ECLAC
Development in transition: concept and measurement proposal for renewed cooperation...
According to taxonomies based on income, therefore, Latin America and the Caribbean is a middle-income region in transition to development. However, behind these categorizations lie a variety of development processes that are difficult to synthesize into a single indicator, and there is no one classification or standard criterion that enables specific needs to be accurately assessed in a synthetic form. There are as many indicators as there are development challenges facing a country, and the ranking of countries changes according to the dimension being considered. This is why the international cooperation system needs to look beyond per capita income and consider different development needs.
D. Per capita income: an inadequate measure for determining the level of development Per capita income is treated by the international cooperation system, including multilateral financial institutions, as the key variable that summarizes the development level of countries and thus guides the allocation of resources by developed economies to emerging and developing ones. The use of per capita income as an indicator for allocating resources rests essentially on two arguments. First, it is assumed to be a true reflection of countries’ level of economic and social development. Second, higher per capita incomes are assumed to be accompanied by an increased ability for countries to mobilize domestic and external resources and thus to finance economic and social needs. Moreover, this view assumes that there is an unambiguous relationship between per capita GDP and institutional development. Thus, as countries move from low-income and lower-middle-income levels to upper-middle-income and high-income levels, they should become less dependent on flows of official assistance, concessional loans and preferential and differentiated treatment in respect of trade and production rules.5 On graduating, upper-middle-income and high-income countries become ineligible not only for ODA but for any other type of preferential financing. This logic justifies the decision to give preference to lower-income countries in the allocation of international cooperation resources and funding from multilateral institutions. The dynamics of growth and development processes and, more recently, the COVID-19 crisis have highlighted the need to consider other quantitative and qualitative measures that can provide an understanding of the stage of development countries have attained, given the large differences and structural gaps between individuals, firms, institutions and regions. As the Commission on the Measurement of Economic Performance and Social Progress (CMEPSP) noted in 2008, GDP, like any aggregate calculated in per capita terms, may provide an inadequate picture of the situation of the majority of the population (Stiglitz, Sen and Fitoussi, 2009). For example, if inequalities widen even as average per capita income growth increases, some people may be better off and others worse off than before: the variable used does not capture increases or decreases in well-being within countries. Moreover, income can increase in different ways whose effects must be considered for the sustainability of growth and development processes to be understood. For example, income growth that leads to greater consumption of fossil fuels may have negative effects on quality of life. If citizens are concerned about air quality and air pollution increases, statistical measures that ignore these variables will translate into misleading estimates of well-being. Also, the tendency to measure gradual changes may not reflect the risks of abrupt environmental deterioration, like that which is occurring with the environmental crisis. Again, as per capita income rises, other variables begin to be more important for understanding well-being (OECD and others, 2019). The relationship between per capita income and a composite
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In fact, the OECD Development Assistance Committee (DAC) classifies countries into two groups for the receipt of ODA on the basis of income rankings: “developed countries” and “developing countries”, which are the potential ODA recipients. Under the DAC criteria, countries that exceed the average income threshold set by the World Bank for a consecutive three-year period “graduate” and are removed from the list of potential ODA recipients. For countries that have graduated, international cooperation flows are no longer counted as ODA or concessional funds.
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