What Is a Developed Economy?

A developed economy is typically characteristic of a developed country with a relatively high level of economic growth and security. Standard criteria for evaluating a country's level of development are income per capita or per capita gross domestic product, the level of industrialization, the general standard of living, and the amount of technological infrastructure.

Noneconomic factors, such as the human development index (HDI), which quantifies a country's levels of education, literacy, and health into a single figure, can also be used to evaluate an economy or the degree of development.


Developed Economy

GDP and Developed Economy Criteria

The most common metric used to determine if an economy is developed or developing is per capita gross domestic product (GDP), although no strict level exists for an economy to be considered either developing or developed. Some economists consider $12,000 to $15,000 per capita GDP to be sufficient for developed status while others do not consider a country developed unless its per capita GDP is above $25,000 or $30,000. As reported by The World Bank, the United States' per capita GDP in 2018 was $62,641.

For countries that are difficult to categorize, economists turn to other factors to determine development status. Standard-of-living measures, such as the infant mortality rate and life expectancy, are useful although there are no set boundaries for these measures either. However, most developed economies suffer fewer than 10 infant deaths per 1,000 live births, and their citizens live to be 75 or older on average.

A high per capita GDP alone does not confer developed economy status without other factors. For example, the United Nations still considers Qatar, with one of the world's highest per capita GDP in 2018 at $69,026, a developing economy because the nation has extreme income inequality, a lack of infrastructure, and limited educational opportunities for nonaffluent citizens.

The Human Development Index

The HDI looks at three standards of living criteria—literacy rates, access to education and access to health care—and quantifies this data into a standardized figure between 0 and 1. Most developed countries have HDI figures above 0.8. The United Nations Development Programme, Human Development Reports that in 2017, Norway had the world's highest HDI at 0.953 403. The United States ranked 13th at 0.924.

According to the U.N.'s Human Development Index, Norway ranked highest among all nations, while the U.S. came in at number 13.

Nondeveloped Economies

Terms such as "emerging countries," "least-developed countries" and "developing countries" are commonly used to refer to countries that do not enjoy the same level of economic security, industrialization, and growth as developed countries. The term "third-world country" to describe a state is today considered archaic and offensive.

Key Takeaways

  • Countries with relatively high levels of economic growth and security are considered to have developed economies.
  • Common criteria for evaluation include income per capita or per capita gross domestic product.
  • Noneconomic factors, such as the human development index, may also be used as criteria.
  • Countries like Qatar—with high per capital GDP—may be deemed developing because of factors such as lacking infrastructure and educational opportunities.

Real World Example of a Developed Economy

The United Nations Conference on Trade and Development notes that the world's least-developed countries are "deemed highly disadvantaged in their development process—many of them for geographical reasons—and (face) more than other countries the risk of failing to come out of poverty." Examples of countries with developed economies include the United States, Canada and most of western Europe, including the United Kingdom and France.