What is a developed economy?
A developed economy is typically characteristic of a developed country with a relatively high level of economic growth and security. The standard criteria for assessing a country’s level of development are per capita income or gross domestic product per capita, level of industrialization, general standard of living and the amount of technological infrastructure.
Non-economic factors, such as the Human Development Index (HDI), which quantifies a country’s education, literacy and health levels in a single digit, can also be used to assess an economy or the degree of development.
GDP and criteria of the developed economy
The most common measure used to determine whether an economy is developed or developing is gross domestic product (GDP) per capita, although there is no strict level for an economy to be considered developing or developed. Some economists consider that the GDP per capita of $ 12,000 to $ 15,000 is sufficient for the developed status while others do not consider a developed country unless its GDP per capita exceeds $ 25,000 or $ 30,000. As reported by the World Bank, the U.S. per capita GDP in 2020 was $ 62,641.
For countries that are difficult to classify, economists look to other factors to determine the state of development. Standard of living measures, such as the infant mortality rate and life expectancy, are useful although there are also no fixed limits for these measures. However, most developed economies suffer fewer than 10 infant deaths per 1,000 live births and their citizens live on average up to 75 years or more.
High GDP per capita alone does not confer the status of a developed economy without other factors. For example, the United Nations still considers Qatar, with one of the highest GDP per capita in the world in 2020 at $ 69,026, as a developing economy because the country has extreme income inequality, a lack of infrastructure and limited educational opportunities for non-wealthy citizens.
The human development index
The HDI examines three standards of living standards – literacy rate, access to education, and access to health care – and quantifies this data in a standardized figure between 0 and 1. Most developed countries have figures of HDI greater than 0.8. The United Nations Development Program, Human Development Reports, reports that in 2020, Norway had the highest HDI in the world with 0.953,403. The United States ranked 13th with 0.924.
According to the UN Human Development Index, Norway ranked first among all nations, while the United States ranked 13th.
Terms such as “emerging countries”, “least developed countries” and “developing countries” are commonly used to refer to countries that do not enjoy the same level of economic security, industrialization and growth as developed countries. The term “third world country” to describe a state is today considered archaic and offensive.
Key points to remember
- Countries with relatively high levels of economic growth and security are considered to have developed economies.
- Common assessment criteria include per capita income or per capita gross domestic product.
- Non-economic factors, such as the human development index, can also be used as criteria.
- Countries like Qatar – with a high GDP per capita – can be considered developing due to factors such as the lack of infrastructure and educational opportunities.
Real example of a developed economy
The United Nations Conference on Trade and Development notes that the least developed countries in the world are “considered to be very disadvantaged in their development process – many of them for geographic reasons – and (face) more than a few. ‘other countries at risk of not getting out of poverty.’ The United States, Canada and most western European countries, including the United Kingdom and France, are examples of countries with developed economies.