What is the main criterion used by the world bank in classifying different countries?What are the limitation of this criterion, if any?
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The main criterion used by world bank in classifying countries is Per Capita Income
Limitations of per capita income are :
(i) A rise in per capita income is due to rise in prices and not due to increase in physical output, it is not a reliable index of economic development.
(ii) National income rises but its distribution makes the rich richer and the poor poorer.
(iii) It excludes all non-marketed goods and services, even though they may be important for human happiness and better quality of life.
(iv) Rise in per capita income may be due to use of modern capital intensive technology in production which may be labour displacing in nature thus adversely affecting the poor masses.
(v) If rate of population growth, is higher than the rate of growth of national income, this will lead to fall in per capita availability of goods and services and economic welfare.
(vi) Contribution of commodity to economic welfare may be higher than its money value e.g., money value of salt, needle, thread, etc. included in national income is lower than their contribution to economic welfare.
Limitations of per capita income are :
(i) A rise in per capita income is due to rise in prices and not due to increase in physical output, it is not a reliable index of economic development.
(ii) National income rises but its distribution makes the rich richer and the poor poorer.
(iii) It excludes all non-marketed goods and services, even though they may be important for human happiness and better quality of life.
(iv) Rise in per capita income may be due to use of modern capital intensive technology in production which may be labour displacing in nature thus adversely affecting the poor masses.
(v) If rate of population growth, is higher than the rate of growth of national income, this will lead to fall in per capita availability of goods and services and economic welfare.
(vi) Contribution of commodity to economic welfare may be higher than its money value e.g., money value of salt, needle, thread, etc. included in national income is lower than their contribution to economic welfare.
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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 the 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 income distribution. One might have equitable distribution of income while the other might have great disparities between the rich and the poor.
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