what is developing economy

What Is Developing Economy?

There are several different indicators to consider when determining a country’s development level. These include Human development index, Per capita income, Economic growth and Trade. Several countries are considered developing economies if they have experienced rapid growth in recent years. Read on to learn more about these indicators. Once you’re familiar with them, you’ll be better equipped to make an informed decision about a country’s economic future.

Human development index

The Human Development Index (HDI) is a measure of how well a country is doing, relative to its neighbors. This index consists of a scale of 0 to 1 where a country can be considered to have a high level of human development. It also allows comparisons between countries and shows the difference between what a country has achieved and what it could achieve. Essentially, the HDI aims to challenge governments to bring their countries as close as possible to the maximum value.

The HDI is calculated by looking at three dimensions: average income, educational attainment, and health. The first dimension is the average income per capita. The second dimension measures the average educational attainment. The UN considers a country’s education level in terms of years of schooling, and has a set of minimum and maximum values for each. Countries that score lower in these categories tend to have higher HDI scores than those that score higher on the scale.

Both the UN and the American Human Development Index (HDI) are based on a set of principles that emphasize building human abilities and a healthy life. It also takes into account the close relationship between the economy and social systems. These foundational elements of human development include access to knowledge, good health, and a decent standard of living.

Per capita income

The gross national product (GNP) per capita measures the final output of goods and services produced by a country in a given year. It is an indicator of the average income of a country’s citizens. A country with a GNP per capita of $9,361 or more is considered high income, while a country with a GNP per capita of $761 to $760 is considered low income.

While PCI is an important indicator of a developing economy, it is also important to remember that this metric should be used in conjunction with other methods. Other metrics to consider include the country’s median income, its income by region, and the percentage of the population that lives in poverty. By combining all of these metrics, it is possible to see the average income of a country or region.

According to World Bank data, per capita income in the developing world has grown steadily since the beginning of the 21st century. India and China have achieved per capita income growth rates higher than the global average. These countries began to implement financial reforms in the late 1970s, and their economies are now among the most developed in the world.

A comparison of per capita income between different countries is not possible without taking into account inflation. Without this adjustment, figures tend to overstate the effect of economic growth. Furthermore, international comparisons are also distorted due to differences in cost of living. This is because of the different prices of goods and services in different countries. Thus, it is essential to adjust for purchasing power parity to reflect the actual purchasing power of the population.

Economic growth

In recent years, emerging economies have been able to lift more than a billion people out of extreme poverty, defined by the World Bank as living on less than $1.90 per day. The rise in economic prosperity has also helped to create a new middle class and affluent class. The number of people living in extreme poverty in developing countries fell by nearly half in the past two decades, from more than a billion people in 1995 to only 766 million in 2016. Today, less than 11 percent of the world’s population lives in extreme poverty.

Several factors play a role in economic growth in developing economies, including the rapid rise in productivity in recent decades. The long-term outperforming countries saw an average gain of 4.6 percent in productivity per year between 1980 and 2014. China led the way with an average annual increase of 8.6 percent. Over the same period, recent outperforming countries experienced average real wage and benefit growth of 6.0 percent. This rate is much faster than that in other developing and advanced economies. Furthermore, these economies’ domestic savings and investment rates were much higher than those of other countries.

Among the top-performing emerging economies, the top companies have increased investment, productivity and innovation. They generate eight percent of their total revenue from new products and services. These companies also allocate resources more efficiently and make investment decisions six to eight weeks earlier than their counterparts in advanced economies. This has helped them become global competitors.


Trade in developing economies is the flow of goods and services between two or more countries. Such trade can have both positive and negative impacts on a country’s currency. For example, Nigeria is heavily dependent on oil production, and its currency fluctuates in response to falling oil prices. Thus, trade in Nigeria is an important source of revenue, but it should also be viewed in the larger context of its economy.

To maximize trade, a country needs to specialize in goods where it has a comparative advantage over another country. This advantage could be based on the nature of resources or production skills. In other words, a country should specialize in products where it can provide a higher level of output or a higher level of efficiency.


As trade barriers come down and capital moves around, developing economies are facing new challenges with tax policy. They must replace foreign trade taxes with domestic taxes and deal with growing concerns about profit diversion by foreign investors. These countries must also ensure that the tax system is simple and enforced correctly. Developing countries must also address the need for technical training for tax auditors.

However, this is not an easy task. In many developing countries, the base for income tax is not easy to calculate because most workers are employed in small and informal enterprises. They also don’t spend large amounts of cash in large retail outlets, making it difficult to assess income. High tax rates are therefore practically impossible.

There is a growing body of literature on tax revenue policies in developing economies. Recent work by Cohen and Vila-Belda and Krause (2020) highlights the role of observing firms’ revenues and costs to assess whether or not tax compliance is high. A similar analysis by Lobel et al. (2019) shows that firms respond to an increase in corporate taxes in Costa Rica by increasing reported costs and lowering tax revenue.

The absence of a sound tax structure is a significant cause for weak government and over-reliance on external assistance. The introduction of a sound tax system will strengthen the capacity of government and reduce dependence on external aid. The government has enacted several tax laws and revised some existing ones to help in this effort. These include the income tax management act, petroleum profit tax, and value added tax.


In order to increase the productivity and competitiveness of a developing economy, investment in infrastructure is essential. This includes roads, electricity, and communication networks. This will not only help alleviate poverty, but also create jobs and boost economic growth. In addition, infrastructure investments will also increase the quality of life of poor people. For example, hospitals in the Democratic Republic of Congo need electricity to operate, while rural girls in Bangladesh need safe roads and clean water.

Investment in infrastructure has been found to improve productivity across various sectors and boost growth and productivity. For example, improved transport systems can improve education, increase agricultural productivity, and create jobs. Improved transport systems will also reduce the cost of goods and services, encourage private investment, and increase income levels. Despite this potential, however, there are serious infrastructure problems in many developing economies.

An IMF team survey identifies multiple constraints that prevent governments from scaling up public investment in economic infrastructure. While no single constraint emerged as dominating across the full sample, sharper results were observed among subgroups. These subgroups included fragile states and frontier economies, and their primary constraints included access to external finance, administrative capacity, and debt accumulation limits.

The presence of basic transportation infrastructure, energy, and science and technology infrastructure are essential for economic growth. Without them, an economy will experience a lack of growth and development.

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