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Independent research for global prosperity

Executive Summary

Many existing classifications of developing countries are dominated by income per capita (such as the World Bank’s low, middle and high income thresholds), thus neglecting the multidimensionality of the concept of ‘development’. Even those deemed to be the main ‘alternatives’ to the income-based classification have income per capita heavily weighted within a composite indicator.

This paper provides an alternative perspective: clusters of developing countries. We take 4 ‘frames’ on the meaning of development: economic development, human development, better governance, and environmental sustainability. We then use a cluster procedure in order to build groups of countries that are ­ to some extent ­ internally ‘homogeneous’, but noticeably dissimilar to other groups. The advantage of this procedure is that it allows us identify the key development characteristics of each cluster of countries and where each country fits best. We then use this taxonomy to analyze how the developing world has changed since the late 1990s in terms of clusters of countries and the country groupings themselves.

The main findings are as follows: First, the developing world can be classified into five multidimensional development clusters and this number of clusters remains the same between the periods 1995-2000 and 2005-2010. However, not surprisingly, the nature of the clusters has changed over time. The development taxonomy in the more recent period of 2005-2010 was as follows:

  • Cluster 1 consists of countries with high poverty rates and largely ‘traditional’ economies.
  • Cluster 2 are countries with high poverty rates that are primary product exporting and have limited political freedoms.
  • Cluster 3 is composed of countries with democratic regimes and high levels of inequality and dependency on external flows.
  • Cluster 4  is of “emerging economies” who are primary product exporting with low inequality but high environmental pollution and limited political freedom.
  • Cluster 5 is of unequal and highly polluting “emerging economies” with low dependence on external finance.

The development characteristics of four of the five clusters remain similar over time, but cluster 2 changed dramatically.

A third of all developing countries changed cluster membership between these two periods, and the remainder of the developing countries remain in the same cluster.

We argue that these ‘dynamic’ results mean that there is no simple ‘linear’ representation of development levels (from low to high development countries), as is implied with the income per capita ­ ranking ­ classification.

Instead, each cluster of countries has its own and specific development issues and there is no group of countries with the best (or worst) indicators in all the development dimensions we used.

Our taxonomy seeks to offer a more nuanced understanding of the diversity of challenges of developing countries and their evolution over time.

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