The Nature Of The Economy

THE NATURE OF THE ECONOMY The level of economic development has major implications for business in areas like demand patterns, government policies, etc. There are large differences across countries and even within countries. A common classification of economies is based on per capita income:  Low-income economies have very low per capita income, under $1,045 in 2014 as per World Bank. There were 32 such economies in 2012.  High income economies have very high per capita income, over $12,736 in 2014. In 2012 there were 35 high income economies industrial economies and oil exporters.  Middle income economies fall between low and high income. They are subdivided into lower middle ($1,046-$4,086 in 2014) and upper middle ($4,087$12,615). In 2012 there were 66 middle income economies. But income differences don't fully reflect living standards and purchasing power differences. GNI and income per capita at PPP better captures this. For example, India's 2015 per capita income was $1,688 but $6,209 at PPP, meaning $1,688 in India buys what $6,209 does in the US. Developed and developing economies is another classification. Though convenient, it doesn't imply similar development within developing economies or final stage for others. High income doesn't necessarily mean developed, and vice versa. Criteria like sectoral income/employment, social development indicators etc. also apply in assessing development status. Developed economies exhibit widespread use of modern technology, continuous innovation, low agriculture share, high services and manufacturing share, open and competitive policies, democracy etc. Developing economies or LDCs have deprivation preventing basic necessities, not just amenities. High income inequality means lots of poverty. Rudimentary technology and methods persist. High population growth and death rates occur. Within developing economies there is huge diversity. Some are rapidly industrializing, called newly industrializing economies or Asian Tigers - with impressive growth, industrialization, exports. Transition economies are former communist/socialist countries transitioning to market economies and democracy. Economic growth refers to income growth while economic development also has qualitative aspects like distribution, standards of living, output mix, working conditions, welfare. Development differences have business implications. Low incomes limit demand, necessitating innovations like affordable products. Rapidly growing investment and incomes encourage business prospects and further investment. In developed economies, replacement demand is considerable unlike developing countries.