.5 kg. for high-income countries.

Expor t Composi t i on
In addition t o t he structure o f t he work force and population and the d egree o f
urbaniz ation, countries also can be ranked according t o t he degree to which t hey rely
on the s ale o f p rimary products for ex port i ncome. Many developing countries find
that primary products comprise a consid erable share o f t heir ex ports. As
development p roceeds and i n c o m e levels rise, t hese goods generally comprise a
declining s hare of countries’ output and t heir ex port s ales. C ountries whose i ncome
is vulnerable t o t he unstable p rices for non -fuel primary product are less able to fund
development program s, raise t heir income level and improve thei r s tandard of living.
Primary products are goods, u suall y a g ri cultural o r mineral, which have been
processed o r refi n ed onl y m argi nal l y. A c cording to calculations based o n W orld
Ba n k data, ex ports of non-fuel primary products account for over 20% of f o r e i g n
sales for lo w-income countries and 13% for l ower and upper middle-income
countries. By comparison, as Fi gure 5 shows, sales of comparable p roducts from
high -income countries provide only about 8% of total ex port incom e. Overall, duringth
the 2 0 century, t he price o f non-oil p rimary products fell by about 1% each year
compared to the p rice of manufactured goods . W ith this continued s lippage in their
terms o f t rade, p roducers o f p r i m a r y products have to produce m ore each year, b y
volume, in order t o purchase t he same quantity of manufactured products as before.
The p rices of non-fuel primary products ar e p articularly unstable and producers
have few al t ernat i v es but t o accept t he pri ces t h ey are o ffered. As a w hol e, bet w een
1998 and 2001, prices for non-fuel commodities fell b y over 17%. In p articular, t he
Fi gure 5. Primary Products as a
Percen t o f T otal E x p o rts
price for robusta coffee f e l l t o l es s t han one-third its earlier v alue.25 This had a
devastating effect on coffee ex porters, i nclu d i n g m any low-income countries in

25Robusta and a rabica are t he two main t ypes of coffee bean. Prices for arabica beans also
fell substantially, but not as much.

Africa. Countries ex porting non-fuel pr imary products may find t hat t hey m ust
sometimes s ell n ear or even below t heir co sts of production. This is not a s ituation
which generally prevails for countries ex porting s ervices or manufactured goods.
W h en primary products account for a sub s t a n t i a l s hare of countries’ ex port
income, t heir ability to meet thei r ex t ernal obligations and fund develop m ent
programs may b e s everely constrained. Often, for v ery poor countries, t he burden o f
servicing t heir foreign debt i n t he face of downturns in ex port i ncome m ay be nearly
insurmountable. R ecently, t he W o rld Bank announced that, d espite earlier
ex pectations to the contrary, s ome countri es w h i ch h ad received s ubstantial d ebt
forgiveness t hrough t he program t o h e l p h eavily indebted poor countries (HIP Cs)
would s till not be able to sustain t he costs o f t heir remaining d ebts because the p rice
of thei r ex ports had det eriorated further.
Phys ical Quality of Life a s a
Measure of Deve lopment
P er capi t a i n com e and s t ruct u ral fact ors are useful m easures for assessi ng l evel s
of economic development. However, many speci al i s t s bel i eve t h ey are i nsuffi ci ent
or perhaps even mis l e a d ing, as they ignore o ther kinds of societal well-being.
Indeed, m any analysts believe that focusing on income levels tend s t o obscure the
real purpose o f poverty-alleviation p rogr ams. R a ising i ncome l evels i s m erely an
instrumental goal , t hey argue. The real objective i s improving the physical quality
of life and the basic standard of living for people i n d eveloping countries. To assess
a country’s p rogress towards d evelopment, they say, one needs t o m easure
improvements t owards those goals.26
Social Indicators
Countries vary quite widely in their p erfo rmance on social i ndicators. See, for
ex ample, the wide d isparities among countr i es w ith similar l evels o f p er capita
income on Table 2 in the Appendix . Illiteracy generally declines as income levels
increase i n m ost d eveloping countries. However, m any countries have rates t hat are
far outside the normal range for t heir income group. Saudi Arabia, Botswana a nd
Brazil have illiteracy rates m uch h igher t han t hose normally ex pected for m ost upper
middle-income countries. Likewise, Iraq, M orocco and G u a temala have illiteracy
rates well above those for most lower middle-income countries. By contrast, C uba,
Armenia and Bu lgaria have illiteracy rates well b elow the norm for their group.
A m ong the l ow-income countries, m ost i n s ub-Saharan Africa have illiteracy rates
much high er than the norm for l o w - i n co me countries. By contrast, s everal poor
countries – M ongolia and Vietnam in particular – h ave illiteracy rates b elo w those
seen in some high-income nations. M any analysts believe that income-distribution
patterns can have a s trong influence o n country performance in this area.

26 See, for e xample: Dasgupta, “An Enquiry into Wellbeing....” (Note 6) a n d S e n, “T he
Concept of Development” (note 7).

Infant mortality and life ex pect ancy are t wo other t yp es o f soci al indicat ors
which are often u sed t o assess countries ’ relative l evels o f d evelopment. As Table
2 shows, most countries in sub-Saharan Afri ca have rates which are well b elow the
norm for their i ncome group. By c o n t rast, o ther poor countries – Nicaragua,
V i et nam, Tajikistan, Mongolia, Kaz akhstan and India h ave i ndicators w h i c h
“o u t p e r f o rm” t he averages for t heir group. Similar ex amples can be found in th e
middle-income group. These v ariations suggest that income may b e an i nsufficient
gauge for judging t he progress being m ade t owards improving the quality of life i n
developing countries. C ountry patterns m ay al so be influenced by social, cultural and
political factors, including peoples’ p references and t he amount of public funds and
at t ent i o n w hi ch are al l o cat ed t o wards i m p rovi ng perform ance i n t h ese areas.
Physical Quality of Life I ndex
An early effort to rank countries solely on the b asis of the physical an d s o c ial27
well-being o f t heir population was the P hysical Quality of Li fe Index (PQLI). This
ranked t hree fact ors – l i f e e x p ect an cy at age 1 , i nfan t m ortality an d literacy – o n a
single index , without any d irect reference t o i ncome l e v els. There was a l oose
correlation bet ween income levels and P QLI performance, but the disparities i n s ome
instances were striking. S om e countries with high income levels had P QLI rankings
at levels below t he average for the poores t countries, while s o me very low-income
countries had P QLI l evels comparable t o t hose for many upper middle-income states.
Particularly noteworthy were t he c o n t r a s t s b et ween S audi Arabi a and S ri Lanka;
health and education rankings were m uch high e r at t he time in the l atter country
despite its lower average income. The procedure found that there were o ften wide
disparities in PQLI rankings for count ri es with similar or com parabl e l evel s of per
capita annual i ncome. Among other t hings, the P QLI d emonstrat e d t h a t the living
standards and quality of life in poor countries were not mere functions of their
prevailing i ncome l evel s, but were al so linked t o policy and soci al considerations.
Human Development I ndex
T h e P Q LI ceased to be published i n t he early 1980s, as t he focus o f
development s tudies shifted. 28 In the early 1990s, however, t he U.N. Development
Programme (UNDP) b egan publishi ng a s imilar i ndex i n its annual Human
Devel opment R eport .29 The Human Development Index (HDI) s eeks t o m easure t he

27 T he PQLI i ndex was created under t he sponsorship of the Ove rseas Deve lopment Council.
ODC included t he PQLI in its annual publication, The United States an d World
Development , during t he 1970s.
28T he creator of the PQLI i ndex, Morris David Morris, continued t o update it but it was not
broadly distribute d . See: Morris David Morris, Measuring t he Condition of t he World’s
Poor; t he Physical Quality of Life Index . Perga mon, 1979; Measuri n g t he Changing
Condition of t he World’s Po o r : t h e P h ysical Quality of Life Index, 1960-1990. W orki ng
paper 23/23. Providence: Br own Unive rsity; “ Light i n t he T unnel: T he Changing Condition
of the W orld's Poor.” T he Brown University Op-Ed Servi ce, August 1996. Available a t
[ nistration/News_Bureau/Op-Eds/Morris.html ].
29United Nations Deve lopment Progr amme . Human Development Report 2002, Deepening

overall income and s ocial/physical situation i n each country. It condenses data from
four categories i nto a single index number. These are: l i fe ex p ect ancy at bi rt h, adul t
literacy, combined gross school enrollment at all l evels a n d G D P per capita (PPP
calculation). In t his way, l ongevity, knowledge and standard of living are combined
in a s ingl e figure. The h ighest and l owest ranking for t he index are set b y t he high est
and l owest ranking countries in each category. The UNDP groups countries in three
categories. Countries with low human de velopment h ave HDI rankings b elow 0.5,
middle-ranking countries have HDI scores be low 0.8 and h igh ranking countries have
numbers above the l atter s core.
The HDI demonstrat es that living s tandards are not necessarily linked t o l evel s
of per capita income. On t he average, low-income countries (PPP income of $2,002
in 2000 dollars ) ranked at 0.58 and the least devel oped countri es (PPP income of
$1,216) had an a v e r a ge rank of 0.45. However, many countries (a few i n Asia but
most in Africa) had HDI scores well below t he average for their i ncome group. The
HDI scores for countries are s hown o n Table 1 al ongside the per capita income data.
The HDI method has s everal major limitations. First, t he HDI method does not
distinguish i m p ro v e m e n t s i n conditions of life from i ncreas es in income, s ince the
latter i s a component of the i ndex . Theref ore, improvements i n i ncome l evels can
mask weakness in country performance in the o ther areas. UNDP does not publish
a s eparate i ndex figure m easuring t he quality if life i n countries without reference t o
income. It t ries to adjust its measure for this concern, though, by ranking countries
separat el y accordi n g t o t hei r rel at i v e HDI st at us and t hei r per capi t a i n com e l evel s .
W h en countries’ relative i ncome rankings are subtracted from t heir rank on the HDI
list, one can see whether countries rank high er or lower i n t heir levels of education
and h ealth than their i ncome l evels might otherwise s uggest. For ex ample, looking
at t h e ex t rem es, Equat o ri al Gui n ea ranked 7 3 p l aces hi gh er and Bot swana ranked 6 2
pl aces hi gh er on t h e GDP per capi t a l i s t t han i t d i d on t h e HDI l i s t . By cont rast ,
Arm eni a ranked 4 4 p l aces l o wer and Taj i k i s t an ranked 3 9 p l aces l o wer o n t he GDP
list t han i t did on the HDI list.
Sec o nd, by its very nature, t he Human Development Index s hows countries’
relative status compared to other countries. Half t he countr i e s in the world will
always rank at the 0.5 level o r b elow, n o m atter how hard th ey s t ri v e t o improve
standards. H e n c e , i f d e velopment i s a process o f m oving towards a go al, t he HDI
method is of limited use. S till, despite these limitations, t he HDI scores – when used
in conjunction with other m easures – h el p s how wheth e r c ountries are m aking
progress towards enjoying t he fruits of the d evelopment p rocess.
Ot her cont em porary m easures al so st ress that improvements i n t he physical and
soci al quality of life m ust be assessed s eparat el y. Promi n en t a m o n g thes e are the
Millennium Development Goals which were approved and announced by the United

Democracy i n a Fragmented World. New York: Oxford University Press, 2002.

Nations in September 2000.30 This is a collection of 8 objectives whose achievement
is sought by the year 2015. These are:
! Eradicating ex t reme poverty and reducing b y h alf (to 14.5%) t he proportion
of the world’s population living o n l ess t han $ 1 a day.
! Achieving universal primary educatio n s o t hat all children everywhere will be
able to complete a full course of primary schooling;
! Promoting gender equality and t he em powerment of women, in particular by
eliminating t he gender disparit y i n education, raising fem al e literacy levels,
e x panding female employment in nonagricultural work and increasin g t h e
proportion o f s eats h eld i n p arliaments b y women;
! Reducing child mortality by two-thirds by 2015;
! Reducing by t hree-quarters t he overall world l evel of maternal mortality;
! Halting b y 2015 the s pread of HIV/AIDS and m alaria an d b egi n ning the
process o f reduci n g w orl d i n fect i o n rat es for t hese and o t h er m aj o r d i s eases;
! Ensuring environmen t a l s ustainability in several s peci fic ways, halving by
2015 t h e p r o portion o f p eople without sustainable access t o s afe d rinking
water and improving by 2020 the lives of at least 100 million s lum d wellers;
! Establishing an open, rule-based non-di scriminatory world trade and finance
system, i ncluding national comm itments t o good governance and poverty
From a d evel opm ent p erspect i v e, som e of t h ese goal s seem desi rabl e o n t hei r
own t erms while others are d e s i r a b l e because they facilitate the achievement of
broader d evel opm ent goal s . Nevert h el ess, by packaging t hem t ogether, the United
Nations has endorsed t he view that devel opment i s a complex phenomenon which
involves improvements i n t he quality of life as w el l a s i ncreases in income and
reductions in poverty.
Freedom as a M easure of Deve lopment
Fr eedom as a G oal a nd M eans
Amartya S en argues that freedom is both t he ultimate goal of development and
the m ost effective m eans for achieving it. “The ex pansion o f freedom is viewed, i n
this approach,” he writes, “both as t he pri m ary end and as t h e p r i n c i p a l m e ans o f
development.”31 From his p erspective, development consists of the “removal o f
various types o f unfreedoms t hat l eave people with little choice and little opportunity
f o r e x e rcising t heir reasoned agency. ” The removal o f s ubstantial unfreedoms, h e
argues “i s constitutive of devel opment.” He cites i n particular a need for ex panding
economic opportunities, political freedoms, social opport unities, transparency

30 For f urther information, see: [] .
31Amartya Sen. Development as Freedom. New York: Anchor, 1999, p. xii. Sen i s M aster
of T r inity College at Cambridge University and winner of t he Nobel prize for Economics

gu arant ees and m easures for p rot ect i v e s ecu rity such as soci al safety nets to reduce
abject poverty, famine relief and unemploym ent b enefits.
Milton Friedman likewise argues t hat economic freedom and political freedom
are both v ital goals. 32 Economic freedom is an end i n itsel f, he writes and it is al so
an indispensable m eans t owards the achievement of political freedom. Likewise, he
agrees that political freedom, reductions in the arbitrary power of the s tate and civil
liberties for individuals are al s o v al i d ends in them selves and necessary for t he
preservation o f economic freedom. An oppon e n t o f central planning and coercive
means for coordinating economic activity, Friedman argues t ha t a f r e e p rivate
en t erpri s e ex change econom y i s t he onl y effect i v e m eans f or s u s t aining economic and
political freed o m . He s ays t hat economic and political freedom are both
charact eri z ed by a n a b sence o f coerci on. From a d evel opm ent p erspect i v e,
Friedman’s argu ment supports the v iew t hat countries a re m ore d eveloped as t hey
replace coerci on and compulsion with economic and political liberty.
In the mid-1990s, former P rime Minister Lee Kua n Y e w from S ingapore and
ot hers advocat ed an “Asi an val u es” ap p roach t o devel opm ent . They argu ed t h at
restrictions on dissent and d emocracy were necessary if countries are t o focus their
attention and marshal t heir res o u r ces for d evel opm ent . The l eaders o f C hi na,
Malays ia, Burma and s ome o ther count ries still openly adhere to this view.33 Sen and
Friedman both argue, b y contrast, t hat effo rts t o o rganiz e t he economy under a strict
regime or to limit political and c i v il liberties i n order to concentrat e res ources and
ex pand output are mistakes. Not only do s uch a ctions put the ultimate goal of
freedom at ri sk, but t h ey add i neffi ci enci es and s l o w t he proce s s o f achi evi ng t h at
goal . S en believes t hat economic and political freedoms hel p t o rei nforce one
another. He argu es, i n effect, t hat a market economy will not function adequately in
the absence of democracy and civil and political rights.34 He believes t hat t hese not
on l y gi v e p e o ple more freedom to live t heir lives and use thei r capacities m ore
effectively, but that they also provide pe ople with a s tronger voice for assuring that
their core i nterests are not ignored. He notes th at demands for d emocracy and for
ci vil and political rights have become much stronger in East and S outheas t Asia i n
the wake o f t he 1997 economic crisis.35

32Milton Friedman. Capitalism and Freedom. Chicago: University of Chicago Press, 1962.
Friedman is an Emeritus Professor of economics a t t he Un i ve r s i t y o f Chicago a nd Senior
Fellow a t t he Hoover Institution. He wa s a wa rded the Nobel prize for Economics i n 1976.
T hough Friedman’s argument f ocuses more on the s truggl e between collectivist and market
economic principles, i t i s also r elevant t o t he development i ssues discussed i n t his r eport.
33 For a supporting a rgument, see Ant hony Milner. What’s Happened t o Asian Values?
Avai l a bl e f r om [ ht t p: / / asi a nst udi es/ val m] . For a c ont r a r y vi ew, s ee
Amartya Sen. “ Huma n Rights a nd Asian V alues: What Lee K uan Yew and Le Peng don’t
understand about Asia.” The New Republic 217:2-3, J uly 14, 1997.
34Friedman would l argely agree with this vi ew, t hough his argument puts more s tress on t he
idea that political liberty and civil rights are not sustainable absent a free market economy.
35Lant Pritchett and Daniel K aufmann concur. T hey f ound that countries with higher levels
of civi l liberties had a greater success r ate and an 8% to 20% higher rate of return for World
Bank proj ects. T he r elationship also held f or broader country performance iss u e s . T h ey

Not everyone agrees with the v iew t h a t p olitical and economic freedom work
together to promote d evelopment. In part, t he question d epends o n the way one
defines political and economic freedom. M any would argue that som e kinds of
political freedom conflict with econom i c l i b ert y – for ex am pl e l aws p assed b y
democratic governments which confiscat e wealth or limit severely the way property
may be used or transferred. Others argue that limits on political freedom are
compatible with individual and economic freedom – for e x a m p l e, a b ill of righ ts
which protect s i ndividuals and economic actors against misguided applications of the
popular will. O n t h e o ther side of the coin, many will argu e t hat s ome t yp es of
economic freedom are i ncompatible with free government. Government may need
to be vigilant, they argue, to protect the public from injury, to limit improper or
ex ploitative practices by self-interes ted economic act ors and to keep major economic
act ors from using thei r economic position t o dominat e political affairs.
There i s n o comprehensive index which reflects t he pro g r e ss countries have
made towards achieving the l evel s of economic and political freedom which S en and
Friedman seem to believe are necessary for devel opment. Thei r concepts are m ulti-
dimensional concept; they do not yi el d itsel f eas ily to a s ingl e cal culation. However,
there are several s tudies which s eek to ra nk countri e s i n terms o f t heir degrees of
economic or political freedom.
There has been strong em phasis i n t he development literature in the l as t t hree
decades about the p resumed n eed for economic policy refor m i n d eveloping
countries. The international f i n ancial institutions and m any b ilateral foreign aid
agencies have sponsored programs aimed a t improvin g t h e e conomic environment
in develop i n g countries, s trengt hening the economic policy p rocess and enhancing
econom i c freedom . N o s peci fi c i n d i c e s seem t o have been creat ed by t h e ai d
o r ga n i z a t i o n s , h o w e v e r , f o r m e a s u r i n g a n d r a n k i n g t h e p r o gr e s s countr i e s a r e m a k i n g
in that regard. 36
There are two m ajor studies which rank countries ac c o r d i n g t o t heir levels of
economic freedom. One, t he Index o f Economic Freedom, published annually by the
Heritage Foundation and the Wa ll Street Journal , s eeks t o assess the p rogress
countries ar e m aking t owards the elimination o f l egal and i nstitutional restrictions

concluded t hat “civi l liberties, along w i t h ot her f orms of expression and i ncorporation of
citizens voice, do appear to have an instrumental value f or improving a country’s economic
performance and f or designing t he mechanisms for delivering government s ervi ces of all
types, from r oads to schools.” See their “Civi l liberties, democracy and t he performance of
gove rnme nt proj ects.” Finance and Development 35:1 ( March 1998), p. 26.
36However, aid agencies s eem to be using t he existing s tandards t o help s h a p e t h e i r
programs . T h e U.S. Agency for Internationa l Development ( USAID) used country scores
on the Heritage Foundation Index of Economic Freedom and on t he Freedom House
publication Fr eedom in the World to help identify countries where t heir programs to
promote economic gr owth and democracy mi ght best undertake progr ams. See U.S. Age ncy
for International Development. 2002 Agency Performance Plan , pp. 11 and 30.

whi ch t he aut hors b el i eve are b arri ers t o h igher i ncomes and economic growth.37 The
other, the annual report o n Economic Freedom of the World, published b y t he Fraser
Institute in Canada, ex amines many of t h e sam e i ssues.38 Bo th studies base their
assessments on many of the s ame factors. The Heritage Foundation s tudy covers 155
countries. The study published b y t he Fraser In stitute covers 123 countries.
In the m ain, the findings of t he two s tudies are s imilar. Countries var y
some w h a t o n their placement on t he list, top t o bottom, of countries with the m ost
a n d l east econom i c freedom , but t h e d i fferences are general l y not subst an t i a l .
Countries generally seem to be within 10 or 15 places in one list o f t heir placement
on the o ther. S ome notable variances ex ist, however. Egypt ranked 5 1 st on the Fraser
Institute list but 121 st on the Heritage list. J amaica ranked 38th in the former but 60th
in the l atter list. India ranked behind C hina and P akistan o n t he Heritage Foundation
list but well ahead of them in the Fraser Institute Study. P erhaps most remarkable,
Estonia was ranked t he fourth most free country in the Heritage study but the 35 th in
the Fraser report. Some of the d ifference b et ween the t wo reports may b e due to
methodology, though t heir basic criteria are largely t he same. P erhaps more likely,
though, are d iscrepancies in their d ata o r t heir evaluation o f d ata. This may b e t aken
as a cautionary note t hat even reports which s eek to use s imilar objective m eas ures
m ay b e s ubj ect i n t h ei r fi ndi ngs t o d at a o r p rocedural error.
The Index o f Economic Freedom ranks countries (using W o rld Bank d ata)
accordi n g t o 5 0 obj ect i v e m easures organi z ed i nt o 1 0 equal l y wei ght ed cat egori es.
Countries are ranke d as b eing free, mos tly free, mostly unfree and repressed,
depending on their overall perf o r m a n c e i n t hose 1 0 areas. T he t en cat egori es are:
trade policy (open o r closed), fiscal burden of government, government intervention
in the economy, monetary policy, banki n g a n d finance, wages and prices, p roperty
righ ts, regulation and black market activ ity. The authors point out that countries
whichrankhighlyon the Index o f Economic Freedom also have high er incomes t han
other countries. P e r c a p i t a i ncome l ev els for free countries are double t hose for
mostly free countries and i ncome l evels i n t he latter countries are t riple t hose i n t he
mostly unfree group. In terestingl y, countri es with repressed economies h ave i ncome
levels slightly high er than the m ostly unfree group.
In the ranking system used by the Index o f Economic Freedom, Hong Kong and
Singapore are the t wo countries with the h ighest levels of economic freedom, while
Iraq and North Korea are the l owest. (S ee Table 3.) Among G-7 countries, only t he
United S tates and United Kingdom are listed as bei ng free, while Canada, Germany,

37Gerald P. O’ Dr iscoll, J r ., Kim R. H olmes and Mary Anastasia O’Grady, 2002 Index of
Economic Freedom, NP: T he Heritage Foundation a nd The Wall Street Journal , 2002.
Available from [ http://www.heritage .org/ research/features/index/2002].
38 J a me s Gwartney a nd Robert Lawson, Economic Freedom of the World, 2002 Annual
Report. Vancouver, B.C.: T he Fraser Institute, 2002. Preface by Mil t o n F r i e d ma n.
Friedman is a participant and sponsor of the s tudy. It uses 37 variables to assess countries’
levels of freedom in five areas: ( 1) size of government expenditures, taxes and enterprises,
(2) l egal stru c t u r e a nd security of property r ights, (3) s ound money, (4) freedom to trade
with foreigners and r egula tion of credit, labor and business. Available from
[ h t t p : / / www.f r e e t he wor l d.c om/ r e l e a s e .ht ml ] .

It al y, J apan and France are d eem ed m o st l y free. France ranks al ongsi de A r m e n i a ,
Beliz e, Bo livia, J ordan, Malta, P anama and Poland in the l ower end o f t his group.
The Index o f Economic Freedom ranks countries more high ly when they limit
the s iz e and role of government and enhance p roperty rights. “The protection o f
property rights i s t h e d r i v ing force behi nd wealth generation and higher living
stan d a r d s , ” s ay the authors o f t he Index o f Economic Freedom. 39 Countries are
deemed to be more free when t he tax burden i s l ow, government regulatory activity
is sma l l and property rights are assured. Property rights i nclude a capacity for
owners to use t heir assets as they see fit, as long as they do not violate s omeone else’s
rights and t he ability of individuals to transfer or ex chan ge thei r property rights on
a voluntary b asis. C ountries also receive high er marks for economic freedom when
they impose fewer mandates requiring th at businesses comply with equipment
standards o r m eet l a bor standards such as hourly limits on the work week and
minimum s tandards for pay or vacation time.
Other analysts might questio n t he conceptual views which underlie the t wo
indices of economic freedom. W hile the s tatistics t hey use are s t andard data, very
different results might be obtained i f o ther assumptions and m ethods of calculation
we r e u s e d . For ex ample, some analys ts might argu e t hat countries have more
economic freedom when steps are taken t o assure economic security, limit the
a r b i t r a ry ex ercise o f p roperty rights and protect the environment and othe r
stakeholders in the economy. There s eem to be no current st u d i e s which rank
countries according t o o ther economic criteri a. There i s considerable disagreement
am ong speci alists and t he public as to which economic standards are most desirable
and how they should b e linked t o s ocial, philosophical or i n s titutional v alues.
Nevertheless, t h er e s eems t o b e a p resumption i n m ost contemporary economic
literat u r e that, however it may b e d efined, economic freedom is desirable and
fundamental to the d evelopment p rocess.
Some anal ysts question whether the economic freedom indice s adequately
measure countries’ relative l eve l s o f economic freedom and whether their
conclusions are actually supported b y t heir data. De M el l o a n d S a b report t hat
i n creased government spending and enforcement o f ri ght s and ci vi l l i b ert i es enhances
a country’s “legal c a p ital” and boosts its economic and human development. 40
Carlsson and Lundström 41 found, for ex ample, t hat, contrary to the conclusion in the
Gwartney s tudy, reductions in the s iz e o f government and i ncreases in the freedom
to trade with foreigners were negativel y correlated with economic gro wth, while
increas ed monetary policy and price s tability had an i nsignificant effect . Of t he other
factors, they found, legal s tructure and t he security of private o wnership had a robust

39O’ Dr i s c o l l et al.,p.38.
40Luiz de Mello and Randa Sab. “Government Spending, Rights a nd Civi l Li b erties.”
International Revie w o f L aw and Economics 22:3 ( September 2002), pp. 257-276. Also
published a s IMF working paper WP/00/205 (December 2000).
41F r e d r i k C a r l s s o n a n d S u s a nna Lundström. “ Economic F r e e d o m a n d G r o w t h : D e c o mp o s i n g
the Effects.” Working Paper i n Economics 33, J a n u a r y 2 001. Departme nt of Economics,
Göteborg University. Avail able from

positive impact on growth. M any s tudies report t hat economic freedo m h as a
si gn i fi cant and si z eabl e effect on econom i c growth, t hey reported. However, in light
of the unreliability of the d ata, they conc luded, “using an index o f economic freedom
might therefore be misleading.”
Political Freedom
Some anal ys ts believe that protections for political rights and civil liberties are
also important characteristics both o f d ev eloped countr i e s a nd for those likely t o
move successfully on the p ath t owards development. Two p rominent efforts h ave
been made to measure countries’ s tanding in this regard. Freedom House m easures
t h e r el at ive l evels of political and civil liberty in countries while the W orld Ba n k
publishes an i ndex t hat compares countries in terms o f t heir achievements i n t he area
of “good governance.”
Good Gove rnance. Though political freedom is a v alue endorsed b y m ost
scholars and fo r e i g n aid donors, there h as been considerable reluctance in the p ast
about directly linking development and democracy. In p art, the C old W ar was t o
blame as foreign aid was often p rovided f or reason s o ther than development and
donors were reluctant to alienate aid recipients by specifically a c knowledging t he
repressive and corrupt nature of their regimes. The i nternational agenc ies and
bilateral donors d id not wish to be seen as interfering in countries internal political
affairs. Li kewise, i n a world where many repressive government s claimed t hey were
dem o craci es or peopl es’ d em ocraci es, t hey were reluctant to openly challenge t hose
claims or to show overt preference for one form of government over another. These
reservations still persist. The S tate Department reportedly has been very slow in
launching its Mid-East Democracy Initiative.
Nevertheless, it was clear to most observers that the way countries governed
t h em sel v es had a m aj o r i m p act on t h ei r d evel opm ent p rospect s. Thus, t he st andard
of “good governance” was rai sed i n t he past t wo d ecades i n order t o em phasi z e t h e
i m port ance o f cert ai n charact eri s t i cs, such as t h e rul e o f l aw, reduct i ons i n arbi t rary
official action, policy and financial accountability and t ransparency i n t he decision
making process, which were deem ed important. Aid programs were instituted, by the
international agencies and by bilateral donors, to help strengthen t h e l egal process
and o fficial institutions in developing c ountries (“capacity building”) i n o r d e r to
facilitate improvements i n governance and general operational effectiveness.
Previously, t he concept “good gover n an ce” was relativel y constrai ned i n its
reach. M ore recent l y, however, t he concept h as becom e m o re ex t ensi v e . The
W o rld Bank publishes an i ndex currently which ranks the countries of the world in42
t erm s o f governance. Country performance on democra tic principles – elections,

42 S e e : World Bank. “Web Interactive Access t o Governance Indicators” and t h e
accompanyi ng p a per “Governance Matters II.” Country performance in six categories i s
assessed: (1 ) voice and accountability [includi ng elections and civil liberties]; political
stability/no violence; government effectivene ss; regulatory quality; r ule of l aw; and control
of corruption.. Some 194 measures are used from 15 maj or sources in devi s i n g t h e data.

freedom to ex press opposition v iews and cont est o ffice, civil liberties, etc. – i s now
one of the factors assessed as countries ar e e v aluated and ranked. Six general
categories o f governance are assessed. As a group, the OECD countries rank high est
on al l s ix meas ures , while the former S oviet republics, sub-Saharan Africa and S outh
Asia usually rank lowest. However, individual country rankings d iffered
considerably. S ome count ries with relatively h igh l evels o f p er capita income are
ranked relatively l ow on some measures of governance while some low-income
countries rank much high er on the govern ance lists. In 2002, the U.N. Development
Program further endorsed t he view that de mocracy was a relevant consideration for
development when (as cited earlier) it appended t he subtitle “Deepening Dem ocracy
in a Fragm ented W orld” t o its 2002 Human Development R eport.
Political and Civil Liber ties. Freedom House publishes an annual s tudy
w h ich ranks countries on an index accordin g t o t heir levels of political r i gh t s a n d43
thei r protection of civil liberties . In i t s m o st recent report , Freedom House wrot e
that 87 countries (including 2.5 billion p eo p l e) w ere“free,” t hough s ome ranked
high er than others in this group. It said another 5 9 (with 1.46 billion p eople) were
“partly free,” t hough again some had m uch b etter s cores t han o thers. Freedom House
reported t hat 4 5 countries and t hree terr itories (with 2.17 billion p eople) were “Not
Free.” At t he end o f 2001, more people lived in “free” countries than at any time
since F r e e d om House b egan publishing st atistics i n 1981. Moreover, it reported,
more countries (121) had d emocratically elected governments t han ever b efore.
Freedom in many of the world’s 192 governm ent s d et eri o rat ed, however and m aj or
gaps opened u p b etwee n t h e l e v els o f freedom and d emocracy is some countries.
This is particularly notable, t he report s aid, when one compares some countries in the
Is lamic world with those i n t he rest of the world.
The Freedom House i ndex j udges separatel y, o n a seven poi nt scal e, t h e l evel44
of political righ ts and civil liberties i n each country. These s cores are t h en averaged

Available f r o m [ ht t p : / / www.wor l dbank.or g/ wbi / gover nance/ go vd at m] . T he Bank
does not publish a single number which summarizes country performance in each of the s ix
areas. However, t he index a llows inter-country comparisons and c omparisons to regi onal
or income -l evel norms .
43Freedom House. Freedom in the World, 2001- 2002. T r ansaction Publishers, 2002.
Avai l a bl e f r o m [ ht t p : / / www.f r eedomhouse.or g/ r e sear ch/ i m] .
44Ei ght f actors go i nto t he measurement of politi cal rights, i ncluding free and fair elections
for political leaders, fair elections, opposition rights, participa tion by minorities and the
a b s e n ce of domination by t he military or by religious or economic oligarchies. Ci vi l
liberties l o o k at four categories – freedom of expression and belief, association and
organizational r ights, rule of law and hu ma n r ights and personal autonomy and economic
rights – with a variety of factors i n each category. T hese i nclude items such as freedom of
religion, assembly, s peech, movement and media, the r ule of l aw, no excessive corruption
and a n i ndependent j udiciary a nd rule of law . T h e y a l s o include other s tandards, such as
gender equality and marriage r ights, free t rade unions and collective bargaining, protection
for property r ights and fr eedom of opportunity, i ncluding freedom from dependency or
exploitation by l andlords, employers, union leaders, bureaucrats and others. Some of t hese
latter f actors appear to be subj ective, perhaps r eflecting cultural or social views which may

to es tablish t he overall rank, with the l owest number b e i n g t h e m o s t free and the
highest bei ng the l east free. “In a free society,” the report says, “political ri ghts
enable people t o participat e freel y i n t he political process, enjoyi ng the right to vote
and com pet e for publ i c offi ce and t o el ect represent at i v es who h ave a d eci si ve vot e
on public policies.” C ivil liberties i nclude “t he freedom to d e v e l o p v iews,
institutions and personal autonomy without interference from t he state.”
Freedom House ranked 2 7 countries as be ing m ost “free” in 2001 (See Table
4 in the Appendix .) The highest tier of t hese countries include, b esides the United
States, C anada and some other d eveloped countries, s ev e ral small d eveloping
countries. France, Britain and t he other G-7 countries ranked i n t he second tier o f t he
mo s t “ f r e e ” countries, due to civil liberty issues in those countries. Ten countries
and t wo territories were ranked as t he most “not free.” T hese included Afghanistan,
Bu rma, Cuba, Iraq, North Korea, Li bya, Saudi Arabia, S yr i a , Turkmenistan, Tibet
There appears t o b e s ome co r r e s p ondence b etween countries’ rank o n t he
Freedom House i ndex and their l evel of go vernance. However, the relationship
between countries’ political situation a nd their economic performance is more
di ffi cu l t to establish. It may be that improvem ent s i n governance and i ncreases i n
political liberty have a positive association with improvements i n economic growth
and s ocial i ndicators. However, on a country-t o-country basis, there are considerable
differences. M oreover, many countries hav e seen their political and governance
scores i m p rove or det eri orat e i n recent years. C onsequent l y, b ecause change i n t h ese
areas can happen m ore rapi d l y t h an do changes i n t he econom i c d a t a and s oci al
indicat ors, it is difficult to es tablish clear anal ytical relationships am ong them .
Devel opm ent i s a com p l ex p rocess wi t h m a n y d i f ferent facet s. A v ari et y of
studies seek to measure count ries’ l evels o f d evelopmen t according t o d ifferent
criteria. Im provemen t s i n s ome o f t hese indices or standards appear to be only
distantly linked t o i ncreases in growth or average i ncome.
J an Tinbergen coined a f am ous anal ytic rule which s tates t hat a separate
independent tool is needed to achieve individual objectives. He s howed in his work,
for ex ample, t hat t he three policy objectives of full em ployment, price stability and
balance of payment equilibrium could not be achieved wit hout t h e use of three
specific i nstruments. As one r e viewer noted, h is theory of economic policy i s “a45

standard tool in the economist’s t oolbox .”
not be unive rsal. J udging t he difference betw een protection of property r ights and freedom
from exploitation may be difficult. In that respect, t here may be s ome disagreement on t he
margin between observers about the r elative r anki ng of indivi dual s tates. However, this is
not an important determinant of country scores.
45Hendrik P. V a n Dalen. “ T i nbergen, J an” i n R.J . Barry J ones ( ed.) Routledge Encyclopedia

W h en appl i ed t o t he fi el d o f d evel opm ent , t h e T i nbergen rul e suggest s t h a t a
separat e program o r p rocedure i s n eeded for each obj ect i v e i f one want s t o achi eve
several goals during t he development p rocess. Fewer i nst rum ent s are l i k el y t o force
po l i cy makers to sacrifice one of thei r objectives, as Tinbergen found in his
macroeconomic work, when funds are s ca r c e o r t he requirements for the v arious
goal s conflict. Unless there are cl ear indications that the i ssues are linked, there are
few reas ons to believe that changes or impr ovements i n one area of development will
necessarily lead to similar changes or improvements i n other areas . It i s unlikel y, for
ex am pl e, t h at i n creased rat es o f econom i c growt h wi l l necessari l y l ead – i n t he
absence o f p rogram s t arget i n g t h o s e concerns – t o b roader i n com e di st ri but i on,
improvements i n literacy rates, or improvements i n t he health of p eople on t he
periphery of the economy and society. Li kewise, s trong efforts t o improve the h ealth
and education l evels i n a country will not necessarily stimulat e e c onomic growth
absent chan ge s i n economic policy and new i nvestments i n capital equipment and
infrastructure. High er levels of political liberty will not necessarily produce h igher
rates o f e c o n o m i c growth or better social conditions if the funds needed to
implement programs in those areas are l acking.
Some policy m akers and economic writers have ex pressed s trong support
recently for t he proposition t hat greater e f f o r t s n eed to be made to stimulate and
sustain economic growth in developing countries. In general, m ost analysts would
agree t hat h igher l evels o f growth, increased levels o f productivity and b road
economic policy reform are very important considerations, when i t c o m es to
promoting d evelopment i n poor countries. M ost, however, d isagree with the i dea
that growth can be the “magi c bullet” that will begi n t o set al l t hings right.
Some proponent s of growth claim that a rising tide lifts all s hips and a rising
economy will be a benefit to all.46 This may o r m ay not be true. The growth process
in countries is often uneven. Those who benefit m ost d irectly from growth m ay be
unwilling or unable t o channel t hose benefits more broadly. Consci ous efforts m ay

of International Political Economy , vol 3. London: Routledge, 2001, pp. 1566-7. A Dutch
economist, T i nbergen shared with one other t he first Nobel prize for Economics i n 1969.
The Nobel committee praised him f or havi ng “developed and applied dynamic models for
the analysis of economic processes.”
46For i nstance, Lant Pritchett and Lawrence Summers argued in 1996 that “gains from r apid
economic gr owth flow into health gains” and that i ncreases in country income levels cause
improvements in infant mortality and life expectancy in developing countries. Holding all
other f actors constant, t hey concl u d e d , i mprovements in income “will produce i mproved
health.” T herefore growth s hould be a high prior ity. Nevertheless, they conceded that the
effect is not direct but consequential. Improvements in income lead, t hey s aid, to poverty
reduction and increas e d p u b l i c s pending on health. T hese in turn lead to better health
conditions. Likewise, higher levels of education are highly correlated with reduced infant
mortality. By t hat r easoning, i mprovements i n health could be r ealized equally if income did
not gr ow but a l arge r s hare of the e xisting r esour ces were channeled t owards poverty
reduction , education and b e tter health programs . See “Wealthier i s healthier.” J ournal of
Huma n Resources 31:4 ( Fall 1996), pp. 850, 860, 861.

be needed to bring people from t he periphery into fuller participation i n t heir national
economy, they argu e, if the b enefits of the rising tide are to be felt more widely.47
Some c r i t i cs doubt that a s trong emphasis o n economic growth and policy
reform will be truly b eneficial t o t he majority of the p eople i n affected countries.
The y b e l i e ve more emphasis s hould b e p laced on programs aimed at improving
soci al condi t i ons and m eet i n g b asi c hum an needs. Most observers agree t hat m aj or
improvements i n t hese areas are d esirable. However, m any doubt that improvements
in health and education will lead, b y t hemselves, to high er levels of productivity and
growth unles s res ources are i nvested for t hat purpose. Similarly, efforts t o improve
social conditions and i ncrease economic growth may h ave only limited s uccess i f t he
basic s tructural conditions of the country are not improved. Countries that achieve
major i n c reases in thei r average income levels as a result of new discoveries of oil
or other mineral resources may achieve little real d e v elopment, many anal ys ts
believe, i f t hey fail t o link t hese gains t o i ncome t o improvements i n governance and
social conditions and b etter s tructural conditions.
Balancing t he costs of achieving thes e various goal s – maintaining or i ncreas ing
ex penditures for programs targeting s ocial goals, conserving a n d i mproving
infrastructure and capital facilities and avoi ding macroeconomic instability through
prudent monetary, fiscal and foreign ex ch an ge p o licies – is one of the great
challenges f a cing developing countries t oday. The n egative effects o f s hortfalls in
some dimensions of the d evelopment p rocess m ay not be readily a p p a r ent from a
short-term perspective but many analys ts believe that long-term consequ e n c e s of
such short fal l s can be consi d erabl e.
This paper b egan with an observation t hat a country’s progress on development
may b e m easured on four dimensions – improvements i n per capita income, changes
in economic and s ocial s tructure, better performance on a range of education, health
and other soci al meas ures and great er economic and political freedom. There is no
consensus o n whi ch of t h ese areas deserves t h e m ost at t ent i o n o r w h e t h er
improvements i n one area will lead to improvements i n other areas . However, t here
appears t o be an emerging consensus t hat improvement must be seen in most of thes e
areas if development i s t o o ccur and if development aid programs are t o b e d eemed
successful. P rograms which achieve success i n one area without encouraging
positive e f f e c t s i n o ther areas may not be considered successes overall. As the
relationship among the s e v e r a l c omponents o f d evelopment are unclear and o ften
strongly debated, the cas e for multiple indicat ors and a variety of programs may be

47Andrew Berg and Anne K r uege r r eport t hat countries with more open i nternational t rade
relations experience more rapid growt h and gr eater improvements in per capita income than
countries with less open t rade regi me s. T hey conclude, however, t hat s uch growth had no
impact on income distribution. Poor people b enefit from s uch growth only at t he same rate
that everyone else in t h ei r c ountry benefits. Other programs, i n addition t o i ncreased
gr owth, would be needed to reduce r elative poverty. See their “T r ade, Gr owth and Poverty.”
2002 Annual Wo r l d Bank Conf e r e nc e on Development Econo mi c s . April 24, 2002. Available
from [ files/ 13377_Berg_ a n d_K rueger.pdf]. See a lso t heir
“Lifting all boats: why openness helps curb poverty.” Finance and D evelopment 39:3
(September 2002), p. 16.

Table 1. R anking Selected Country
by Levels of Per C apita Income
Co unt ry Gr o ss PPP gross Gi n i Huma n GD P
Na tional na tional Index Dev e lo p- Economic
Inc o me pe r Inc o me pe r (vario us me n t Gr o w t h
capita capita years) Index 1990-
(2000) (2000) (HDI) 2000
High Income Countries
Switzerland $38,140 $30,450 33.1 0 .928 0.8%
Japan $35,620 $27,080 24.9 0 .933 1.3%
No rway $34,530 $29,630 25.8 0 .942 3.6%
United States $34,100 $34,100 40.8 0 .939 3.5%
Denmark $32,280 $27,250 24.7 0 .926 2.5%
Austria $25,220 $26,330 31.0 0 .926 2.1%
Finland $25,130 $24,570 25.6 0 .93 2 .8%
Germany $25,120 $24,920 30.0 0 .925 1.5%
Netherland s $24,970 $25,850 32.6 0 .935 2.8%
Belgium $24,540 $27,470 28.7 0 .939 2.0%
United Kingdom $24,430 $23,550 36.8 0 .928 2.5%
France $24,090 $24,420 32.7 0 .928 1.7%
Ireland $22,660 $25,520 35.9 0 .925 7.3%
Canada $21,130 $27,170 31.5 0 .94 2 .9%
Australia $20,240 $24,970 35.2 0 .939 4.1%
Italy $20,160 $23,470 27.3 0 .913 1.6%
Kuwait $18,030 $18,690 0.813 3.2%
Israel $16,710 $19,330 38.1 0 .896 5.1%
Sp ain $15,080 $19,260 32.5 0 .913 2.5%
Portugal $11,120 $16,990 35.6 0 .88 2 .7%
Greece $11,960 $16,860 32.7 0 .885 2.1%
Upper M iddle Inco me C o unt ries
Ko rea, Rep. $8,910 $17,300 31.6 0 .882 5.7%
Argentina $7,460 $12,050 0.844 4.3%
Saud i Arabia $7,230 $11,390 0.759 1.5%
U r ugua y $ 6 , 0 0 0 $ 8 , 8 8 0 4 2 . 3 0 . 8 3 1 3 . 4 %
Czech Republic $5,250 $13,780 25.4 0 .849 0.9%
Mexico $5,070 $8,790 53.1 0 .796 3.1%
H unga r y $ 4 , 7 1 0 $11,990 24.4 0 .835 1.5%
Croatia $4,620 $7,960 29.0 0 .809 0.6%
Chile $4,590 $9,100 56.7 0 .831 6.8%
Venezuela, RB $4,310 $5,740 49.5 0 .77 1 .6%
Poland $4,190 $9,000 31.6 0 .833 4.6%
Lebano n $4,010 $4,550 0.755 6.0%
Co sta Rica $3,810 $7,980 45.7 0 .82 5 .3%
Brazil $3,580 $7,300 60.7 0 .757 2.9%
Esto nia $3,580 $9,340 37.6 0 .826 -0 .5%
Malaysia $3,380 $8,330 49.2 0 .782 7.0%
Botswana $3,300 $7,170 0.572 4.7%
Panama $3,260 $5,680 48.5 0 .787 4.1%
So uth Africa $3,020 $9,160 59.3 0 .695 2.0%
Lo w e r M iddle Inco me C o unt ries
Latvia $2,920 $7,070 32.4 0 .8 -3 .4%
Belarus $2,870 $7,550 21.7 0 .788 -1 .6%
Jamaica $2,610 $3,440 37.9 0 .742 0.5%
Do minican Republic $2,130 $5,710 47.4 0 .727 6.0%
Namibia $2,030 $6,410 0.61 4.1%
Co lo mb ia $2,020 $6,060 57.1 0 .772 3.0%

Co unt ry Gr o ss PPP gross Gi n i Huma n GD P
Na tional na tional Index Dev e lo p- Economic
Inc o me pe r Inc o me pe r (vario us me n t Gr o w t h
capita capita years) Index 1990-
(2000) (2000) (HDI) 2000
El Salvador $2,000 $4,410 52.2 0 .706 4.7%
T hailand $2,000 $6,320 41.4 0 .762 4.2%
Jordan $1,710 $3,950 36.4 0 .717 5.0%
Iran, Islamic Rep. $1,680 $5,910 0.721 3.5%
Ro mania $1,670 $6,360 31.1 0 .775 -0 .7%
Russia Federatio n $1,660 $8,010 48.7 0 .781 -4 .8%
Algeria $1,580 $5,040 35.3 0 .697 1.9%
Bulgaria $1,520 $5,560 26.4 0 .779 -2 .1%
Egyp t, Arab Rep. $1,490 $3,670 28.9 0 .642 4.6%
Swaziland $1,390 $4,600 60.9 0 .577 3.3%
Kazakhstan $1,260 $5,490 35.4 0 .75 -4.1%
Ecuador $1,210 $2,910 43.9 0 .732 1.8%
Bolivia $990 $2,360 44.7 0 .653 4.0%
Sri Lanka $850 $3,460 34.4 0 .741 5.3%
China $840 $3,920 40.3 0 .726 10.3%
Lo w Inco me C o unt ries
T urkmenistan $750 $3,800 40.8 0 .741 -4 .8%
Ukraine $700 $3,700 29.0 0 .748 -9 .3%
Azerbaij an $600 $2,740 36.0 0 .741 -6 .3%
Indonesia $570 $2,830 35.7 0 .684 4.2%
Armenia $520 $2,580 44.4 0 .754 -1 .9%
Haiti $510 $1,470 0.471 -0 .6%
Senegal $490 $1,480 41.3 0 .431 3.6%
Zimb abwe $460 $2,550 50.1 0 .551 2.5%
India $450 $2,340 37.8 0 .577 6.0%
Pakistan $440 $1,860 31.2 0 .499 3.7%
Mongo lia $390 $1,760 33.2 0 .655 1.0%
Vietnam $390 $2,000 36.1 0 .688 4.1%
Lo w Inco me- - Less t ha n $ 1 a D a y
Benin $370 $980 0.42 4.7%
Bangladesh $370 $1,590 33.6 0 .478 4.8%
Uzbekistan $360 $2,360 44.7 0 .727 -0 .5%
Kenya $350 $1,010 44.9 0 .513 4.2%
Ghana $340 $1,910 40.7 0 .548 4.3%
Sudan $310 $1,520 0.499 8.1%
Zamb ia $300 $750 52.6 0 .433 0.5%
Uganda $300 $1,210 37.4 0 .444 7.0%
Ango la $290 $1,180 0.403 1.3%
T anzania $270 $520 38.2 0 .44 2 .9%
Cambodia $260 $1,440 40.4 0 .543 4.8%
Nigeria $260 $800 50.6 0 .462 2.4%
Madagascar $250 $820 38.1 0 .469 2.0%
Nepal $240 $1,370 36.7 0 .49 4 .9%
Rwanda $230 $930 28.9 0 .403 -0 .2%
Mozambique $210 $800 39.6 0 .322 6.4%
Chad $200 $870 0.365 2.2%
Niger $180 $740 50.5 0 .277 2.4%
T aj ikistan $180 $1,090 34.7 0 .667 -10.4%
Eritrea $170 $960 0.421 3.9%
Malawi $170 $600 0.4 3 .8%
Sierra Leone $130 $480 62.9 0 .275 -4 .3%
Burund i $110 $580 42.5 0 .313 -2 .6%
Ethiopia $100 $660 40.0 0 .327 4.7%
So ur c e : W o r l d B a nk. Wo rld Development I ndicators, 2002. Derived from T able 1.1, 2.8, 2.14.
Gini ind e x: lo we r numb e r d eno tes b r o a d e r inc o me d istr ib utio n p atter n. B lank: no d a ta.

Table 2. R anking Selected Countries
by Physical Standards and Quality o f L ife
Co unt ry Under- Lif e Inf a nt a n d Illit era cy* Gr o s s
no urishmt* Expectancy* M a ternal rates Na tional
rates at birth mo rt a lit y * (2001) Inc o me pe r*
(1998) (2000) capitaMI M F
High Income Countries
Switzerland 80 8 4 $38,140
Japan 8 1 1 2 4 $35,620
No rway 79 9 4 $34,530
United States 7 7 1 2 7 $34,100
Austria 7 8 1 1 5 $25,220
Finland 7 7 6 4 $25,130
Germany 7 7 1 2 4 $25,120
Netherland s 7 8 1 0 5 $24,970
Belgium 7 8 8 5 $24,540
United Kingdom 77 10 6 $24,430
France 79 20 4 $24,090
Ireland 76 9 6 $22,660
Canada 79 6 5 $21,130
Australia 78 6 5 $20,240
Italy 7 9 1 1 5 1% 2% $20,160
Kuwait 4% 71 25 9 16% 20% $18,030
Israel 78 8 6 3% 8% $16,710
Sp ain 7 8 8 4 1 % 3 % $15,080
Portugal 7 6 1 2 6 5% 10% $11,120
Greece 78 2 5 1% 4% $11,960
Upper M iddle Inco me C o unt ries
Ko rea, Rep. 73 20 8 1 % 4 % $8,910
Argentina 7 4 8 5 1 7 3 % 3 % $7,460
Saud i Arabia 3 % 7 3 2 3 1 8 17% 33% $7,230
U r ugua y 4 % 7 4 5 0 1 4 3 % 2 % $ 6 , 0 0 0
Czech Republic 75 14 4 $5,250
Mexico 5% 73 65 29 7% 10% $5,070
H unga r y 7 1 2 3 9 1 % 1 % $ 4 , 7 1 0
Croatia 12% 73 18 8 1 % 3 % $4,620
Chile 4% 76 33 10 4% 4% $4,590
Venezuela, RB 16% 73 43 19 7% 8% $4,310
Poland 73 12 9 0% 0% $4,190
Lebano n 7 0 1 3 2 6 0 % 0 % $4,010
Co sta Rica 6 % 7 7 3 5 1 0 4 % 4 % $3,810
Brazil 10% 68 26 32 15% 15% $3,580
Esto nia 6 % 7 1 8 0 8 $3,580
Malaysia 73 39 8 9 % 17% $3,380
Botswana 27% 39 48 58 25% 20% $3,300
Panama 16% 75 10 20 7% 9% $3,260
So uth Africa 4 8 3 4 6 3 14% 15% $3,020
Lo w e r M iddle Inco me C o unt ries
Latvia 4% 70 70 10 36% 67% $2,920
Belarus 6 8 3 3 1 1 0 % 1 % $2,870
Jamaica 10% 75 12 20 17% 9% $2,610
Do minican Rep 28% 67 11 39 16% 16% $2,130
Namibia 31% 53 37 62 17% 19% $2,030
Co lo mb ia 13% 72 12 20 8% 8% $2,020
El Salvador 11% 70 18 29 18% 24% $2,000
T hailand 21% 69 44 28 3% 6% $2,000

Co unt ry Under- Lif e Inf a nt a n d Illit era cy* Gr o s s
no urishmt* Expectancy* M a ternal* rates Na tional
rates at birth mo rt a lit y (2001) Inc o me pe r*
(1998) (2000) capitaMI M F
Jordan 5% 72 41 25 5% 16% $1,710
Iran, Islamic 6 % 6 9 1 3 3 3 17% 31% $1,680
Ro mania 7 0 6 0 1 9 1 % 3 % $1,670
Russian Fed 6 % 6 5 7 5 1 6 0 % 1 % $1,660
Algeria 5 % 7 1 1 5 3 3 24% 43% $1,580
Bulgaria 13% 72 23 13 1% 2% $1,520
Egyp t, Arab 4% 67 17 42 33% 56% $1,490
Swaziland 14% 46 37 89 19% 21% $1,390
Kazakhstan 5 % 6 5 8 0 2 1 $1,260
Ecuador 5% 70 21 28 7% 10% $1,210
Bolivia 23% 63 55 57 8% 21% $990
Sri Lanka 25% 73 60 15 6% 11% $850
China 11% 70 60 32 8% 24% $840
Cuba 19% 76 24 6 3 % 3 % LMIC
Lo w Inco me C o unt ries
T urkmenistan 10% 66 65 27 $750
Ukraine 5 % 6 8 4 5 1 3 0 % 1 % $700
Azerbaij an 32% 72 37 13 $600
Indonesia 6% 66 47 41 8% 18% $570
Armenia 21% 74 29 15 1% 2% $520
Haiti 62% 53 11 73 48% 52% $510
Senegal 23% 52 12 60 53% 72% $490
Zimb abwe 37% 40 61 69 7% 15% $460
India 21% 63 44 69 32% 55% $450
Pakistan 20% 63 20 83 43% 72% $440
Mongo lia 45% 67 65 56 1% 1% $390
Vietnam 22% 69 95 27 4% 9% $390
Lo w Inco me - - Less t ha n $ 1 a D a y
Benin 14% 53 88 87 48% 76% $370
Bangladesh 38% 61 60 60 48% 70% $370
Uzbekistan 11% 70 60 22 0% 1% $360
Kenya 43% 47 13 78 11% 24% $350
Sudan 18% 56 15 81 31% 54% $310
Zambia 45% 38 87 115 15% 29% $300
Uganda 30% 42 11 83 22% 43% $300
Angola 43% 47 13 128 $290
T anzania 41% 44 93 16% 33% $270
Madagascar 40% 55 58 88 8% 20% $250
Nepal 28% 59 83 74 40% 76% $240
Cambodia 33% 54 59 88 20% 43% $260
Rwanda 39% 40 23 123 26% 40% $230
Mozambique 58% 42 98 129 40% 71% $210
Chad 38% 48 15 101 48% 65% $200
Niger 46% 46 92 114 76% 92% $180
T aj ikistan 32% 69 12 21 0% 1% $180
Eritrea 65% 52 11 60 33% 55% $170
Malawi 32% 39 58 103 26% 53% $170
Sierra Leone 43% 39 21 154 $130
Burundi 68% 42 19 102 44% 60% $110
Ethiopia 49% 42 18 98 53% 69% $100
a Nutrition: share o f the populatio n with inadequate nutrition. Maternal mo rtality: p er 10,000
live b ir ths. I nfa nt mo r tality: p er 1 , 0 0 0 live b ir ths. So ur ce: W o r ld B ank. Wo rld Development
Indicato rs, 2002. Derived from tables 1 .1, 2 .18, 2.20, 2.14 and 2 .20.

Table 3. C omparing Country Ranks f or Economic Freedom
Count ry H * F * Count ry H F Count ry H F
F ree 1 Peru 53 45 Moldova 105
Hong Kong 1 1 Gr eece 55 45 Tu r k e y 105 82
Singapore 2 2 Gu at emal a 55 66 Bulgaria 108 97
New Z eal an d 3 5 Sri Lan ka 55 77 Croatia 108 92
Estonia 4 35 Colomb ia 58 92 Fiji 108 70
Irelan d 4 7 Tunisia 58 73 Ge o r g i a 108
Luxembourg 4 13 Bo tswan a 60 38 Gh a n a 108 89
Netherlands 4 8 Ivory Coast 60 80 Le s o t h o 108
United S tates 4 3 Jamaica 60 38 Nep al 108
Au stralia 9 8 Mali 60 92 Rwanda 108 101
Chile 9 15 Mexico 60 66 Tan zan i a 108 77
United Kingdom 9 4 Mongolia 60 Ecuador 117 101
Den mark 12 13 Nami b i a 60
Switzerland 12 5 Oman 60 19 M ostl y Unfree 3 . 5
Finlan d 14 11 Slovak Republic 60 82 Azerb ai j an
South Africa 60 47 Malawi 118
M ostl y F ree 2 P h ilippines 70 38 Niger 118 97
Bah r ain 15 24 Qatar 70 Ch in a 118 101
Canada 15 8 Egyp t 121 51
Bah amas 17 35 M ostl y Unfree 3 Ethiopia 121
El Salvador 17 30 Do mi n i can Rep 72 51 India 121 73
S wed en 17 19 Mauritius 72 30 Ch ad 121 92
Au s t r i a 20 15 Saudi Arab ia 72 Kazakh s t a n 125
Belgium 20 15 Uganda 72 60 Kyrgyz Republic 125
Ge r ma n y 20 15 Cen t African Rep 76 109 Nigeria 125 101
Cyprus 23 70 M o ro cco 76 73 To go 125 116
Icel an d 23 11 Mozambique 76 V en ezu el a 125 82
UnitedArabEm 23 19 Al g e r i a 79 Bangladesh 130 107
Barbados 26 82 Brazi l 79 82 Ro man i a 131 114
Portugal 26 19 P apua N Guinea 82 Ru ssia 131 116
Spain 26 24 Djibouti 79 Congo Republic 131 113
Italy 29 35 Th e Ga mb i a 79 Yemen 134
Lithuania 29 60 M a d a gascar 79 Haiti 134 60
Ta i wa n 29 30 Malaysia 79 51 Sierra Leo n e 109
Czech Republic 32 38 Paraguay 79 66 Tajikistan 136
Hungary 32 51 Sloven ia 79 73 Ukrain e 137 116
Th ailand 32 56 Swaziland 79 Vietnam 137
Jap an 35 24 Ben i n 88 82 Bo sn ia 137
No rway 35 24 Cap e V erd e 88 Equatorial Gu inea 140
Trinidad &Tobago 35 30 Honduras 88 66 Gu in ea Bissau 142 121
Lebanon 88 Suriname 142
M ostl y F ree 2 . 5 Ni caragu a 88 60
Argentina 38 30 Bu rkin a F aso 93 Repressed 4
Ko rea, S o u t h 38 38 Gu ya n a 93 56 Yu go slavia 144
Latvia 38 47 Ken ya 93 56 Bu rma 145 122
Uruguay 41 47 Senegal 93 89 Syria 145 109
Co sta R ica 42 24 Burundi 92 Zimb ab we 147 114
Israel 43 47 Ch ad 92 Belaru s 148
Ar me n i a 43 Cameroon 97 97 Uzb ekistan 148
Belize 45 70 Gabon 97 105 Tu r k me n i s t a n 150
Bolivia 45 51 Macedonia 97 Iran 151 109
F r an ce 45 38 Zamb ia 97 60 La o s 151
Jo rd an 45 24 Albania 101 97 Cuba 153
Malta 45 60 Gu i n e a 101 Li b ya 153
Panama 45 19 Mauritania 101 Iraq 155
Poland 45 89 Pakistan 101 107 Ko rea, No rth 155
Ku wait 53 38 Indonesia 105 77 Congo, Dem Rep 123

* Her itage Fo und atio n Stud y and Fr a ser I nstitute Stud y. T he catego r ies a r e fr o m the H er itage
stud y. Data fr o m Ger a ld P . O’Dr isco ll, J r . e t a l. 2002 Index o f Economic Freedom and J ames
Gwartney and Robert Lawson, Economic Freedom of th e World , 2002 Annua l R e p o r t . N umb e r s
sho w c o unt r y r a nk, wi t h l o we r numb e r s ha vi ng mo r e e c o no mi c fr e e d o m.

Table 4. R anking Countries by Political Freedom
FREE Slo vakia Fij i Bahrain
1 Slo venia Guatemala Cambodia
Andorra So uth Afr ica Indonesia Cha d
Austr a lia Sp ain Malawi Guinea
Au s t r i a Sur i name Mozambique Kazakhstan
Bahamas Taiwan Nep a l Kenya
Barbados United K ingd o m. P a r a gua y Kyrgyz Republic
Ca na d a 2 Se ne ga l Le b a no n
Cyp r us ( G ) B o livia Sr i La nka. Mald ives
Denmark Botswana 4 Oman
Do minica B ulgar ia Ar me n i a Pakistan
Finland Chile\Cr o atia Burkina Faso Swaziland
Iceland Dominican Co lo mb ia T uni si a
Ireland Republic East T imo r United Ar a b E mir a tes.
Kirib a li Greece Geo r gia 6
Liechienstein Guya na Le s o t h o Ango l a
Luxe mb o u r g Israel Macedonia Belarus
Malta Korea, South Nige r B r une i
Marshal I slands Naur u So lo mo n I sland s B ur und i
Nether land s Peru T a nzania Cameroon
New Zealand Ro ma nia T o nga Co ngo (Kinshasa)
No rway Samo a Ukraine Egyp t
P o r t uga l V a nua t u Venezuela Eq ua to r ial Guinea
San M ar ino . . Haiti
Sweden 2.5 4.5 Iran
Switzer land Benin B o snia-Herzegovina Li b e r i a
T uva l u El Salvador Co ngo (B razzaville) Qatar
United States Ghana Co te d’Ivoire Tajikistan
U r ugua y India Dj ibouti Yeme n
. Jamaica Gabon Zi mb a b we
1.5 Mali Guinea-B issa u .
B e lgium Mexico Kuwa it 6.5
B e lize M o ngo l i a Nige ria B hut a n
Ca p e V e r d e Namib ia Sier r a Le o ne China ( P RC)
Co sta Ric a P apua New Guinea Turkey Er itr ea
Czech Republic P hilip p ine s Za mb i a La o s
Estonia T hailand . Rwa nd a
France 5 So ma lia
Germany P A R TLY F R EE Ce ntr a l Afr ic a n Re p .Co mo r o s Uzb e kistan
Grenada 3 Ethiopia Vietna m
H unga r y Antigua & B arbuda The Gambia .7
Italy Ar ge nt i na Jordan Afgha ni st a n
Japan B r azil Malaysia Burma
La tvia Ecuador M a ur i t a ni a Cub a
Li t hua ni a H o nd ur a s Morocco Iraq
Maur itius Madagascar Russia Ko rea, No rth
Micronesia Moldova
Monaco Nicaragua Si nga p o r e Li b ya
Palau Seyc he lles Togo. Saud i Ar a b i aSud a n
Panama T r inid ad and 5.5 Syr i a
Poland T obago Azerbaij an Turkmenistan
St. K itts & N evis Y ugo sl a vi a Ugand a
St. Lucia .3.5
St. V incent & the Al b a n i a NOT F REE
Grenadines B angladesh 5.5
Sao T ome & Principe Al g e r i a
Sour ce: Freedom House. Freedom in th e World 2001-2002. Lo wer numbers show mo re freedom.