Less developed countries ldc

What Are Less-Developed Countries (LDC)?

Less-Developed Countries (LDCs) are a specific category of low-income countries that face severe structural impediments to sustainable development and are highly vulnerable to economic and environmental shocks. This classification, part of the broader field of International Finance and Economic Development, was established by the United Nations to identify the world's most vulnerable nations in need of special international support measures. LDCs typically exhibit low levels of Gross National Income per capita, weak human assets, and high economic vulnerability.

History and Origin

The concept of Least Developed Countries (LDCs) originated in the late 1960s, leading to the first official list being adopted by the United Nations General Assembly in 1971. This establishment recognized the unique challenges faced by the "poorest and weakest segment" of the international community, acknowledging that these nations required specific support measures to foster their development³⁶, ³⁷. Since its inception, the list of LDCs has been periodically reviewed and updated by the Committee for Development Policy (CDP), a subsidiary body of the UN Economic and Social Council, every three years³⁴, ³⁵. The United Nations Conference on Trade and Development (UNCTAD) plays a significant role in providing comprehensive socio-economic analysis and data on these countries through its annual "Least Developed Countries Report" series, which addresses trends and issues pertinent to LDCs³¹, ³², ³³.

Key Takeaways

• LDCs are low-income countries characterized by severe structural challenges to sustainable development, identified by the United Nations.
• Their classification is based on three main criteria: low Gross National Income (GNI) per capita, weak human assets, and high economic and environmental vulnerability.
• LDC status grants access to specific international support measures, including trade preferences, development financing, and technical assistance.
• The list of LDCs is reviewed triennially by the UN Committee for Development Policy, with countries eligible for "graduation" if they meet certain thresholds in two consecutive reviews.
• While the LDC designation aims to channel aid effectively, it has faced criticisms regarding its methodology and the challenges faced by countries upon graduation.

Interpreting the Less-Developed Countries Classification

The classification of a country as an LDC is determined by the United Nations Committee for Development Policy (CDP) based on three primary criteria. A country must satisfy all three criteria to be included on the list²⁸, ²⁹, ³⁰:

1. Gross National Income (GNI) per capita: This is the income criterion. A low GNI per capita, typically averaged over three years, is a key indicator. For instance, in the 2024 review, the threshold for inclusion was below US$1,088, and for graduation, it was above US$1,306²⁷.
2. Human Assets Index (HAI): This index measures the level of human resource weakness based on indicators such as nutrition (percentage of the population undernourished), health (under-five mortality rate, maternal mortality rate), and education (adult literacy rate and gross secondary school enrollment ratio)²⁴, ²⁵, ²⁶. A low score on this index indicates significant human development challenges.
3. Economic and Environmental Vulnerability Index (EVI): This index reflects the structural vulnerability of a country to economic and environmental shocks. Factors include remoteness, dependence on agriculture, instability of agricultural production and exports, and vulnerability to natural disasters²¹, ²², ²³. A high score indicates significant susceptibility to external shocks.

Additionally, a country's population size typically must not exceed 75 million for consideration as an LDC, as the category is fundamentally meant to recognize structural handicaps in smaller economies²⁰. The CDP reviews these criteria every three years, and countries may be removed from the LDC classification (i.e., "graduate") when their indicators exceed the graduation thresholds in two consecutive triennial reviews¹⁹.

Hypothetical Example

Imagine a hypothetical country, "Island Nation A," is being assessed for LDC status. Its three-year average GNI per capita is $900, which falls below the inclusion threshold. Its Human Assets Index shows a high under-five mortality rate and low secondary school enrollment, resulting in a low HAI score. Finally, its economy is heavily reliant on a single agricultural export, making it highly susceptible to commodity price fluctuations and climate events, leading to a high Economic and Environmental Vulnerability Index score. Based on meeting all three criteria—low Gross National Income, weak human assets, and high Economic Vulnerability—Island Nation A would likely be classified as an LDC by the United Nations. This classification would then qualify it for special international support measures.

Practical Applications

The designation of Less-Developed Countries (LDCs) has significant practical implications across various facets of international relations, trade, and Official Development Assistance. Countries on the LDC list receive preferential treatment and support aimed at accelerating their Economic Growth and enabling Poverty Reduction. These benefits often include preferential market access for their exports in developed countries, special and differential treatment in the World Trade Organization (WTO) agreements, and dedicated technical assistance programs.

A notable practical application is in the realm of Debt Relief initiatives. Programs like the Heavily Indebted Poor Countries (HIPC) Initiative, launched in 1996 by the International Monetary Fund and the World Bank, were designed to reduce the external debt burdens of eligible low-income countries to sustainable levels. Th¹⁶, ¹⁷, ¹⁸is allows LDCs to reallocate resources from debt servicing towards vital social and economic investments, such as healthcare and education. The subsequent Multilateral Debt Relief Initiative (MDRI), initiated in 2005, provided further debt cancellation for countries that completed the HIPC process.

#¹⁴, ¹⁵# Limitations and Criticisms

While the LDC classification aims to provide targeted support to the world's most vulnerable nations, it has faced several limitations and criticisms over the years. One major critique is that the criteria, despite refinements, may not always accurately reflect the true levels of poverty and development needs within a country. For instance, some populous regions in non-LDC countries might have poverty levels comparable to or worse than those in LDCs, yet do not receive the same targeted support.

A¹³nother point of contention revolves around the "graduation" process. Critics argue that countries graduating from LDC status may face a sudden reduction in critical international support measures, such as Trade Preferences and certain forms of financial aid, potentially hindering their continued Structural Transformation and development momentum. Th¹²e goal of graduating half of the LDCs by 2020, set in the UN's 2011 Istanbul Programme of Action, was missed, indicating the difficulties countries face in sustaining the necessary progress. So¹¹me analyses suggest that the classification system itself can obscure more than it reveals about the specific needs of individual countries, advocating for a more individualized, case-by-case approach rather than a broad categorization. Fu⁹, ¹⁰rthermore, while the UN system recognizes the LDC category, institutions like the World Bank and IMF have not formally adopted the LDC classification in their aid allocation, though they do provide significant support to low-income and heavily indebted countries.

#⁶, ⁷, ⁸# Less-Developed Countries (LDC) vs. Developing Countries

The terms "Less-Developed Countries (LDC)" and "Developing Countries" are often used interchangeably, leading to confusion, but they represent distinct classifications within international finance and economic discourse.

A Developing Country is a broad, less formal term generally used to describe a nation that has a less developed industrial base and a lower Human Development Index (HDI) compared to highly industrialized nations. This category encompasses a wide range of economies that are still undergoing significant economic and social development, striving for higher living standards and improved infrastructure. Most countries in the world, excluding the most affluent, fall under this general umbrella.

Less-Developed Countries (LDCs), on the other hand, are a specific, officially designated subset of developing countries identified by the United Nations. This designation is based on strict, quantitative criteria related to low Gross National Income per capita, weak human assets (health and education), and high Economic Vulnerability. The LDC status implies the highest level of structural handicaps and vulnerability, and it formally qualifies these countries for specialized international support measures, such as preferential trade access and specific development assistance programs. Not all developing countries are LDCs; LDCs represent the poorest and most structurally disadvantaged within the broader group of developing nations.

FAQs

What are the main criteria for a country to be classified as an LDC?

A country is classified as an LDC if it meets three criteria: a low Gross National Income (GNI) per capita, a low score on the Human Assets Index (HAI) reflecting weaknesses in health and education, and a high score on the Economic and Environmental Vulnerability Index (EVI), indicating susceptibility to economic and environmental shocks.

#⁴, ⁵## How often is the LDC list updated?
The list of Less-Developed Countries is reviewed triennially (every three years) by the United Nations Committee for Development Policy (CDP).

#³## What benefits do LDCs receive?
LDCs are eligible for special international support measures, which include preferential market access for their exports, special and differential treatment in multilateral trading systems, and dedicated Official Development Assistance and technical assistance programs aimed at promoting Economic Growth and Poverty Reduction. Th²ey also benefit from initiatives like Debt Relief programs.

What does "graduation" from LDC status mean?

Graduation from LDC status means a country has demonstrated significant progress across the LDC criteria over two consecutive triennial reviews, indicating it has overcome the most severe structural impediments to development. Once a country graduates, it typically transitions away from the specific international support measures granted to LDCs.

#¹## Are all LDCs considered "emerging markets"?
Not all LDCs are considered Emerging Markets. While some LDCs might show potential for growth and attract Foreign Direct Investment, the term "emerging market" typically refers to developing economies that are actively integrating into the global economy and offer significant investment opportunities, often implying a higher level of economic sophistication and market access than most LDCs possess.