Developing Countries: Definitions, Concepts and Comparisons

Developing Countries: Definitions, Concepts and Comparisons

Order Code RL31662
CRS Report for Congress
Received through the CRS Web
Developing Countries: Definitions, Concepts
and Comparisons
December 6, 2002
namere da cted
Specialist in International Political Economy
Foreign Affairs, Defense, and Trade Division
name redacted
Research Associate
Foreign Affairs, Defense and Trade Division
Congressional Research Service ˜ The Library of Congress

Developing Countries: Definitions, Concepts
and Comparisons
Summary
What is a developing country? How does one know whether a country is
actually developing or not? This report looks at this issue from several perspectives.
Using a series of reports by various organizations, it shows how countries rank in
their levels of development according to different criteria. Countries ranking high
according to one measure may rank lower according to another.
It was once
commonly believed that raising a country’s average per capita income level would
lead to improvements in most other areas. Time and experience have shown,
however, that social conditions and the general well-being of people may not
necessarily improve when a country’s average income level increases. Countries
with relatively high levels of per capita income may rank lower in their social and
structural development. By contrast, some poor countries rank with the advanced
countries in their governance and levels of individual and economic freedom.
This report examines four criteria which are often used today to rank and assess
countries’ levels of development. They are: (1) per capita income; (2) economic and
social structure; (3) social conditions; and (4) the prevailing level of economic and
political freedom. Specific indices or quantitative studies are explained and applied
to each criteria and the differences among the various measures are explained.
Jan Tinbergen, the Dutch economist and Nobel laureate (1969), argued that a
separate tool or instrument is needed to achieve individual economic objectives.
Two goals cannot be achieved effectively with the same policy tool. When applied
to the field of development, the Tinbergen rule suggests that one needs a separate
program or procedure for each objective if one wants to achieve multiple goals.
There is little evidence, despite the claims of some authors, economic growth will
lead by itself to improvements in social indicators, economic freedom, governance,
or political and civil liberty. Likewise, though many argue that strong emphasis
needs be placed on improving social indicators and basic human needs, there is little
evidence that improvements in these areas will lead necessarily to increased
economic growth or improved governance. According to Tinbergen’s rule, one likely
needs a variety of programs, each targeting a particular objective, if one wants to
successfully pursue a variety of different goals.
Balancing the costs of achieving these various goals – maintaining or increasing
expenditures for programs targeting social goals, conserving and improving
infrastructure and capital facilities and avoiding macroeconomic instability through
prudent monetary, fiscal and foreign exchange policies – is one of the great
challenges facing developing countries today.
Congress will consider major bills dealing with development issues in the
coming year. Some of the controversy on these issues comes from different views
about U.S. interests and goals. However, much of the debate about the goals and
effectiveness of development aid stems from different concepts about the
development process itself. This report seeks to provide background and information
which may be of use to Congress in that context.

Contents
Congress and Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Income as a Measure of Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Measuring Per Capita Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Foreign Exchange Conversion Method . . . . . . . . . . . . . . . . . . . . . . . . . 4
Purchasing Power Parity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Discussion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Grouping Countries by Income Levels
. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Developed vs. Developing? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Income Categories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Other Categories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Income Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Gini Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Discussion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Economic and Social Structure
as a Measure of Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Changes in the Structure of the Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Urbanization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Demographic Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Environmental Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Export Composition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Physical Quality of Life as a
Measure of Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Social Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Physical Quality of Life Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Human Development Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Other Measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Freedom as a Measure of Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Freedom as a Goal and Means . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Economic Freedom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Political Freedom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Good Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Political and Civil Liberties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

List of Figures
Figure 1. Percent of Workforce in Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Figure 2. Urbanization and Improved Sanitation . . . . . . . . . . . . . . . . . . . . . . . . 10
Figure 3. Birth Rate and Population Composition for Income Groups . . . . . . . . 12
Figure 4. Carbon Dioxide Emissions and Country Income Levels . . . . . . . . . . . 14
Figure 5. Primary Products as a Percent of Total Exports . . . . . . . . . . . . . . . . . . 15
List of Tables
Table 1. Ranking Selected Country
by Levels of Per Capita Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Table 2. Ranking Selected Countries
by Physical Standards and Quality of Life . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Table 3. Comparing Country Ranks for Economic Freedom . . . . . . . . . . . . . . . 33
Table 4. Ranking Countries by Political Freedom . . . . . . . . . . . . . . . . . . . . . . . . 35

Developing Countries: Definitions, Concepts
and Comparisons
What is a “developing country?” How does one know whether a country is
actually developing? How can we measure the progress countries are making in
development? There are many measures used which seek to identify and rank
countries in terms of their levels of development. Most focus on income levels, due
to the premise that countries are more developed when their annual levels of per
capita income rise. Others examine social, structural and other criteria, due to the
premise that these are also important attributes of
development. In general,
development is a multi-dimensional concept that encompasses economic, social and
political criteria. This report seeks to clarify how some of the major criteria are
measured and defined.
This is not merely a theoretical issue. The 108th Congress will be considering
legislation relating to this issue. This will include, among other things, foreign aid
appropriations, authorizations for U.S. contributions to multilateral development
banks and the proposed Millennium Challenge Account (MCA). Typically, there has
been much debate about the goals and priorities to be emphasized and the criteria to
be used for determining whether development aid programs have been effective in
accomplishing desired goals. Some of the disagreement appears to stem from
differing concepts about development and the development process.
Every country is unique. Nevertheless, countries often can be grouped according
to their economic, social and political situation. In some cases, it is important to
rank countries in order to see which are eligible for benefits established by law or
international agreement. For example, some less developed countries are eligible for
trade or foreign aid benefits which are not available to countries at higher levels of
development. These include access to grants and low-cost concessional aid from
international financial institutions and some bilateral aid programs and tariff
exemptions under the World Trade Organization's General Schedule of Preferences
(GSP).
Likewise, analysts often group countries according to their levels of
development in order to study their internal dynamics and determine which
development policies or methods might be most appropriate for a given country.
This report evaluates development from several different perspectives. Using
a series of reports which are issued periodically by various organizations, it shows
how countries rank in their levels of development according to diverse criteria.
Countries that rank high according to one measure may rank lower according to
another. At one time, it was commonly believed that raising a country’s average per
capita income level would lead to improvements in most other areas. Time and
experience have shown, however, that social conditions and the general well-being
of people may not necessarily improve when a country’s average income level
increases. The link between countries’ levels of per capita income and their levels
of social development (measured by health and educational criteria) is not necessarily

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strong. Countries with relatively high levels of per capita income may rank lower in
their social and structural development. By contrast, some poor countries rank with
the advanced countries in their systems of governance and their levels of individual
and economic freedom.
This report examines four criteria which are often used today to rank and assess
countries’ levels of development. These are: (1) per capita income; (2) economic and
social structure; (3) social conditions; (4) the prevailing level of governance and
freedom. Specific studies or annual reports relevant for each category are cited and
discussed. At the end of the discussion, a few comments are made about the possible
relationship of these concepts. A series of statistics and tables are provided at the end
of the report.
Congress and Development
Since the onset of the Marshall Plan in 1948, there has been much congressional
debate concerning the best way that growth and development can be stimulated and
sustained. Large amounts of foreign aid have been provided to developing nations
(though not nearly as much in real dollar terms or as a share of the donor countries’
economy as in the decade starting in 1948).1
The persistence of poverty,
malnutrition, disease and illiteracy in developing countries has been a continuing
source of concern to many donor and recipient countries.
In recent decades, Congress and the Executive Branch have proposed a variety
of new programs which many thought would be effective in promoting development.
The programs specified a wide variety of different goals which ought to be pursued.
In 1989, a task force of the House Foreign Affairs Committee found that the basic
law undergirding the U.S. bilateral foreign aid program (the Foreign Assistance Act
of 1961) contained 33 different goals for the U.S. bilateral aid program and the U.S.
aid program identified 75 priority areas which should be emphasized.2 Others have
been enacted since that time. Similarly, a broad variety of goals and policy concerns
have been written into the two basic laws (the International Financial Institutions Act
of 1977 and the Bretton Woods Agreements Act) which govern U.S. participation in
the International Monetary Fund and the multilateral development banks. The
variety of U.S. goals in these bilateral and multilateral programs has sometimes
blurred the focus and encouraged confusion about the priorities, design and
evaluation of the development aid programs funded by these agencies. The strong
arguments which often occur during discussions about foreign aid and development
policy often seem rooted in differences over goals and priorities and much of the
disagreement stems from conflicting views about the nature of development and the
best way it can be measured and achieved.
1For a discussion of U.S. foreign aid programs over the years, see CRS Report 98-916 F,
Foreign Aid: An Introductory Overview of U.S. Programs and Policy, by (nam e*redacted) and
(name *redacted), updated April 6, 2001 and CRS Report 97-62 F,
The Marshall Plan: Design,
Accomplishments and Relevance to the Present, by (nam e*redacted), January 6, 1997.
2U.S. Congress. House of Representatives. Committee on Foreign Affairs. Report of the
Task Force on Foreign Assistance. 101st Congress, 1st Session, Document 101-32. February
1989, p. 27.

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In 2003, Congress will consider legislation authorizing U.S. participation in new
multilateral funding plans for the International Development Association (IDA) – the
concessional aid window of the World Bank – and other multilateral aid programs.
This includes contributions of $2.85 billion over three years to IDA and roughly $1
billion over several years to the other multilateral programs. Questions about the
effectiveness, priorities and goals for IDA and the other MDB programs are likely
to be important considerations in those deliberations. There has been considerable
controversy, over the years, about the policies, priorities and relative success of
multilateral bank programs.
In 2003, Congress will also likely consider legislation which would change
some key elements of the U.S. bilateral assistance program. President Bush is
expected to propose that the United States should provide an additional $5 billion in
targeted foreign aid in 2006 – over and above the regular U.S. aid program – to
promote economic growth and fight poverty in the world’s poorest countries. A
limited number of countries which meet strict eligibility and performance
requirements would be targeted. To qualify, countries will need to be promoting
good governance, fighting corruption, respecting human rights and adhering to the
rule of law. They should be investing in people, through adequate health and
education programs that meet the needs of their population. They should also be
pursuing policies aimed at fostering private enterprise and entrepreneurship,
promoting open markets and maintaining sustainable budgets. Under the MCA
program, aid would be targeted to countries that are “good performers,“ apparently
without regard to other U.S. foreign policy or strategic objectives.3
Many expect that, when the MCA proposal is submitted to Congress, efforts will
likely be made by the House and Senate to reconsider some of its basic criteria.
Some say more emphasis should be given to social factors (see below) and to poverty
alleviation. Others argue that more attention should be given to the needs of people
in poor countries which fall short of the MCA eligibility requirements.
Disagreement about U.S. foreign policy goals and U.S. interests will likely be
an underlying factor in the debates about the multilateral banks, the MCA and other
development programs. However, disagreement about the appropriate standards and
criteria for assessing the effectiveness of development aid programs will also likely
be an important consideration.
This report seeks to provide background and
information which may be of use to Congress in that context.
Income as a Measure of Development
Comparing countries in terms of their levels of per capita income is the most
common method used for assessing relative levels of development. This has the
advantage of being straightforward and – unlike some of other measures – the
necessary numbers are usually available. As discussed below, however, there are
important omissions built into this methodology.
3See CRS Report RS21209, The Millennium Challenge Account: Bush Administration
Foreign Aid Initiative, by (name *redacted), June 21, 2002.

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Measuring Per Capita Income
Foreign Exchange Conversion Method. There are two basic ways that
per capita income can be measured. The first calculates a country’s per capita
income in local currency – dividing the value of its total income or its total output
by its population – and then converts that figure into U.S. dollars or another world
currency using the prevailing exchange rate. This facilitates the comparison of
countries at similar stages of development and provides a rough measure of the gross
disparities between rich and poor countries.
In many countries, though,
determination of an accurate figure for the gross domestic product is difficult,
particularly when much economic activity is outside the money or formal economy.
In such situations, inter-country comparisons can be only approximate.
For most countries, the dollar GDP figure is simple to calculate. However, it
provides little information about living standards in most countries. Nobody can live
on a dollar a day in a dollar-based economy, but people often do survive in poor
countries on the daily local currency equivalent of a dollar, since the cost of most of
the items they purchase with local currency are comparatively low. The foreign
exchange value of a currency is set in the international sector of a country’s economy.
However, most of the things which people buy locally (particularly in developing
countries) are not traded in world markets (housing, local food, local services, etc.)
Imported goods or other traded goods, whose prices reflect the foreign exchange
value of the local currency, generally comprise only a small share of their purchases.4
Purchasing Power Parity. The second method seeks instead to measure
the income people receive in their local currencies in terms of a common standard of
purchasing power. The purchasing power parity (PPP) method converts the prices
of common items in different countries into a common standard price, regardless of
their stated cost in local markets. An international dollar in a PPP comparison has
the same purchasing value in a country that a dollar would have when spent in the
United States. Thus, people with a per capita PPP income of $4,000 in a developing
country would have roughly the same standard of living they would have if they lived
in the United States with that income and they bought that basket of goods.
The PPP method allows analysts to compare more accurately the standards of
living that people in different countries can purchase with their local income. While
the conceptual case for using PPP rates of exchange is clear, practical issues remain.
The PPP method does not accurately reflect the actual dollar value of the income
people receive in developing countries. An item in the market basket might be valued
at $1, under the PPP system, for example, even though it may cost 50 Indian rupees
4An additional complication stems from the fact that the dollar itself may change in value
relative to other currencies because of changes in the American economy or in the its major
commercial partners. In real terms, measured in local currency, a foreign country might be
experiencing rapid economic growth but the dollar equivalent of its income may fall because
the dollar declined in value compared to other currencies. Trend data calculated on this basis
can be particularly misleading. The problem remains no matter what currency one uses to
convert local figures to an international standard. The World Bank and other sources seek
to smooth out fluctuations by using three-year averages and other devices. Still, exchange
rate fluctuations remain a problem for international comparisons.

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in the local marketplace. Those rupees would not likely be worth the equivalent of
$1 if the purchaser tried to spend them on a product which is not in the PPP market
basket. PPP data also take much time to calculate. From a practical perspective, all
countries cannot be surveyed annually. Therefore, it is difficult to use them for inter-
country comparisons or to monitor ongoing changes in income levels.
Discussion. The PPP method and the foreign exchange method are both
useful for comparing the income levels that people receive in different developing
countries. They cannot be used interchangeably, however. Income levels measured
by one procedure cannot be accurately compared to the income levels determined by
the other methodology.5 The World Bank and United Nations publish annual data
calculating per capita income levels for most countries using the foreign exchange
and the PPP methods. Reference might be made, for example, to the World Bank’s
annual publication, World Development Indicators and the Human Development
Report issued annually by the U.N. Development Programme (UNDP). The income
numbers in the Human Development Report are calculated annually for the UNDP
by the World Bank. However, for data and procedural reasons, they are often not
directly comparable. 6
Grouping Countries by Income Levels
Developed vs. Developing? Several systems have been devised to group
countries according to their levels of per capita income.
The United Nations
Statistical Yearbook notes that there is no “common agreement in the United Nations
system concerning the terms ‘developed’ and ‘developing’, when referring to the
stage of development reached by any given country or area and its corresponding
classification in one or the other grouping.”7 The yearbook divides the world into
two groups. Countries in North America, Europe and the former U.S.S.R., Japan,
Australia and New Zealand are said to be “developed.” All others are “developing.”
By dividing the world into two large blocks, the above system tends to obscure
the differences within each group and to emphasize differences between them. In its
5This can be observed in Table 1. Table 1 shows per capita national income by both the
exchange rate and PPP calculation, ranking countries by income groups. Normally, the PPP
figure is larger. In a few instances, though, a country’s PPP income is less than the exchange
rate total. This is true for many high income countries. In some developing countries with
similar income levels by the exchange rate method, the PPP disparities are very great.
Compare, for example, Poland and Lebanon, Tajikistan and Niger, Uzbekistan and Kenya,
Panama and South Africa, or Nigeria and Cambodia.
6 The World Bank emphasizes data showing countries’ Gross National Income (GNI) per
capita using both the foreign exchange and the PPP method. By contrast, the UNDP report
shows PPP data for countries’ Gross Domestic Product (GDP) per capita. The GDP figure
shows the value added or produced by the residents of a country plus any taxes (less
subsidies) not included in the total. The GNI figure includes both the GDP and the net value
of any income derived from work or property abroad. GDP shows the productive capacity
of an economy whereas GNI measures the total income available to the its residents. The
World Bank and UNDP also often use different base years for their calculations.
7United Nations. Statistical Yearbook, Forty-fifth Issue. New York: U.N., 2001, p. 3.

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annual global economic and social survey, the U.N. uses a somewhat different
classification system. It separates the former Soviet republics and the former
communist countries of Eastern Europe into a third group called “economies in
transition.”8 In effect, these countries are grouped together – despite wide disparities
among them – on the basis of their history rather than their level of development.
Income Categories. The U.N. also uses a number of other systems for
categorization. To help identify the countries most affected by the world oil crisis,
the U.N. divided them into three groups – 44 “least developed” countries, 88 non-oil
exporting “developing nations” and 13 members of the Organization of Petroleum
Exporting Countries (OPEC). This showed generally which countries were likely to
be helped or hurt by increases in world oil prices.
For other purposes, the U.N. has grouped the developing countries into five
categories. (1) The Least Developed Countries (“LLDC”) are 29 low-income
countries with per capita GNP levels below $761 (in 1998 U.S. dollars) and have
major problems in terms of their economic diversification and social development.
This group of countries is different from the 44 “least developed” countries
mentioned above. (2) Low-Income Countries (LICs) are poor countries which meet
the prior income test but do not have the same severe local conditions. (3) Lower
Middle-Income Countries (LMICs) have GNP per capita levels between $761 and
$3,030. (4) Upper Middle-Income Countries (UMICs) have annual GNP per capita
levels between $3,031 and $9,360. (5) High-Income Countries (HIC) have GNP per
capita levels greater than $9,360.
The World Bank uses the same basic framework, though it pegs the threshold
for each category lower than does the U.N.9 Using the foreign exchange method of
calculating income, the World Bank divides countries into five groups. Low-income
countries are those with per-capita income levels below $755 (in 2000 U.S. dollars).
Lower middle-income countries have incomes between $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 latter amount.10
The average PPP per capita income for countries in the low income group was $1,990
annually in 2000, while those for countries in the lower-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 income group was $27,450. The PPP income level for the
United States was $34,260 in 2000. The average person in the low-income group has
a standard of living comparable to that which could be purchased in the United States
with an annual $1,990 net income. Table 1, in the Appendix, organizes countries
according to the World Bank framework, adjusted to show those countries with very
low income levels.
8United Nations. World Economic and Social Survey, 1999. New York: U.N., 1999. See, for
instance the table on output and per capita income on p. 256.
9The thresholds and ceilings for the U.N. categories would be higher they were expressed
in U.S. dollars for 2000.
10Source: World Bank, World Development Report, 2002, p. 241.

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Other Categories. Some analysts have grouped countries further according
to certain dynamic qualities of their economies. Newly Industrializing Countries
(NICs) are those where the industrial and manufacturing sector is growing rapidly
and where these products comprise a growing portion of their foreign sales. At
different times, countries at various levels of per-capita income – Mexico, Greece,
Singapore, Portugal and Spain – have been included in this group. Emerging Market
Countries (EMC) are those whose participation in world trade is growing rapidly.
They are successful in attracting foreign investment and in establishing their
creditworthiness for private commercial loans. Middle-income countries comprise
most of the participants in this group, but China is also generally included as well.
In some cases, countries may be dropped from the list of NICs or emerging
market countries for reasons not necessarily linked to their economic performance.
This suggests that their level of “development” according to that system of
categorization is less a function of their own condition and more a function of their
relationship with foreign markets or other countries. For example, countries in
Eastern Europe would likely no longer be considered developing countries or NICs
if (like Spain and Portugal in the past) they joined the European Union. Likewise,
countries may find their status as successful emerging market economies may be
reduced for reasons not entirely of their own making. These include recessions in the
developed countries which cut their export markets or financial crises where events
in one emerging market country have a “contagion” effect. In the latter situation,
investors or lenders may reduce their exposure in emerging market countries
generally, seemingly without much regard for the situation in particular countries.
Income Distribution
The income measures discussed above all report average per capita income
levels for the different groups of countries. However, the way that income is
distributed within a country may have a very substantial impact on overall living
standards. People living in a low-income country where income is relatively well
distributed may have a better quality of life overall than those living in a higher-
income country where much of the income goes to a small segment of the population
and where most people have income levels below those available to people living in
countries with lower average per capita incomes.
Individuals have different skills, aptitudes, histories and conditions; these may
have a substantial impact on income distribution patterns. Nevertheless, social and
political relationships can also have an effect – directly or indirectly – on income
distribution. Arguably, income patterns can be influenced by public policy, including
efforts to improve skills and productivity and to expand opportunities for a
population. Many analysts would view steps taken in those direction to have a
positive effect on development.11
11For example, see: P. Dasgupta, An Enquiry into Well-being and Destitution. Oxford (UK):
Oxford University Press, 1999, chapters 4 and 5.

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Gini Index. To measure the overall pattern of income within a country,
economists use a statistical measure called a “Gini index.”12 According to this
measure, a country would have a Gini index of zero if income were distributed with
perfect equality; it would have a Gini index of 100 if income were distributed with
perfect inequality. Starting with the lowest income individuals or households, the
analysis determines what share of the overall national income accrues to the bottom
10% (decile) of the population. The same assessment is done for the other nine
deciles of the population. Much attention is often paid to the share of total national
income accruing to the top and bottom 10% of the population. However, the
distribution pattern for the middle portions of the population is also very important.
Table 1 in the Appendix shows the Gini index for many countries. Many analysts
believe that the distribution pattern is an important indicator of real income levels as
well as indicator of the country’s overall stability and cohesion. 13
Discussion. Many popular discussions tend to mix together the issues of
poverty reduction and inequality reduction. They are related but distinct concepts.
Many analysts contend that income inequality will increase during the earlier stages
of the growth process but will diminish as countries achieve higher levels of per
capita income.14 Poverty levels, by contrast, tend to fall as national income levels
rise.15 Many economists believe that growing inequality may be a function of the
development process, as rewards accrue unevenly to individuals based on their socio-
economic situation, their skills and functions and their degree of participation.
Income distribution seems to broaden as countries become more wealthy. There is
disagreement, though, whether this is due more to economic or to public policy
considerations. Many believe that economic growth can be enhanced and sustained
(as seen in many middle- and higher-income countries) when income is distributed
more broadly and more people participate and benefit from the process.16 17
12It is also called the Gini coefficient or Gini ratio.
13 For example, see Amartya Sen, “The Concept of Development,” in Hollis Chenery and
T.N. Srinivasan (eds.) Handbook of Development Economics, vol. 1. Amsterdam: North-
Holland, 1986, chapter 2. However, some others believe that income distribution is not an
important concern. See, for instance: Danny Quah and S. Durlauf, The New Empirics of
Economic Growth. London: London School of Economics and Political Science, Center for
Economic Performance, 1998.
14The principal focus here is on income and consumption equality. However, when
discussing the relationship between inequality and growth, two other types – asset inequality
and social/political inequality have also been found to have significant consequences.
Political inequality is discussed below. A common example of changes in asset inequality
is the redistribution of land which took place in East Asia following independence from
collonialism and its major contribution to that region’s good economic performance.
15 See, for example: N. Heston and R. Summers, “The PennWorld Table (Mark 5): An
Extended Set of International Comparisons, 1950-88.” Quarterly Journal of Economics, v.
106 (1991), pp 327-68.
16See, for example: G. Mankiw, D. Romer and David Weil, “A Contribution to the Empirics
of Economic Growth.” Quarterly Journal of Economics, v. 107 (1992), pp. 407-38.
17There is a substantial literature supporting both views. Nevertheless, it should be noted
(continued...)

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It is difficult to discern a direct relationship between income distribution and
countries’ levels of per capita income. For example, as seen in Table 1, the United
States, China, Turkmenistan, Ghana, Cambodia and Ethiopia all have essentially the
same Gini score, despite major differences in their levels of development. The
relationships between economic growth, average per capita income and income
distribution are subtle. In the long run, economic growth will improve average levels
of per capita income.
However, the relationship between growth and income
distribution is less clear. By itself, growth does not seem to have a clear positive
impact on income distribution patterns.
Economic and Social Structure
as a Measure of Development
Few reports encapsulate in a single index the changes in economic and social
conditions which accompany development. Nevertheless, the many connotations
which surround the concept of “modernization” demonstrate that changes in these
areas are often intrinsic to the development process. Few countries have been able
to raise their income level, their productive capacity and their standard of living
without experiencing some major changes in social patterns and the underlying
structure of their economy.
Changes in the Structure of the Economy
Generally, as economic development occurs, the structure of the economy
changes.
Capital and skilled labor are substituted for unskilled labor and an
increased share of the work force is concentrated in manufacturing and skilled
services.18 There seems to be a tendency in most countries that, as income levels and
social conditions improve, the locus of economic activity shifts from rural to urban
areas. Total output from agriculture may expand, as productivity levels in agriculture
increase. However, the share of the workforce involved in agriculture tends to shrink
and agriculture’s share of national output declines.
17(...continued)
that the data in Table 1 cast doubt on both propositions. Overall, as suggested above,
middle-income countries seem to have higher levels of income disparity than do countries
above or below them on the income ladder. (The data are not adjusted for population
growth.) However, the disparities among the countries in each group are greater than the
differences among the groups, so it is hard to discern a cross-national trend. Likewise, as
proposed above, it appears that many middle-income countries experienced faster rates of
growth during the 1990s than did low-income countries. Some low-income countries grew
faster, though, than did some middle- or high-income countries. Growth occurred in
countries with both high and low levels of income disparity. Growth rates were not higher
for countries at the top end of the income scale as income distribution patterns widened.
The relationships discussed in the literature may be true within countries and among some
countries over time. They are less evident, however, in the current inter-country data.
18 See, for example: A. Banerjee and A. Newman, “Occupational Choice and the Process of
Development.” Journal of Political Economy, v. 101 (1993), pp. 274-298.

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This can be seen in Figure 1. According to World Bank statistics, about 4% of
men and 2% of women in high income countries were employed in agricultures,
while the ratios in upper middle-income countries were 22% for men and 21% for
Figure 1. Percent of
Workforce in Agriculture
women. Data for lower income countries are more sketchy. However, Bank data
show that portion for lower middle-income countries ranges between 30% and 60%
and the percentages for lower-income countries is likely much higher.19
Urbanization
Figure 2. Urbanization and
Improved Sanitation
19 Data for most low-income countries are lacking. Data for many from the early 1980s
show that 70% to 80% of the population or more was employed in agriculture. More recent
data are available for only a few countries. These suggest, however, that the shares for
many countries have not changed greatly. Sri Lanka moved from 49% male and 51% female
in agriculture to 38%/49% during the past two decades. Madagascar went from 73%/93%
to 77%/76% during the same period, the male agricultural rate being higher in the end.

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Likewise, there seems to be a tendency for people to move towards urban areas
as development occurs. The share of the population in urban areas and in large cities
generally increases as income levels increase for middle-income and higher-income
countries. This is shown in Figure 2. Among other things, urbanization increases
the efficiency of infrastructure expenditures, it reduces transaction costs and it
generates positive externalities. Upper middle-income countries often have a larger
share of their population in their largest city than do high income countries, perhaps
because the latter have infrastructure and commercial bases which facilitate
simultaneous growth in several major urban areas.20
An important consideration is the degree to which urban growth outstrips the
capacity of developing countries to cope with the needs of their growing urban areas.
One example is the share of the urban population which has access to improved
sanitation facilities. As shown on Figure 2, the rate of urbanization often exceeds
the construction of adequate sanitation in the middle ranges of development. In low-
income countries, the share of the population in urban areas and the share with
adequate sanitation are about the same. As income levels increase for developing
countries, however, the gap between the size of the urban population and the share
of the population with access to adequate sanitation increases. It is particularly
pronounced for upper middle-income countries. The gap disappears for high-income
countries.21 This suggests that the pressures of urbanization tend to outstrip the
resources available in developing countries to cope with basic urban needs. Though
adequate data are not available, it would appear that similar relationships also exist
for public access to adequate housing and for transport congestion and pollution in
countries experiencing rapid urban growth.
Demographic Changes
A wide range of social changes also occur as countries become more developed.
It is difficult to capture in statistics the altered patterns of social relationships and the
shifts in institutional behavior which often accompany the development process.
However, some data on population changes might be cited. Changes in birth
dynamics and the age structure of the population reflect shifts which are going on
within the family and in society generally.
20 Henderson observes that the costs of urban concentration increase substantially after a
point because the costs of excessive concentration (congestion, pollution) outstrip the city’s
capacity to deal with them. Economic activity is more spread out, he says, in a mature
system of cities. This implies that the development trend in this area moves beyond massive
agglomerations towards a more diffused pattern. Vernon Henderson. “Urbanization in
Developing Countries.” The World Bank Research Observer 17:1 (Spring 2002), pp. 89-112.
21 The figure for access to sanitation in high-income countries is based on data for
“developed countries” published by the U.N. Department of Economic and Social Affairs.
See: [http://unstats.un.org/unsd/mi/mi_results.asp?row_id=668].

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Overall, birth rates decline as country per capita income levels increase.
Likewise, the average age of the population increases as one goes from low- to high-
income countries, as young people comprise a smaller and older people a larger share
of the population. Figure 3 shows both the crude birth rates for groups of countries
and also the age distribution for those groups. The height of each bar shows average
birth rates for each income group. The drop from low-income to lower middle-
income countries is pronounced, as is the further decline for high-income states. The
average birth rate for all middle-income countries was 1.8% (18 births per 1,000
residents.) Many countries in the lower middle-income group are nations making the
transition from communism to market economics. For historical reasons, their birth
rates are more similar to those for high-income rather than developing countries.
This considerably reduces the averages for that income group. As these countries
pass into the upper middle-income group, one may expect to see the average for that
group decline and the average for the lower middle-income country rise.
Figure 3. Birth Rate and Population
Composition for Income Groups
The subdivisions within each column in Figure 3 show the age composition of
the population for each income group. The subdivisions within each column show,
from bottom to top, the share of the population composed of young people, working-
age people and older people.22
Generally, as countries develop, their average
population becomes older. People under 15 years of age comprise a smaller share
22The shares are not measured by the percentage figures at the left of the chart. Rather, the
numbers in each column show the percentage of the population in each category whose age
falls within certain ranges. The relative height of the four columns is not relevant to this
presentation. Due to space constraints, no figure is shown for the portion of the population
in the oldest age group. Those portions can be determined, however, by subtraction.

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and people over 65 a larger share of the population. Again, the pattern is somewhat
different for countries in the lower middle-income group, as a major body of the
countries in that group have low birth rates and a smaller share of children in their
population than is normal for the group.
Environmental Change
Increased levels of pollution and environmental damage also are often
associated with increased levels of per capita income. The concept of sustainable
development suggests that it might be possible to reduce or eliminate the link
between pollution and growth. However, there appears to be no specific index which
ranks countries in their levels of sustainable development, though some efforts are
being made in that direction.23 The data indicate that environmental damage seems
to be linked to income growth. Table 4 shows that carbon dioxide (CO ) emissions
2
increase per capita as country income levels increase. High income countries created
nearly 13 times the CO output (million metric tons) per capita in 1998 as did low-
2
income countries. However, increased levels of country wealth also may help limit
23 The United Nations is seeking to create an index for measuring sustainable development.
However, it is currently in the conceptual stage of development. As conceived, it would
encompass a wide variety of social, environmental, economic, and institutional variables.
Some might argue that the scope of the effort is too broad and that – because the underlying
data are so disparate – a single index number based on this data would be of limited use.
See: United Nations. Division of Sustainable Development. Indicators of Sustainable
Development: Guidelines and Methodologies. 2001. Available (via the link to indicators)
from the Division web site (at [http://www.un.org/esa/sustdev/].
The World Bank’s
Environmentally and Socially Sustainable Development network promotes sustainable
development in a range of areas. No effort seems to be underway, however, to create a
general index. See the link to sustainable development on the Bank’s web page titled
“Topics in Development: [http://www.worldbank.org/html/extdr/thematic.htm]. See also
the discussion of “Sustainable Development” at The World Bank Institute’s web page at
[http://www.worldbank.org/wbi/sustainabledevelopment/].

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this phenomenon. Table 4 also shows that, when the CO emissions (in kilograms)
2
for low- and middle-income countries are assessed, the output was higher for each
income group as the size of its gross domestic product (GDP) increased in PPP dollar
Figure 4. Carbon Dioxide
Emissions and Country Income
Levels
terms.24 However, the emission rate for high-income countries was the same (per PPP
dollar of GDP) as that for low-income countries. This suggests that economic growth
need not lead to higher pollution when countries are able to use some of their
national wealth to hold their rates of undesirable emissions in check.
Other areas of environmental damage seem less tied to income growth. The
World Bank shows, in its 2002 World Development Indicators report, for instance,
that China is the world leader in the emission of organic water pollutants, with 7
million kilograms (Mkg) a day. The United States is second, with 2.5 (Mkg),
followed in decreasing levels by India, Japan, Indonesia, and Brazil. This largely
reflects population size. When kilograms per day per worker are assessed, China, the
United States and Japan all had the same level (0.14 kg), while India, Indonesia and
Brazil had progressively higher daily levels. Other areas, such as impact on
biodiversity and deforestation are also important factors but ones where country
scores are likewise heterogeneous. In some respects, these might be treated more as
social conditions (see below) than as structural aspects of the development process.
24The rates are 0.5 kg. per dollar of GDP (computed by the PPP method) for low-income
countries, 0.7 kg. for lower middle-income countries, 0.8 kg. for upper middle-income
countries, and 0.5 kg. for high-income countries.

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Export Composition
In addition to the structure of the work force and population and the degree of
urbanization, countries also can be ranked according to the degree to which they rely
on the sale of primary products for export income. Many developing countries find
that primary products comprise a considerable share of their exports.
As
development proceeds and income levels rise, these goods generally comprise a
declining share of countries’ output and their export sales. Countries whose income
is vulnerable to the unstable prices for non-fuel primary product are less able to fund
development programs, raise their income level and improve their standard of living.
Primary products are goods, usually agricultural or mineral, which have been
processed or refined only marginally. According to calculations based on World
Bank data, exports of non-fuel primary products account for over 20% of foreign
sales for low-income countries and 13% for lower and upper middle-income
countries. By comparison, as Figure 5 shows, sales of comparable products from
high-income countries provide only about 8% of total export income. Overall, during
the 20th century, the price of non-oil primary products fell by about 1% each year
compared to the price of manufactured goods. With this continued slippage in their
terms of trade, producers of primary products have to produce more each year, by
volume, in order to purchase the same quantity of manufactured products as before.
The prices of non-fuel primary products are particularly unstable and producers
have few alternatives but to accept the prices they are offered. As a whole, between
1998 and 2001, prices for non-fuel commodities fell by over 17%. In particular, the
Figure 5. Primary Products as a
Percent of Total Exports
price for robusta coffee fell to less than one-third its earlier value.25 This had a
devastating effect on coffee exporters, including many low-income countries in
25Robusta and arabica are the two main types of coffee bean. Prices for arabica beans also
fell substantially, but not as much.

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Africa. Countries exporting non-fuel primary products may find that they must
sometimes sell near or even below their costs of production. This is not a situation
which generally prevails for countries exporting services or manufactured goods.
When primary products account for a substantial share of countries’ export
income, their ability to meet their external obligations and fund development
programs may be severely constrained. Often, for very poor countries, the burden of
servicing their foreign debt in the face of downturns in export income may be nearly
insurmountable. Recently, the World Bank announced that, despite earlier
expectations to the contrary, some countries which had received substantial debt
forgiveness through the program to help heavily indebted poor countries (HIPCs)
would still not be able to sustain the costs of their remaining debts because the price
of their exports had deteriorated further.
Physical Quality of Life as a
Measure of Development
Per capita income and structural factors are useful measures for assessing levels
of economic development. However, many specialists believe they are insufficient
or perhaps even misleading, as they ignore other kinds of societal well-being.
Indeed, many analysts believe that focusing on income levels tends to obscure the
real purpose of poverty-alleviation programs. Raising income levels is merely an
instrumental goal, they argue. The real objective is improving the physical quality
of life and the basic standard of living for people in developing countries. To assess
a country’s progress towards development, they say, one needs to measure
improvements towards those goals.26
Social Indicators
Countries vary quite widely in their performance on social indicators. See, for
example, the wide disparities among countries with similar levels of per capita
income on Table 2 in the Appendix. Illiteracy generally declines as income levels
increase in most developing countries. However, many countries have rates that are
far outside the normal range for their income group. Saudi Arabia, Botswana and
Brazil have illiteracy rates much higher than those normally expected for most upper
middle-income countries. Likewise, Iraq, Morocco and Guatemala have illiteracy
rates well above those for most lower middle-income countries. By contrast, Cuba,
Armenia and Bulgaria have illiteracy rates well below the norm for their group.
Among the low-income countries, most in sub-Saharan Africa have illiteracy rates
much higher than the norm for low-income countries. By contrast, several poor
countries – Mongolia and Vietnam in particular – have illiteracy rates below those
seen in some high-income nations. Many analysts believe that income-distribution
patterns can have a strong influence on country performance in this area.
26 See, for example: Dasgupta, “An Enquiry into Wellbeing....” (Note 6) and Sen, “The
Concept of Development” (note 7).

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Infant mortality and life expectancy are two other types of social indicators
which are often used to assess countries’ relative levels of development. As Table
2 shows, most countries in sub-Saharan Africa have rates which are well below the
norm for their income group.
By contrast, other poor countries – Nicaragua,
Vietnam, Tajikistan, Mongolia, Kazakhstan and India have indicators which
“outperform” the averages for their group. Similar examples can be found in the
middle-income group. These variations suggest that income may be an insufficient
gauge for judging the progress being made towards improving the quality of life in
developing countries. Country patterns may also be influenced by social, cultural and
political factors, including peoples’ preferences and the amount of public funds and
attention which are allocated towards improving performance in these areas.
Physical Quality of Life Index
An early effort to rank countries solely on the basis of the physical and social
well-being of their population was the Physical Quality of Life Index (PQLI).27 This
ranked three factors – life expectancy at age 1, infant mortality and literacy – on a
single index, without any direct reference to income levels. There was a loose
correlation between income levels and PQLI performance, but the disparities in some
instances were striking. Some countries with high income levels had PQLI rankings
at levels below the average for the poorest countries, while some very low-income
countries had PQLI levels comparable to those for many upper middle-income states.
Particularly noteworthy were the contrasts between Saudi Arabia and Sri Lanka;
health and education rankings were much higher at the time in the latter country
despite its lower average income. The procedure found that there were often wide
disparities in PQLI rankings for countries with similar or comparable levels of per
capita annual income. Among other things, the PQLI demonstrated that the living
standards and quality of life in poor countries were not mere functions of their
prevailing income levels, but were also linked to policy and social considerations.
Human Development Index
The PQLI ceased to be published in the early 1980s, as the focus of
development studies shifted.28 In the early 1990s, however, the U.N. Development
Programme (UNDP) began publishing a similar index in its annual Human
Development Report.29 The Human Development Index (HDI) seeks to measure the
27 The PQLI index was created under the sponsorship of the Overseas Development Council.
ODC included the PQLI in its annual publication, The United States and World
Development, during the 1970s.
28The creator of the PQLI index, Morris David Morris, continued to update it but it was not
broadly distributed. See: Morris David Morris, Measuring the Condition of the World’s
Poor; the Physical Quality of Life Index. Pergamon, 1979; Measuring the Changing
Condition of the World’s Poor: the Physical Quality of Life Index, 1960-1990. Working
paper 23/23. Providence: Brown University; “Light in the Tunnel: The Changing Condition
of the World's Poor.” The Brown University Op-Ed Service, August 1996. Available at
[http://www.brown.edu/Administration/News_Bureau/Op-Eds/Morris.html].
29United Nations Development Programme. Human Development Report 2002, Deepening
(continued...)

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overall income and social/physical situation in each country. It condenses data from
four categories into a single index number. These are: life expectancy at birth, adult
literacy, combined gross school enrollment at all levels and GDP per capita (PPP
calculation). In this way, longevity, knowledge and standard of living are combined
in a single figure. The highest and lowest ranking for the index are set by the highest
and lowest ranking countries in each category. The UNDP groups countries in three
categories. Countries with low human development have HDI rankings below 0.5,
middle-ranking countries have HDI scores below 0.8 and high ranking countries have
numbers above the latter score.
The HDI demonstrates that living standards are not necessarily linked to levels
of per capita income. On the average, low-income countries (PPP income of $2,002
in 2000 dollars) ranked at 0.58 and the least developed countries (PPP income of
$1,216) had an average rank of 0.45. However, many countries (a few in Asia but
most in Africa) had HDI scores well below the average for their income group. The
HDI scores for countries are shown on Table 1 alongside the per capita income data.
The HDI method has several major limitations. First, the HDI method does not
distinguish improvements in conditions of life from increases in income, since the
latter is a component of the index. Therefore, improvements in income levels can
mask weakness in country performance in the other areas. UNDP does not publish
a separate index figure measuring the quality if life in countries without reference to
income. It tries to adjust its measure for this concern, though, by ranking countries
separately according to their relative HDI status and their per capita income levels.
When countries’ relative income rankings are subtracted from their rank on the HDI
list, one can see whether countries rank higher or lower in their levels of education
and health than their income levels might otherwise suggest. For example, looking
at the extremes, Equatorial Guinea ranked 73 places higher and Botswana ranked 62
places higher on the GDP per capita list than it did on the HDI list. By contrast,
Armenia ranked 44 places lower and Tajikistan ranked 39 places lower on the GDP
list than it did on the HDI list.
Second, by its very nature, the Human Development Index shows countries’
relative status compared to other countries. Half the countries in the world will
always rank at the 0.5 level or below, no matter how hard they strive to improve
standards. Hence, if development is a process of moving towards a goal, the HDI
method is of limited use. Still, despite these limitations, the HDI scores – when used
in conjunction with other measures – help show whether countries are making
progress towards enjoying the fruits of the development process.
Other Measures
Other contemporary measures also stress that improvements in the physical and
social quality of life must be assessed separately. Prominent among these are the
Millennium Development Goals which were approved and announced by the United
29(...continued)
Democracy in a Fragmented World. New York: Oxford University Press, 2002.

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Nations in September 2000.30 This is a collection of 8 objectives whose achievement
is sought by the year 2015. These are:
! Eradicating extreme poverty and reducing by half (to 14.5%) the proportion
of the world’s population living on less than $1 a day.
! Achieving universal primary education so that all children everywhere will be
able to complete a full course of primary schooling;
! Promoting gender equality and the empowerment of women, in particular by
eliminating the gender disparity in education, raising female literacy levels,
expanding female employment in nonagricultural work and increasing the
proportion of seats held in parliaments by women;
! Reducing child mortality by two-thirds by 2015;
! Reducing by three-quarters the overall world level of maternal mortality;
! Halting by 2015 the spread of HIV/AIDS and malaria and beginning the
process of reducing world infection rates for these and other major diseases;
! Ensuring environmental sustainability in several specific ways, halving by
2015 the proportion of people without sustainable access to safe drinking
water and improving by 2020 the lives of at least 100 million slum dwellers;
and
! Establishing an open, rule-based non-discriminatory world trade and finance
system, including national commitments to good governance and poverty
reduction.
From a development perspective, some of these goals seem desirable on their
own terms while others are desirable because they facilitate the achievement of
broader development goals. Nevertheless, by packaging them together, the United
Nations has endorsed the view that development is a complex phenomenon which
involves improvements in the quality of life as well as increases in income and
reductions in poverty.
Freedom as a Measure of Development
Freedom as a Goal and Means
Amartya Sen argues that freedom is both the ultimate goal of development and
the most effective means for achieving it. “The expansion of freedom is viewed, in
this approach,” he writes, “both as the primary end and as the principal means of
development.”31 From his perspective, development consists of the “removal of
various types of unfreedoms that leave people with little choice and little opportunity
for exercising their reasoned agency.” The removal of substantial unfreedoms, he
argues “is constitutive of development.” He cites in particular a need for expanding
economic opportunities, political freedoms, social opportunities, transparency
30 For further information, see: [http://www.developmentgoals.org].
31Amartya Sen. Development as Freedom. New York: Anchor, 1999, p. xii. Sen is Master
of Trinity College at Cambridge University and winner of the Nobel prize for Economics
in 1998.

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guarantees and measures for protective security such as social safety nets to reduce
abject poverty, famine relief and unemployment benefits.
Milton Friedman likewise argues that economic freedom and political freedom
are both vital goals.32 Economic freedom is an end in itself, he writes and it is also
an indispensable means towards the achievement of political freedom. Likewise, he
agrees that political freedom, reductions in the arbitrary power of the state and civil
liberties for individuals are also valid ends in themselves and necessary for the
preservation of economic freedom. An opponent of central planning and coercive
means for coordinating economic activity, Friedman argues that a free private
enterprise exchange economy is the only effective means for sustaining economic and
political freedom.
He says that economic and political freedom are both
characterized by an absence of coercion.
From a development perspective,
Friedman’s argument supports the view that countries are more developed as they
replace coercion and compulsion with economic and political liberty.
In the mid-1990s, former Prime Minister Lee Kuan Yew from Singapore and
others advocated an “Asian values” approach to development. They argued that
restrictions on dissent and democracy were necessary if countries are to focus their
attention and marshal their resources for development. The leaders of China,
Malaysia, Burma and some other countries still openly adhere to this view.33 Sen and
Friedman both argue, by contrast, that efforts to organize the economy under a strict
regime or to limit political and civil liberties in order to concentrate resources and
expand output are mistakes. Not only do such actions put the ultimate goal of
freedom at risk, but they add inefficiencies and slow the process of achieving that
goal. Sen believes that economic and political freedoms help to reinforce one
another. He argues, in effect, that a market economy will not function adequately in
the absence of democracy and civil and political rights.34 He believes that these not
only give people more freedom to live their lives and use their capacities more
effectively, but that they also provide people with a stronger voice for assuring that
their core interests are not ignored. He notes that demands for democracy and for
civil and political rights have become much stronger in East and Southeast Asia in
the wake of the 1997 economic crisis.35
32Milton Friedman. Capitalism and Freedom. Chicago: University of Chicago Press, 1962.
Friedman is an Emeritus Professor of economics at the University of Chicago and Senior
Fellow at the Hoover Institution. He was awarded the Nobel prize for Economics in 1976.
Though Friedman’s argument focuses more on the struggle between collectivist and market
economic principles, it is also relevant to the development issues discussed in this report.
33 For a supporting argument, see Anthony Milner. What’s Happened to Asian Values?
Available from [http://www.anu.edu/asianstudies/values.htm]. For a contrary view, see
Amartya Sen. “Human Rights and Asian Values: What Lee Kuan Yew and Le Peng don’t
understand about Asia.” The New Republic 217:2-3, July 14, 1997.
34Friedman would largely agree with this view, though his argument puts more stress on the
idea that political liberty and civil rights are not sustainable absent a free market economy.
35Lant Pritchett and Daniel Kaufmann concur. They found that countries with higher levels
of civil liberties had a greater success rate and an 8% to 20% higher rate of return for World
Bank projects. The relationship also held for broader country performance issues. They
(continued...)

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Not everyone agrees with the view that political and economic freedom work
together to promote development. In part, the question depends on the way one
defines political and economic freedom. Many would argue that some kinds of
political freedom conflict with economic liberty – for example laws passed by
democratic governments which confiscate 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 example, a bill of rights
which protects individuals and economic actors against misguided applications of the
popular will. On the other side of the coin, many will argue that some types of
economic freedom are incompatible with free government. Government may need
to be vigilant, they argue, to protect the public from injury, to limit improper or
exploitative practices by self-interested economic actors and to keep major economic
actors from using their economic position to dominate political affairs.
There is no comprehensive index which reflects the progress countries have
made towards achieving the levels of economic and political freedom which Sen and
Friedman seem to believe are necessary for development. Their concepts are multi-
dimensional concept; they do not yield itself easily to a single calculation. However,
there are several studies which seek to rank countries in terms of their degrees of
economic or political freedom.
Economic Freedom
There has been strong emphasis in the development literature in the last three
decades about the presumed need for economic policy reform in developing
countries. The international financial institutions and many bilateral foreign aid
agencies have sponsored programs aimed at improving the economic environment
in developing countries, strengthening the economic policy process and enhancing
economic freedom. No specific indices seem to have been created by the aid
organizations, however, for measuring and ranking the progress countries are making
in that regard.36
There are two major studies which rank countries according to their levels of
economic freedom. One, the Index of Economic Freedom, published annually by the
Heritage Foundation and the Wall Street Journal, seeks to assess the progress
countries are making towards the elimination of legal and institutional restrictions
35(...continued)
concluded that “civil liberties, along with other forms of expression and incorporation of
citizens voice, do appear to have an instrumental value for improving a country’s economic
performance and for designing the mechanisms for delivering government services of all
types, from roads to schools.” See their “Civil liberties, democracy and the performance of
government projects.” Finance and Development 35:1 (March 1998), p. 26.
36However, aid agencies seem to be using the existing standards to help shape their
programs. The U.S. Agency for International Development (USAID) used country scores
on the Heritage Foundation Index of Economic Freedom and on the Freedom House
publication Freedom in the World to help identify countries where their programs to
promote economic growth and democracy might best undertake programs. See U.S. Agency
for International Development. 2002 Agency Performance Plan , pp. 11 and 30.

CRS-22
which the authors believe are barriers to higher incomes and economic growth.37 The
other, the annual report on Economic Freedom of the World, published by the Fraser
Institute in Canada, examines many of the same issues.38 Both studies base their
assessments on many of the same factors. The Heritage Foundation study covers 155
countries. The study published by the Fraser Institute covers 123 countries.
In the main, the findings of the two studies are similar.
Countries vary
somewhat on their placement on the list, top to bottom, of countries with the most
and least economic freedom, but the differences are generally not substantial.
Countries generally seem to be within 10 or 15 places in one list of their placement
on the other. Some notable variances exist, however. Egypt ranked 51st on the Fraser
Institute list but 121st on the Heritage list. Jamaica ranked 38th in the former but 60th
in the latter list. India ranked behind China and Pakistan on the Heritage Foundation
list but well ahead of them in the Fraser Institute Study. Perhaps most remarkable,
Estonia was ranked the fourth most free country in the Heritage study but the 35th in
the Fraser report. Some of the difference between the two reports may be due to
methodology, though their basic criteria are largely the same. Perhaps more likely,
though, are discrepancies in their data or their evaluation of data. This may be taken
as a cautionary note that even reports which seek to use similar objective measures
may be subject in their findings to data or procedural error.
The Index of Economic Freedom ranks countries (using World Bank data)
according to 50 objective measures organized into 10 equally weighted categories.
Countries are ranked as being free, mostly free, mostly unfree and repressed,
depending on their overall performance in those 10 areas. The ten categories are:
trade policy (open or closed), fiscal burden of government, government intervention
in the economy, monetary policy, banking and finance, wages and prices, property
rights, regulation and black market activity. The authors point out that countries
which rank highly on the Index of Economic Freedom also have higher incomes than
other countries. Per capita income levels for free countries are double those for
mostly free countries and income levels in the latter countries are triple those in the
mostly unfree group. Interestingly, countries with repressed economies have income
levels slightly higher than the mostly unfree group.
In the ranking system used by the Index of Economic Freedom, Hong Kong and
Singapore are the two countries with the highest levels of economic freedom, while
Iraq and North Korea are the lowest. (See Table 3.) Among G-7 countries, only the
United States and United Kingdom are listed as being free, while Canada, Germany,
37Gerald P. O’Driscoll, Jr., Kim R. Holmes and Mary Anastasia O’Grady, 2002 Index of
Economic Freedom, NP: The Heritage Foundation and The Wall Street Journal, 2002.
Available from [http://www.heritage.org/research/features/index/2002].
38 James Gwartney and Robert Lawson, Economic Freedom of the World, 2002 Annual
Report. Vancouver, B.C.: The Fraser Institute, 2002. Preface by Milton Friedman.
Friedman is a participant and sponsor of the study. It uses 37 variables to assess countries’
levels of freedom in five areas: (1) size of government expenditures, taxes and enterprises,
(2) legal structure and security of property rights, (3) sound money, (4) freedom to trade
with foreigners and regulation of credit, labor and business.
Available from
[http://www.freetheworld.com/release.html].

CRS-23
Italy, Japan and France are deemed mostly free. France ranks alongside Armenia,
Belize, Bolivia, Jordan, Malta, Panama and Poland in the lower end of this group.
The Index of Economic Freedom ranks countries more highly when they limit
the size and role of government and enhance property rights. “The protection of
property rights is the driving force behind wealth generation and higher living
standards,” say the authors of the Index of Economic Freedom.39 Countries are
deemed to be more free when the tax burden is low, government regulatory activity
is small and property rights are assured.
Property rights include a capacity for
owners to use their assets as they see fit, as long as they do not violate someone else’s
rights and the ability of individuals to transfer or exchange their property rights on
a voluntary basis. Countries also receive higher marks for economic freedom when
they impose fewer mandates requiring that businesses comply with equipment
standards or meet labor standards such as hourly limits on the work week and
minimum standards for pay or vacation time.
Other analysts might question the conceptual views which underlie the two
indices of economic freedom. While the statistics they use are standard data, very
different results might be obtained if other assumptions and methods of calculation
were used.
For example, some analysts might argue that countries have more
economic freedom when steps are taken to assure economic security, limit the
arbitrary exercise of property rights and
protect the environment and other
stakeholders in the economy.
There seem to be no current studies which rank
countries according to other economic criteria. There is considerable disagreement
among specialists and the public as to which economic standards are most desirable
and how they should be linked to social, philosophical or institutional values.
Nevertheless, there seems to be a presumption in most contemporary economic
literature that, however it may be defined, economic freedom is desirable and
fundamental to the development process.
Some analysts question whether the economic freedom indices adequately
measure countries’ relative levels of economic freedom and whether their
conclusions are actually supported by their data. De Mello and Sab report that
increased government spending and enforcement of rights and civil liberties enhances
a country’s “legal capital” and boosts its economic and human development.40
Carlsson and Lundström41 found, for example, that, contrary to the conclusion in the
Gwartney study, reductions in the size of government and increases in the freedom
to trade with foreigners were negatively correlated with economic growth, while
increased monetary policy and price stability had an insignificant effect. Of the other
factors, they found, legal structure and the security of private ownership had a robust
39O’Driscoll et al., p. 38.
40Luiz de Mello and Randa Sab. “Government Spending, Rights and Civil Liberties.”
International Review of Law and Economics 22:3 (September 2002), pp. 257-276. Also
published as IMF working paper WP/00/205 (December 2000).
41Fredrik Carlsson and Susanna Lundström. “Economic Freedom and Growth: Decomposing
the Effects.” Working Paper in Economics 33, January 2001. Department of Economics,
G ö t e b o r g
U n i v e r s i t y .
A v a i l a b l e
f r o m
[http://swopec.hhs.se/gunwpe/papers/gunwpe0033.pdf.]

CRS-24
positive impact on growth.
Many studies report that economic freedom has a
significant and sizeable effect on economic growth, they reported. However, in light
of the unreliability of the data, they concluded, “using an index of economic freedom
might therefore be misleading.”
Political Freedom
Some analysts believe that protections for political rights and civil liberties are
also important characteristics both of developed countries and for those likely to
move successfully on the path towards development. Two prominent efforts have
been made to measure countries’ standing in this regard. Freedom House measures
the relative levels of political and civil liberty in countries while the World Bank
publishes an index that compares countries in terms of their achievements in the area
of “good governance.”
Good Governance. Though political freedom is a value endorsed by most
scholars and foreign aid donors, there has been considerable reluctance in the past
about directly linking development and democracy. In part, the Cold War was to
blame as foreign aid was often provided for reasons other than development and
donors were reluctant to alienate aid recipients by specifically acknowledging the
repressive and corrupt nature of their regimes. The international agencies and
bilateral donors did not wish to be seen as interfering in countries internal political
affairs. Likewise, in a world where many repressive governments claimed they were
democracies or peoples’ democracies, they were reluctant to openly challenge those
claims or to show overt preference for one form of government over another. These
reservations still persist. The State 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
themselves had a major impact on their development prospects. Thus, the standard
of “good governance” was raised in the past two decades in order to emphasize the
importance of certain characteristics, such as the rule of law, reductions in arbitrary
official action, policy and financial accountability and transparency in the decision
making process, which were deemed important. Aid programs were instituted, by the
international agencies and by bilateral donors, to help strengthen the legal process
and official institutions in developing countries (“capacity building”) in order to
facilitate improvements in governance and general operational effectiveness.
Previously, the concept “good governance” was relatively constrained in its
reach. More recently, however, the concept has become more extensive.
The
World Bank publishes an index currently which ranks the countries of the world in
terms of governance.42 Country performance on democratic principles – elections,
42
See: World Bank. “Web Interactive Access to Governance Indicators” and the
accompanying paper “Governance Matters II.” Country performance in six categories is
assessed: (1) voice and accountability [including elections and civil liberties]; political
stability/no violence; government effectiveness; regulatory quality; rule of law; and control
of corruption.. Some 194 measures are used from 15 major sources in devising the data.
(continued...)

CRS-25
freedom to express opposition views and contest office, civil liberties, etc. – is now
one of the factors assessed as countries are evaluated and ranked. Six general
categories of governance are assessed. As a group, the OECD countries rank highest
on all six measures, while the former Soviet republics, sub-Saharan Africa and South
Asia usually rank lowest.
However, individual country rankings differed
considerably. Some countries with relatively high levels of per capita income are
ranked relatively low on some measures of governance while some low-income
countries rank much higher on the governance lists. In 2002, the U.N. Development
Program further endorsed the view that democracy was a relevant consideration for
development when (as cited earlier) it appended the subtitle “Deepening Democracy
in a Fragmented World” to its 2002 Human Development Report.
Political and Civil Liberties. Freedom House publishes an annual study
which ranks countries on an index according to their levels of political rights and
their protection of civil liberties43. In its most recent report, Freedom House wrote
that 87 countries (including 2.5 billion people) were“free,” though some ranked
higher than others in this group. It said another 59 (with 1.46 billion people) were
“partly free,” though again some had much better scores than others. Freedom House
reported that 45 countries and three territories (with 2.17 billion people) were “Not
Free.” At the end of 2001, more people lived in “free” countries than at any time
since Freedom House began publishing statistics in 1981. Moreover, it reported,
more countries (121) had democratically elected governments than ever before.
Freedom in many of the world’s 192 governments deteriorated, however and major
gaps opened up between the levels of freedom and democracy is some countries.
This is particularly notable, the report said, when one compares some countries in the
Islamic world with those in the rest of the world.
The Freedom House index judges separately, on a seven point scale, the level
of political rights and civil liberties in each country.44 These scores are then averaged
42(...continued)
Available from [http://www.worldbank.org/wbi/governance/govdata2001.htm] . The Bank
does not publish a single number which summarizes country performance in each of the six
areas. However, the index allows inter-country comparisons and comparisons to regional
or income-level norms.
43Freedom House. Freedom in the World, 2001-2002. Transaction Publishers, 2002.
Available from [http://www.freedomhouse.org/research/index.htm].
44Eight factors go into the measurement of political rights, including free and fair elections
for political leaders, fair elections, opposition rights, participation by minorities and the
absence of domination by the military or by religious or economic oligarchies. Civil
liberties look at four categories – freedom of expression and belief, association and
organizational rights, rule of law and human rights and personal autonomy and economic
rights – with a variety of factors in each category. These include items such as freedom of
religion, assembly, speech, movement and media, the rule of law, no excessive corruption
and an independent judiciary and rule of law. They also include other standards, such as
gender equality and marriage rights, free trade unions and collective bargaining, protection
for property rights and freedom of opportunity, including freedom from dependency or
exploitation by landlords, employers, union leaders, bureaucrats and others. Some of these
latter factors appear to be subjective, perhaps reflecting cultural or social views which may
(continued...)

CRS-26
to establish the overall rank, with the lowest number being the most free and the
highest being the least free. “In a free society,” the report says, “political rights
enable people to participate freely in the political process, enjoying the right to vote
and compete for public office and to elect representatives who have a decisive vote
on public policies.”
Civil liberties include “the freedom to develop views,
institutions and personal autonomy without interference from the state.”
Freedom House ranked 27 countries as being most “free” in 2001 (See Table
4 in the Appendix.) The highest tier of these countries include, besides the United
States, Canada and some other developed countries, several small developing
countries. France, Britain and the other G-7 countries ranked in the second tier of the
most “free” countries, due to civil liberty issues in those countries. Ten countries
and two territories were ranked as the most “not free.” These included Afghanistan,
Burma, Cuba, Iraq, North Korea, Libya, Saudi Arabia, Syria, Turkmenistan, Tibet
and Chechnya.
There appears to be some correspondence between countries’ rank on the
Freedom House index and their level of governance. However, the relationship
between countries’ political situation and their economic performance is more
difficult to establish. It may be that improvements in governance and increases in
political liberty have a positive association with improvements in economic growth
and social indicators. However, on a country-to-country basis, there are considerable
differences. Moreover, many countries have seen their political and governance
scores improve or deteriorate in recent years. Consequently, because change in these
areas can happen more rapidly than do changes in the economic data and social
indicators, it is difficult to establish clear analytical relationships among them.
Conclusion
Development is a complex process with many different facets. A variety of
studies seek to measure countries’ levels of development according to different
criteria. Improvements in some of these indices or standards appear to be only
distantly linked to increases in growth or average income.
Jan Tinbergen coined a famous analytic rule which states that a separate
independent tool is needed to achieve individual objectives. He showed in his work,
for example, that the three policy objectives of full employment, price stability and
balance of payment equilibrium could not be achieved without the use of three
specific instruments. As one reviewer noted, his theory of economic policy is “a
standard tool in the economist’s toolbox.”45
44(...continued)
not be universal. Judging the difference between protection of property rights and freedom
from exploitation may be difficult. In that respect, there may be some disagreement on the
margin between observers about the relative ranking of individual states. However, this is
not an important determinant of country scores.
45Hendrik P. Van Dalen. “Tinbergen, Jan” in R.J. Barry Jones (ed.) Routledge Encyclopedia
(continued...)

CRS-27
When applied to the field of development, the Tinbergen rule suggests that a
separate program or procedure is needed for each objective if one wants to achieve
several goals during the development process. Fewer instruments are likely to force
policy makers to sacrifice one of their objectives, as Tinbergen found in his
macroeconomic work, when funds are scarce or the requirements for the various
goals conflict. Unless there are clear indications that the issues are linked, there are
few reasons to believe that changes or improvements in one area of development will
necessarily lead to similar changes or improvements in other areas. It is unlikely, for
example, that increased rates of economic growth will necessarily lead – in the
absence of programs targeting those concerns – to broader income distribution,
improvements in literacy rates, or improvements in the health of people on the
periphery of the economy and society. Likewise, strong efforts to improve the health
and education levels in a country will not necessarily stimulate economic growth
absent changes in economic policy and new investments in capital equipment and
infrastructure. Higher levels of political liberty will not necessarily produce higher
rates of
economic growth or better social conditions if the funds needed to
implement programs in those areas are lacking.
Some policy makers and economic writers have expressed strong support
recently for the proposition that greater efforts need to be made to stimulate and
sustain economic growth in developing countries. In general, most analysts would
agree that higher levels of growth, increased levels of productivity and broad
economic policy reform are very important considerations, when it comes to
promoting development in poor countries. Most, however, disagree with the idea
that growth can be the “magic bullet” that will begin to set all things right.
Some proponents of growth claim that a rising tide lifts all ships and a rising
economy will be a benefit to all.46 This may or may not be true. The growth process
in countries is often uneven. Those who benefit most directly from growth may be
unwilling or unable to channel those benefits more broadly. Conscious efforts may
45(...continued)
of International Political Economy, vol 3. London: Routledge, 2001, pp. 1566-7. A Dutch
economist, Tinbergen shared with one other the first Nobel prize for Economics in 1969.
The Nobel committee praised him for having “developed and applied dynamic models for
the analysis of economic processes.”
46For instance, Lant Pritchett and Lawrence Summers argued in 1996 that “gains from rapid
economic growth flow into health gains” and that increases in country income levels cause
improvements in infant mortality and life expectancy in developing countries. Holding all
other factors constant, they concluded, improvements in income “will produce improved
health.” Therefore growth should be a high priority. Nevertheless, they conceded that the
effect is not direct but consequential. Improvements in income lead, they said, to poverty
reduction and increased public spending on health. These in turn lead to better health
conditions. Likewise, higher levels of education are highly correlated with reduced infant
mortality. By that reasoning, improvements in health could be realized equally if income did
not grow but a larger share of the existing resources were channeled towards poverty
reduction , education and better health programs. See “Wealthier is healthier.” Journal of
Human Resources 31:4 (Fall 1996), pp. 850, 860, 861.

CRS-28
be needed to bring people from the periphery into fuller participation in their national
economy, they argue, if the benefits of the rising tide are to be felt more widely.47
Some critics doubt that a strong emphasis on economic growth and policy
reform will be truly beneficial to the majority of the people in affected countries.
They believe more emphasis should be placed on programs aimed at improving
social conditions and meeting basic human needs. Most observers agree that major
improvements in these areas are desirable. However, many doubt that improvements
in health and education will lead, by themselves, to higher levels of productivity and
growth unless resources are invested for that purpose. Similarly, efforts to improve
social conditions and increase economic growth may have only limited success if the
basic structural conditions of the country are not improved. Countries that achieve
major increases in their average income levels as a result of new discoveries of oil
or other mineral resources may achieve little real development, many analysts
believe, if they fail to link these gains to income to improvements in governance and
social conditions and better structural conditions.
Balancing the costs of achieving these various goals – maintaining or increasing
expenditures for programs targeting social goals, conserving and improving
infrastructure and capital facilities and avoiding macroeconomic instability through
prudent monetary, fiscal and foreign exchange policies – is one of the great
challenges facing developing countries today. The negative effects of shortfalls in
some dimensions of the development process may not be readily apparent from a
short-term perspective but many analysts believe that long-term consequences of
such shortfalls can be considerable.
This paper began with an observation that a country’s progress on development
may be measured on four dimensions – improvements in per capita income, changes
in economic and social structure, better performance on a range of education, health
and other social measures and greater economic and political freedom. There is no
consensus on which of these areas deserves the most attention or whether
improvements in one area will lead to improvements in other areas. However, there
appears to be an emerging consensus that improvement must be seen in most of these
areas if development is to occur and if development aid programs are to be deemed
successful.
Programs which achieve success in one area without encouraging
positive effects in other areas may not be considered successes overall. As the
relationship among the several components of development are unclear and often
strongly debated, the case for multiple indicators and a variety of programs may be
enhanced.
47Andrew Berg and Anne Krueger report that countries with more open international trade
relations experience more rapid growth and greater improvements in per capita income than
countries with less open trade regimes. They conclude, however, that such growth had no
impact on income distribution. Poor people benefit from such growth only at the same rate
that everyone else in their country benefits. Other programs, in addition to increased
growth, would be needed to reduce relative poverty. See their “Trade, Growth and Poverty.”
2002 Annual World Bank Conference on Development Economics. April 24, 2002. Available
from [http://econ.worldbank.org/files/13377_Berg_and_Krueger.pdf].
See also their
“Lifting all boats: why openness helps curb poverty.” Finance and Development 39:3
(September 2002), p. 16.

CRS-29
Table 1. Ranking Selected Country
by Levels of Per Capita Income
Country
Gross
PPP gross
Gini
Human
GDP
National
national
Index
Develop-
Economic
Income per
Income per
(various
ment
Growth
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%
Norway
$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%
Netherlands
$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%
Spain
$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 Middle Income Countries
Korea, Rep.
$8,910
$17,300
31.6
0.882
5.7%
Argentina
$7,460
$12,050
0.844
4.3%
Saudi Arabia
$7,230
$11,390
0.759
1.5%
Uruguay
$6,000
$8,880
42.3
0.831
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%
Hungary
$4,710
$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%
Lebanon
$4,010
$4,550
0.755
6.0%
Costa Rica
$3,810
$7,980
45.7
0.82
5.3%
Brazil
$3,580
$7,300
60.7
0.757
2.9%
Estonia
$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%
South Africa
$3,020
$9,160
59.3
0.695
2.0%
Lower Middle Income Countries
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%
Dominican Republic
$2,130
$5,710
47.4
0.727
6.0%
Namibia
$2,030
$6,410
0.61
4.1%
Colombia
$2,020
$6,060
57.1
0.772
3.0%

CRS-30
Country
Gross
PPP gross
Gini
Human
GDP
National
national
Index
Develop-
Economic
Income per
Income per
(various
ment
Growth
capita
capita
years)
Index
1990-
(2000)
(2000)
(HDI)
2000
El Salvador
$2,000
$4,410
52.2
0.706
4.7%
Thailand
$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%
Romania
$1,670
$6,360
31.1
0.775
-0.7%
Russia Federation
$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%
Egypt, 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%
Low Income Countries
Turkmenistan
$750
$3,800
40.8
0.741
-4.8%
Ukraine
$700
$3,700
29.0
0.748
-9.3%
Azerbaijan
$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%
Zimbabwe
$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%
Mongolia
$390
$1,760
33.2
0.655
1.0%
Vietnam
$390
$2,000
36.1
0.688
4.1%
Low Income--Less than $1 a Day
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%
Zambia
$300
$750
52.6
0.433
0.5%
Uganda
$300
$1,210
37.4
0.444
7.0%
Angola
$290
$1,180
0.403
1.3%
Tanzania
$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%
Tajikistan
$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%
Burundi
$110
$580
42.5
0.313
-2.6%
Ethiopia
$100
$660
40.0
0.327
4.7%
Source: World Bank. World Development Indicators, 2002. Derived from Table 1.1, 2.8, 2.14.
Gini index: lower number denotes broader income distribution pattern. Blank: no data.

CRS-31
Table 2. Ranking Selected Countries
by Physical Standards and Quality of Life
Country
Under-
Life
Infant and
Illiteracy
Gross
nourishmt
Expectancy
Maternal
rates *
National
rates *
at birth*
mortality*
(2001)
Income per
(1998)
(2000)
capita*
M
I
M
F
(2000)
High Income Countries
Switzerland
80
8
4
$38,140
Japan
81
12
4
$35,620
Norway
79
9
4
$34,530
United States
77
12
7
$34,100
Austria
78
11
5
$25,220
Finland
77
6
4
$25,130
Germany
77
12
4
$25,120
Netherlands
78
10
5
$24,970
Belgium
78
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
79
11
5
1%
2%
$20,160
Kuwait
4%
71
25
9
16%
20%
$18,030
Israel
78
8
6
3%
8%
$16,710
Spain
78
8
4
1%
3%
$15,080
Portugal
76
12
6
5%
10%
$11,120
Greece
78
2
5
1%
4%
$11,960
Upper Middle Income Countries
Korea, Rep.
73
20
8
1%
4%
$8,910
Argentina
74
85
17
3%
3%
$7,460
Saudi Arabia
3%
73
23
18
17%
33%
$7,230
Uruguay
4%
74
50
14
3%
2%
$6,000
Czech Republic
75
14
4
$5,250
Mexico
5%
73
65
29
7%
10%
$5,070
Hungary
71
23
9
1%
1%
$4,710
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
Lebanon
70
13
26
0%
0%
$4,010
Costa Rica
6%
77
35
10
4%
4%
$3,810
Brazil
10%
68
26
32
15%
15%
$3,580
Estonia
6%
71
80
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
South Africa
48
34
63
14%
15%
$3,020
Lower Middle Income Countries
Latvia
4%
70
70
10
36%
67%
$2,920
Belarus
68
33
11
0%
1%
$2,870
Jamaica
10%
75
12
20
17%
9%
$2,610
Dominican Rep
28%
67
11
39
16%
16%
$2,130
Namibia
31%
53
37
62
17%
19%
$2,030
Colombia
13%
72
12
20
8%
8%
$2,020
El Salvador
11%
70
18
29
18%
24%
$2,000
Thailand
21%
69
44
28
3%
6%
$2,000

CRS-32
Country
Under-
Life
Infant and
Illiteracy
Gross
nourishmt
Expectancy
Maternal
rates *
National
rates*
at birth *
mortality*
(2001)
Income per
(1998)
(2000)
capita *
M
I
M
F
(2000)
Jordan
5%
72
41
25
5%
16%
$1,710
Iran, Islamic
6%
69
13
33
17%
31%
$1,680
Romania
70
60
19
1%
3%
$1,670
Russian Fed
6%
65
75
16
0%
1%
$1,660
Algeria
5%
71
15
33
24%
43%
$1,580
Bulgaria
13%
72
23
13
1%
2%
$1,520
Egypt, Arab
4%
67
17
42
33%
56%
$1,490
Swaziland
14%
46
37
89
19%
21%
$1,390
Kazakhstan
5%
65
80
21
$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
Low Income Countries
Turkmenistan
10%
66
65
27
$750
Ukraine
5%
68
45
13
0%
1%
$700
Azerbaijan
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
Zimbabwe
37%
40
61
69
7%
15%
$460
India
21%
63
44
69
32%
55%
$450
Pakistan
20%
63
20
83
43%
72%
$440
Mongolia
45%
67
65
56
1%
1%
$390
Vietnam
22%
69
95
27
4%
9%
$390
Low Income - - Less than $1 a Day
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
Tanzania
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
Tajikistan
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 of the population with inadequate nutrition. Maternal mortality: per 10,000
live births. Infant mortality: per 1,000 live births. Source: World Bank. World Development
Indicators, 2002. Derived from tables 1.1, 2.18, 2.20, 2.14 and 2.20.

CRS-33
Table 3. Comparing Country Ranks for Economic Freedom
Country
H*
F*
Country
H
F
Country
H
F
Free 1
Peru
53
45
Moldova
105
Hong Kong
1
1
Greece
55
45
Turkey
105
82
Singapore
2
2
Guatemala
55
66
Bulgaria
108
97
New Zealand
3
5
Sri Lanka
55
77
Croatia
108
92
Estonia
4
35
Colombia
58
92
Fiji
108
70
Ireland
4
7
Tunisia
58
73
Georgia
108
Luxembourg
4
13
Botswana
60
38
Ghana
108
89
Netherlands
4
8
Ivory Coast
60
80
Lesotho
108
United States
4
3
Jamaica
60
38
Nepal
108
Australia
9
8
Mali
60
92
Rwanda
108
101
Chile
9
15
Mexico
60
66
Tanzania
108
77
United Kingdom
9
4
Mongolia
60
Ecuador
117
101
Denmark
12
13
Namibia
60
Switzerland
12
5
Oman
60
19
Mostly Unfree 3.5
Finland
14
11
Slovak Republic
60
82
Azerbaijan
South Africa
60
47
Malawi
118
Mostly Free 2
Philippines
70
38
Niger
118
97
Bahrain
15
24
Qatar
70
China
118
101
Canada
15
8
Egypt
121
51
Bahamas
17
35
Mostly Unfree 3
Ethiopia
121
El Salvador
17
30
Dominican Rep
72
51
India
121
73
Sweden
17
19
Mauritius
72
30
Chad
121
92
Austria
20
15
Saudi Arabia
72
Kazakhstan
125
Belgium
20
15
Uganda
72
60
Kyrgyz Republic
125
Germany
20
15
Cent African Rep
76
109
Nigeria
125
101
Cyprus
23
70
Morocco
76
73
Togo
125
116
Iceland
23
11
Mozambique
76
Venezuela
125
82
United Arab Em
23
19
Algeria
79
Bangladesh
130
107
Barbados
26
82
Brazil
79
82
Romania
131
114
Portugal
26
19
Papua N Guinea
82
Russia
131
116
Spain
26
24
Djibouti
79
Congo Republic
131
113
Italy
29
35
The Gambia
79
Yemen
134
Lithuania
29
60
Madagascar
79
Haiti
134
60
Taiwan
29
30
Malaysia
79
51
Sierra Leone
109
Czech Republic
32
38
Paraguay
79
66
Tajikistan
136
Hungary
32
51
Slovenia
79
73
Ukraine
137
116
Thailand
32
56
Swaziland
79
Vietnam
137
Japan
35
24
Benin
88
82
Bosnia
137
Norway
35
24
Cape Verde
88
Equatorial Guinea
140
Trinidad&Tobago
35
30
Honduras
88
66
Guinea Bissau
142
121
Lebanon
88
Suriname
142
Mostly Free 2.5
Nicaragua
88
60
Argentina
38
30
Burkina Faso
93
Repressed 4
Korea, South
38
38
Guyana
93
56
Yugoslavia
144
Latvia
38
47
Kenya
93
56
Burma
145
122
Uruguay
41
47
Senegal
93
89
Syria
145
109
Costa Rica
42
24
Burundi
92
Zimbabwe
147
114
Israel
43
47
Chad
92
Belarus
148
Armenia
43
Cameroon
97
97
Uzbekistan
148
Belize
45
70
Gabon
97
105
Turkmenistan
150
Bolivia
45
51
Macedonia
97
Iran
151
109
France
45
38
Zambia
97
60
Laos
151
Jordan
45
24
Albania
101
97
Cuba
153
Malta
45
60
Guinea
101
Libya
153
Panama
45
19
Mauritania
101
Iraq
155
Poland
45
89
Pakistan
101
107
Korea, North
155
Kuwait
53
38
Indonesia
105
77
Congo, Dem Rep
123

CRS-34
* Heritage Foundation Study and Fraser Institute Study. The categories are from the Heritage
study. Data from Gerald P. O’Driscoll, Jr. et al. 2002 Index of Economic Freedom and James
Gwartney and Robert Lawson, Economic Freedom of the World, 2002 Annual Report. Numbers
show country rank, with lower numbers having more economic freedom.

CRS-35
Table 4. Ranking Countries by Political Freedom
FREE
Slovakia
Fiji
Bahrain
1
Slovenia
Guatemala
Cambodia
Andorra
South Africa
Indonesia
Chad
Australia
Spain
Malawi
Guinea
Austria
Suriname
Mozambique
Kazakhstan
Bahamas
Taiwan
Nepal
Kenya
Barbados
United Kingdom
Paraguay
Kyrgyz Republic
Canada
.
Senegal
Lebanon
Cyprus (G)
2
Sri Lanka
Maldives
Bolivia
Denmark
.
Oman
Botswana
Dominica
4
Pakistan
Bulgaria
Armenia
Finland
Swaziland
Chile\Croatia
Burkina Faso
Iceland
Tunisia
Dominican
Colombia
Ireland
United Arab Emirates
Republic
East Timor
Kiribali
.
Greece
Georgia
Liechienstein
6
Guyana
Lesotho
Angola
Luxembourg
Israel
Macedonia
Belarus
Malta
Korea, South
Niger
Brunei
Marshal Islands
Nauru
Solomon Islands
Burundi
Netherlands
Peru
Tanzania
Cameroon
New Zealand
Romania
Tonga
Congo (Kinshasa)
Norway
Samoa
Ukraine
Egypt
Portugal
Vanuatu
Venezuela
Equatorial Guinea
San Marino
.
.
Haiti
Sweden
2.5
4.5
Iran
Switzerland
Benin
Bosnia-Herzegovina
Liberia
Tuvalu
El Salvador
Congo (Brazzaville)
Qatar
United States
Ghana
Cote d’Ivoire
Tajikistan
Uruguay
India
Djibouti
Yemen
.
Jamaica
Gabon
Zimbabwe
1.5
Mali
Guinea-Bissau
.
Belgium
Mexico
Kuwait
6.5
Belize
Mongolia
Nigeria
Bhutan
Cape Verde
Namibia
Sierra Leone
China (PRC)
Costa Rica
Papua New Guinea
Turkey
Eritrea
Czech Republic
Philippines
Zambia
Laos
Estonia
Thailand
.
Rwanda
France
5
Somalia
Germany
Central African Rep.
PARTLY FREE
Uzbekistan
Grenada
Comoros
3
Vietnam
Hungary
Ethiopia
Antigua & Barbuda
.
Italy
The Gambia
Argentina
7
Japan
Jordan
Afghanistan
Brazil
Latvia
Malaysia
Burma
Ecuador
Lithuania
Mauritania
Cuba
Honduras
Mauritius
Morocco
Iraq
Madagascar
Micronesia
Russia
Korea, North
Moldova
Monaco
Singapore
Libya
Nicaragua
Palau
Togo
Saudi Arabia
Seychelles
.
Panama
Sudan
Trinidad and
5.5
Poland
Syria
Tobago
Azerbaijan
St. Kitts & Nevis
Turkmenistan
Yugoslavia
Uganda
St. Lucia
.
St. Vincent & the
3.5
NOT FREE
Grenadines
Albania
5.5
Sao Tome & Principe
Bangladesh
Algeria
Source: Freedom House. Freedom in the World 2001-2002. Lower numbers show more freedom.

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