Development
Comparing countries by income
Calculate and interpret per capita income, and explain what averages hide.
How do we compare? To compare students, we pick some important characteristics, and which ones depends on the purpose: a sports team, a debate team or a picnic team need different skills. To compare countries, income is taken as one of the most important characteristics. The idea: more income means people can get more of what they need and want.
Total income or average income? A country's total income is everyone's income added up. But countries have different populations, so total income does not tell us what an average person earns. Example: a hundred people earning ten rupees each have the same total as five people earning two hundred rupees each, but the five are far better off. So we use average income: the country's total income divided by its population. This is also called per capita income.
How the World Bank sorts countries. The World Bank's World Development Reports use per capita income:
- high income (rich) countries: US$ 66,500 a year and above (2024);
- low income countries: about US$ 2,300 or less;
- India: about US$ 11,000 a year in 2024, so it is a lower middle income country.
Rich countries are usually called developed, except the Middle East and some other small countries.
What averages hide (Table 1.2). Imagine two countries, each with five citizens and the same average monthly income: Rs 10,000.
- In Country A, everyone earns between Rs 9,500 and Rs 10,500.
- In Country B, four people earn just Rs 500 each, and one earns Rs 48,000.
If a lottery decided which citizen you would be, most of us would choose Country A: nobody is very rich or very poor there. Country B has the same average, but most people are poor. So an average is useful for comparing, but it does not show how income is shared.
A warning. If a country's average income keeps rising, can we say everyone is better off? No. The average can rise just because the rich get richer while the poor stay where they are.
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