Question

Is the World Bank’s income criterion a useful way of classifying countries by their development levels? Explain thoroughly.

Answer 1

The World Bank assigns economies world 's into four income groups :High, upper-middle, lower-middle, and low.

Icome is measured using(GNI) gross national Income and per capita, in U.S. dollars, converted from local currency using the World Bank Atlas method

World Bank

classifications are used to aggregate data for groups of similar countries. The income-category of a country is not one of the factors used that influence lending decisions.

Bank’s fiscal year July determined new thresholds and remain fixed for 12 months regardless of subsequent revisions to estimates. As of July 1 2018, the new thresholds for classification by income are:

Threshold	GNI/Capita (current US$)
Low-income	< 995
Lower-middle income	996 - 3,895
Upper-middle income	3,896 - 12,055
High-income	> 12,055

Useful way of classifying countries

The paper finds that GNI per capita continues to be a available for the purpose of classifying countries for analytical purposes. It especially correlate with a number of accepted indicators of development outcomes and in terms of ranking

• The income classification is widely used world bank( within and outside) attributes between groups of countries.

A known shortcoming with the use of market exchange rates is instability from year one to the next, and this can also introduce undesirable volatility in the classification system.

The current method employed to mitigate this is known as the “Atlas” method, since it was first used in the World Bank’s Atlas of Global Development publication. It uses an3 years average of exchange rates: the current year, and the previous two years inflated to current year prices

.We find that the method is effective in achieving its objective of reducing volatility of the income lassification.