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UN DESA | DPAD | Development Policy Analysis Division

LDC information:
The criteria for identifying least developed countries

Overview

Updated August 2013

I. Background:

The CDP uses a set of formal criteria for identifying countries as LDCs. As established in 1971, the initial criteria for designating a country as least developed required a low per capita gross domestic product (GDP) and structural impediments to growth. The presence of such impediments was indicated by a small share of manufacturing in total GDP (under the then current assumption that a high the level of industrialization was a structural characteristic of developed or "advanced" countries), as well as a low literacy rate (indicating the extent of development of the country's human capital).

At its plenary session in 2011, the CDP defined least developed countries (LDCs) as low-income countries suffering from the most severe structural impediments to sustainable development. Explicitly acknowledging sustainable development clarifies that the concern is development broadly defined, incorporating its three prongs: economic, social and environmental. In addition, the concept of sustainable development better reflects the Committee's practice in identifying LDCs which has taken a broader development perspective instead of focusing on impediments to economic growth only.

The criteria have been refined over the years to take into account new insights from research on economic development, updated information on structural impediments to development and improvements in the availability of internationally comparable data. Nonetheless, the underlying principle of identifying LDC as countries which face structural handicaps has essentially remained the same.

Currently, the following criteria are used to classify countries as least developed:

In addition, low income countries with population larger than 75 million inhabitants are not eligible to be considered for inclusion.

The sections below reflect the latest refinements—introduced to the criteria by the Committee in March 2011—which will be applied to the 2012 triennial review of the list of the LDCs.

II. Identifying LDCs

In the review process, the Committee determines threshold levels on each of the three criteria to identify the countries to be added to or graduated from the category.

To be added to the category, a country must satisfy all three criteria, that is, reach the threshold levels for inclusion based on all three criteria and have a population no larger than 75 million inhabitants.

Since graduation rules have been established in 1991, one of the guiding principles in designating LDCs has been to ensure that graduation will take place only after a country’s development prospects have significantly improved, and that the graduated country can sustain its development path. There is therefore an intentional asymmetry between the inclusion and graduation criteria:

  • Thresholds for graduation have been established at a higher level than those for inclusion;
  • In order to be eligible for graduation a country must cease to meet not just one, but two out of the three criteria (except in cases where GNI per capita is at least twice the graduation threshold levels);
  • Eligibility for inclusion is ascertained once, whereas eligibility for graduation has to be observed over two consecutive triennial reviews;
  • Inclusion is immediate, while graduation takes place only after three years, in order to give the country time to prepare itself for a smooth transition from the list;
  • Inclusion requires approval from the country concerned, whereas graduation does not.

III. The criteria

LDCs are defined as low-income countries suffering from structural impediments to sustainable development. These handicaps are manifested in a low level of human resource development and a high level of structural economic vulnerability.

The GNI per capita criterion is an absolute measure of national income. The Human Assets Index (HAI) and the Economic Vulnerability Index (EVI) are composite indices (see below) and relative measures of structural impediments, i.e. the score and ranking of a country does not only depend on its own development, but also on the development of all other countries considered. For the calculation of HAI and EVI, information on all developing countries is taken into account.

In the identification process, the criteria are applied to a reference group consisting of LDCs and other selected developing countries.

A. Gross national income (GNI) per capita

GNI per capita provides information on the income status of a country. The GNI measure used by the CDP is expressed in current United States Dollars. National currencies are converted into United States Dollars according to the World Bank's Atlas Method. The Atlas Method reduces the effects of short term fluctuations in inflation and market exchange rates.

The threshold for inclusion is based on a three-year average of the level of GNI per capita, which the World Bank defines for identifying low-income countries. The threshold for graduation is set at a higher level, usually 20 per cent above the inclusion threshold.

B. Human Assets Index

The HAI provides information regarding the level of development of human capital. It is a combination of four indicators. There are two indicators of health and nutrition outcomes and two of education:

Human Asset Index

The original data for each variable are converted into index numbers using a max-min procedure and re-scaled to remove significant outliers. All indicators carry equal weight in the calculation of HAI. The HAI is thus the simple average of its four components. The HAI has remained unchanged since 2006.

The HAI threshold for inclusion is determined by the index number corresponding to the third quartile in the distribution of HAI results for the reference group of all least developed and other developing countries under review. Countries with HAI values lower than the threshold meet the HAI criterion for inclusion in the list of least developed countries. For example, if the reference group consists of 60 countries, there will be 45 countries whose HAI scores are below the threshold and meet the HAI inclusion criterion. The threshold for graduation has been established at 10 per cent above the inclusion threshold.

C. Economic Vulnerability Index

Economic vulnerability to exogenous shocks is a major structural obstacle to development. The EVI is designed to reflect the risk posed to a country's development by exogenous shocks, the impact of which depends on the magnitude of the shocks and on structural characteristics that determine the extent to which the country would be affected by such shocks (resilience). In this regard, EVI does not take into account vulnerabilities that result from economic policy choices made in the recent past and which are of a conjectural nature.

The EVI incorporates eight indicators, which are grouped into two broad areas comprising an exposure index and a shock index. The weights attached to each indicator in each composite index and sub-index are as follows.

The various sub-indices of the EVI denoted in the figure above are the simple averages of the index values of their components. Thus, the overall EVI score is a weighted rather than a simple average of the eight indicators.As for the HAI, original data for each EVI component are converted into index numbers using a max-min procedure and re-scaled to remove significant outliers.

The EVI describes above incorporates the refinements introduced in 2011, namely, the share of the population living in low elevated coastal zones and victims of natural disasters to better capture structural vulnerability to climate change. Moreover, the weighting of sub-indices has been harmonized and some sub-indices have been renamed.

The EVI threshold for inclusion is the value of the index at the first quartile of the values for the reference group. Countries with EVI values higher than this threshold meet the EVI criterion for inclusion in the list of least developed countries. If the reference group consists of 60 countries, there will be 45 countries whose EVI scores are above the threshold and meet the EVI inclusion criterion. As in the case of the HAI, the Committee applies a difference of 10 percent between thresholds for inclusion and graduation.

D. Population size

Population size is both a component of the EVI and a condition that determines whether a country should be eligible for least developed status. In 1991, the CDP ruled that countries with a population exceeding 75 million should not be considered for inclusion in the list of least developed countries. The population cut-off does not apply to countries that were on the list when the parameter was introduced. Additionally, population size is not a criterion for graduation.

IV. Additional information

For a detailed description of the procedures and methodologies for identifying LDCs, see the Handbook on the Least Developed Country Category.

Criteria over time

Data for the 2006 2009 and 2012 reviews.

Criteria sample calculations—Lao People's Democratic Republic, by UNDP