The Problem with Global Income Categories

With so many countries experiencing rapid rates of growth, with so much income disparity and with so many countries whose particular demographic/economic situations are of a complexity which belies the simplicity of mere income-based rankings, how come the World Bank’s famous global income categories, measured in Gross National Income per capita are still used with such authority?

Several possible reasons stand out: 1-because GNI per capita and global income categories are widely understood and used categories, useful for communicating and coordinating with a multitude of international actors; 2-because these categories can be indicative of countries’ capacities to produce goods and services; 3-because many developing countries have embraced the terminology derived from these categories, with attaining the middle income category being seen as a significant achievement.

The Middle Income Angle
Much of the debate within international financial institutions, development agencies and global fora is focused on identifying the position and role of middle income countries in global development assistance architecture. Key considerations include whether to continue to allocate resources to middle income countries, whether or not to prioritize certain middle income countries in global aid and lending strategies, identifying the role of middle income countries as emerging donors and sources of development experience and expertise, as well as specifying the type of engagement that the international development world needs to take in middle income countries.

The conventional view espoused by the main development and lending organizations as well as some OECD donor countries is that rapidly narrowing poverty gaps and growing GDP in middle income countries, along with increased capacity to formulate and actuate viable development solutions means that a higher priority should be given to lower income countries in development assistance, and at the least that support to MICs should not come at the expense of support to other categories of countries, such as LDCs.

Middle income countries have better access than their lower income counterparts to funds through their tax bases or their ability to enter sovereign bond markets, mobilize more competent bureaucracies and provide additional support for expanded social safety nets, and therefore less in need of development assistance.

The critique to the conventional view suggests that while specific country needs and responses by the international community may change with a ‘graduation’ to middle income status, this does not necessarily mean that serious problems do not exist within MICs, or that less priority should be placed on all middle income countries.

Recent studies have noted that with 74 per cent of the world’s poor (living on under 1.25$ per day) now living in middle income countries, the only way to make significant gains in the struggle against global poverty is for international development cooperation to give special attention to poor people, not just poor countries.

livingthemiddleincomedream

Living the middle income dream at $ 2.25 a day

Moreover the growth in GNI that can push countries across the imaginary line to another income category is not necessarily a reflection of commensurate increases in the wellbeing of all of their population. Many countries have persisting inequality and ‘pockets of poverty’, often in underserved regions or among marginalized populations, which national governments are often unable or unwilling to address. In short GNI growth by itself is misleading, and efforts must be made to better represent the relative quality of growth in global-level discussions.

While the conventional view generally acknowledges a broad diversity in countries which cuts across income categories, it still makes reference to and accepts these categories as approximate indications of the overall wellbeing of a country. However the link between income and other areas of development is not always very clear, and discussions on a variety of development-related topics, including food security, run the risk of becoming misleading if they take their cue from income categorizations.

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Chris Blattman

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