Question

what is main criterion used by the world Bank in classifying different countries? what are the limitations of the above criterion,if any?

Answer 1

Geographic regions
Groupings are primarily based on the regions used for administrative purposes by the World Bank. There are two main variants: one which includes all economies, and one which excludes high-income economies (see income groups below for the definition of low-, lower middle-, upper middle-, and high-income categories).

Income groups 
Economies are currently divided into four income groupings: low, lower-middle, upper-middle, and high. Income is measured using gross national income (GNI) per capita, in U.S. dollars, converted from local currency using the World Bank Atlas method. Estimates of GNI are obtained from economists in World Bank country units; and the size of the population is estimated by World Bank demographers from a variety of sources, including the UN’s biennial World Population Prospects.

Countries are immediately reassigned on July 1 each year, based on the estimate of their GNI per capita for the previous calendar year. Income groupings remain fixed for the entire fiscal year (i.e., until July 1 of the following year), even if GNI per capita estimates are revised in the meantime.

Please note: Although the methodology used for adjusting income group thresholds and for estimating the per capita income of countries is consistent with that used as part of the determination of operational lending categories, it is important for users to understand that the income groups are not used by the World Bank in resource allocation decisions.

See “How are the income group thresholds determined?”
See “Why use GNI per capita to classify economies into income groupings?”

Download an Excel file of historical classifications by income.

Operational lending categories
Economies are divided into IDA, IBRD, and Blend countries based on the operational policies of the World Bank. International Development Association (IDA) countries are those with low per capita incomes that lack the financial ability to borrow from the International Bank for Reconstruction and Development (IBRD). Blend countries are eligible for IDA loans but are also eligible for IBRD loans because they are financially creditworthy.

Classification reassignments of operational lending categories may occur at any time, but will only be reflected in World Development Indicators or other databases when those databases are updated. 

Answer 2

Answer:

The main criterion used by the World Bank in classifying different countries is the per capita income or average income of a person in a country.

Limitations of this criterion:

It does not tell us about how this average income is distributed among the people in the individual countries. Two countries with the same per capita income might be very different with regard to income distribution. One might have equitable distribution of income while the other might have great disparities between the rich and the poor.