Thursday, 4 October 2012

What if there were 5 clusters of quite different developing countries?

by Andy Sumner

In 1963 Dudley Seers wrote –in The Limitations of the Special Case– of developing countries:

[t]he typical case is a largely unindustrialised economy, the foreign trade of which consists essentially in selling primary products for manufactures. There are about 100 identifiable economies of this sort, covering the great majority of the world’s population (1963, p. 80).

And perhaps most famously, Seers wrote in The Meaning of Development:

The questions to ask about a country’s development are therefore: What has been happening to poverty? What has been happening to unemployment? What has been happening to inequality? If all of these three have become less severe, then beyond doubt this has been a period of development for the country concerned […] If one or two of these central problems have been growing worse, especially if all three have, it would be strange to call the result ‘development’, even if per capita income has soared (1969:24).

Since then many have challenged the use of income per capita as the primary proxy for development. Of course, in addition to low and middle income countries there are many classifications – notably those by Human Development and the Least Developed Countries classifications and the new pioneering work of the Oxford Poverty and Human Development Initiative.

Our new paper continues this tradition with a twist. The paper challenges the continuing use of income per capita to classify developing countries as low income countries (LICs) or middle income countries (MICs), given that most of the world’s poor live in the later group (see here, here, here, here).

Further, the ambiguity over the usefulness of the MIC classification given the diversity in the group of over 100 countries that includes Ghana and Zambia, as well as India, China and Brazil.

We used a cluster analysis to identify five types of developing country using a set of indicators for 2005-2010 covering definitions of development based on the history of thinking about ‘development‘ over the last 50 years from four conceptual frames:
  • development as structural transformation; 
  • development as human development; 
  • development as democratic participation and good governance;
  • development as sustainability.
This is what we found:
Our development taxonomy differs notably from the usual income classification of GNI per capita (Atlas method) used to classify LICs and MICs. Notably many countries commonly labelled “emerging economies” are not in the emerging economies clusters because they retain characteristics of poorer countries.

Our analysis generated 5 clusters as follows:

1. High poverty rate countries with largely traditional economies.

Those countries with the highest poverty and malnutrition headcounts, who are also countries with low productivity and innovation and mainly agricultural economies, with severely constrained political freedoms.
This cluster includes 31 countries, some of them might be surprising: Pakistan, Zambia, Nigeria, and India.

2. Natural resource dependent countries with little political freedom.

Those countries with high dependency on natural resources, who are also countries with severely constrained political freedom and moderate inequality (relative to the average for all developing countries).
This cluster includes 9 countries, such as Mauritania, Vietnam, Yemen, Cameroon, Congo, Swaziland and Angola.

3. External flow dependent countries with high inequality.

Those countries with high dependency on external flows, who are also countries with high inequality, and moderate poverty incidence (relative to the average for all developing countries).
This cluster has 32 countries, such as Senegal, Ghana, Indonesia, Thailand, Peru, Colombia, and Panama


4. Economically egalitarian emerging economies with serious challenges of environmental sustainability and limited political freedoms.

Those countries with most equal societies, who are also countries with moderate poverty and malnutrition but serious challenges of environmental sustainability and –perhaps surprisingly– limited political freedoms.
This cluster has 15 countries, including China, Azerbaijan, Belarus, and Kazakhstan.

5. Unequal emerging economies with low dependence on external finance.

 Those countries with the lowest dependency on external finance and who are also countries with the highest inequality.
This cluster includes 14 countries, such as South Africa, Botswana, Costa Rica, Malaysia, Argentina, Mexico, Brazil, Turkey, Chile and Uruguay.

Two-thirds of the world’s poor – not surprisingly given the characteristics noted above - live in Cluster 1 countries though this is largely due to the inclusion of four populous countries (Bangladesh, India, Pakistan and Nigeria –and one should remember a third of world poverty is accounted for by India).
About a quarter of world poverty is situated in Cluster 3 and Cluster 4 countries and the remaining 5% live in Cluster 2 and Cluster 5.

What is most striking is that we find that there is no simple “linear” representation of development levels (from low to high development countries). We find that each development cluster has its own and characteristic development issues.

Building a development classification is not a simple task: once we overcome the over-simplistic income-based classification of the developing world, we find that there is no group of countries with the best (or worst) indicators in all development dimensions.

It thus would be more appropriate to build “complex” development taxonomies on a five-year basis than ranking and grouping countries in terms of per capita incomes, as this will offer a more nuanced image of the diversity of challenges of the developing world and policy responses appropriate to different kinds of countries.

Tezanos Vázquez and Sumner (2012) Beyond Low and Middle Income Countries: What if there were 5 clusters of developing countries? IDS Working Paper. IDS. Brighton

Sergio Tezanos Vázquez is an associate professor at the Economics Department and a research fellow at the Iberoamerican Research Office on International Development & Co-operation at the University of Cantabria.

Andy Sumner is a Research Fellow in the Vulnerability and Poverty Reduction Team at the Institute of Development Studies at the University of Sussex. From 1st October he will beCo-Director of the King’s International Development Institute, King’s College London.