Less developed countries ldcs

What Are Less-Developed Countries (LDCs)?

Less-developed countries (LDCs), often referred to as Least Developed Countries, are a specific category of low-income nations that face severe structural impediments to sustainable development and are highly vulnerable to economic and environmental shocks. This classification belongs to the broader field of International Economics and development, recognizing the unique challenges these countries encounter. LDCs are characterized by low levels of Gross National Income (GNI) per capita, weak human assets, and significant economic vulnerability. These nations often grapple with high poverty rates, limited access to basic services, and critical gaps in infrastructure development.

History and Origin

The concept of Least Developed Countries (LDCs) was formally established by the United Nations General Assembly in 1971. This classification acknowledged the need for special international support measures to assist the most disadvantaged among the developing countries. Since its inception, the United Nations has recognized LDCs as the "poorest and weakest segment" of the international community.¹¹,¹⁰ The designation aims to draw attention to their specific needs and provide a framework for targeted assistance, including preferential trade access, financial aid, and technical cooperation, all designed to help them achieve the Sustainable Development Goals.

Key Takeaways

• Less-developed countries (LDCs) are low-income nations facing significant structural barriers to development and high vulnerability to shocks.
• The United Nations established the LDC category in 1971 to provide a framework for special international support.
• Classification criteria include low Gross National Income (GNI) per capita, weak human assets, and high economic vulnerability.
• LDCs often exhibit high reliance on primary commodities, limited industrial diversification, and chronic external deficits.
• International support measures, such as Official Development Assistance, are crucial for LDCs to foster economic growth and improve human development outcomes.

Formula and Calculation

The classification of Less-Developed Countries (LDCs) is determined by the United Nations Committee for Development Policy (CDP) based on three main criteria:

1. Gross National Income (GNI) per capita: A low average GNI per capita over a three-year period. The threshold for inclusion is set, and a higher threshold is defined for graduation.
2. Human Assets Index (HAI): This index measures human resource weaknesses, incorporating indicators related to health (e.g., under-five mortality rate, maternal mortality rate) and education (e.g., adult literacy rate, secondary school enrollment).
3. Economic and Environmental Vulnerability Index (EVI): This index quantifies structural vulnerability to economic shocks and environmental disasters, considering factors like remoteness, dependence on a few export products, and instability of agricultural production.

To be classified as an LDC, a country must typically satisfy all three criteria. For a country to graduate from LDC status, it must meet thresholds for at least two of the three criteria in two consecutive triennial reviews by the CDP.⁹

While there isn't a single "formula" for LDC status, the calculation of the Human Assets Index and Economic and Environmental Vulnerability Index involves aggregating various socioeconomic indicators. For instance, the HAI combines health and education metrics to produce a score that reflects the overall human capital development in a country. Similarly, the EVI integrates several indicators to assess a country's susceptibility to external and internal shocks. These indices are periodically reviewed and updated by the UN.

Interpreting the Less-Developed Countries (LDCs) Designation

The designation of a country as an LDC by the United Nations signifies its profound developmental challenges and its need for focused international assistance. This status implies inherent structural impediments to economic progress, often manifesting as limited productive capacities, high susceptibility to external shocks, and significant human resource deficiencies. For policymakers and international organizations, the LDC label guides the allocation of Official Development Assistance (ODA) and the design of targeted support programs.⁸ For investors, the LDC status typically signals higher risks due to economic instability, weaker institutions, and limited market sizes, although it may also present unique long-term growth opportunities in specific sectors. Understanding this classification helps to contextualize a nation's development trajectory and its capacity for self-sustained growth.

Hypothetical Example

Imagine a country, "Agraria," which is predominantly agricultural. Its GNI per capita is consistently below the UN's LDC inclusion threshold, indicating low average incomes for its citizens. Furthermore, Agraria struggles with high infant mortality rates, low adult literacy, and limited access to secondary education for a significant portion of its population, resulting in a low Human Assets Index.

Economically, Agraria is heavily reliant on exporting a single cash crop, making it highly vulnerable to fluctuations in commodity prices and adverse weather events. A recent drought severely impacted its crop yield, leading to a sharp decline in fiscal revenues and increased food insecurity. This scenario would likely push Agraria's Economic and Environmental Vulnerability Index above the LDC threshold. Given its low GNI, poor human asset indicators, and high economic vulnerability, the United Nations Committee for Development Policy would likely classify Agraria as a Less-Developed Country, making it eligible for specific international support measures designed to address its core developmental challenges.

Practical Applications

The classification of Less-Developed Countries (LDCs) has several practical applications in global finance, development, and policy:

• Development Assistance: The LDC category is a primary criterion for allocating concessionary finance and technical assistance from multilateral institutions and donor countries.⁷
• Trade Preferences: LDCs often receive preferential market access for their exports in developed country markets, such as duty-free and quota-free treatment, to help integrate them into global trade networks.
• Investment Decisions: While presenting higher risks, the LDC designation can also highlight potential frontier markets for specialized investors seeking high-growth opportunities, particularly in sectors where development aid might catalyze initial growth, such as renewable energy or basic goods production.⁶
• Debt Relief: Many LDCs benefit from debt relief initiatives, as high debt burden can severely impede their ability to invest in critical services and infrastructure.
• Special International Support Measures: Beyond finance and trade, LDCs receive specific support in areas like technology transfer, capacity building, and climate change adaptation, acknowledging their limited financial resources and greater vulnerability.

Limitations and Criticisms

While the LDC classification provides a vital framework for international support, it faces certain limitations and criticisms:

One challenge is that the categorization may oversimplify the diverse realities within these countries. Despite sharing common characteristics, LDCs are not homogenous; they vary significantly in terms of economic structure, governance, and development progress. The rigid criteria, while necessary for classification, may not always capture the nuances of individual country contexts.

Another critique points to the "LDC trap," where countries may become overly reliant on international aid, potentially disincentivizing robust domestic resource mobilization or delaying necessary structural reforms.⁵ The process of "graduation" from LDC status can also present challenges, as countries may face reduced access to concessionary finance and preferential trade agreements, potentially impacting their growth trajectories immediately post-graduation. Concerns have also been raised regarding the effectiveness of aid and whether it consistently translates into sustainable development outcomes in all LDCs.

Less-Developed Countries (LDCs) vs. Emerging Markets

Less-developed countries (LDCs) are often confused with "emerging markets," but they represent distinct stages of economic development. While both are considered "developing," LDCs are at the earliest stage, facing profound structural challenges that hinder basic development. Emerging markets, conversely, are typically further along in their development trajectory, characterized by a growing middle class, industrialization, and increasing openness to global trade and investment. The critical distinction lies in the severity of structural impediments and the degree of integration into the global economy, with LDCs possessing significantly weaker economic and human resource bases compared to most emerging markets.

FAQs

What does "LDC" stand for?

LDC stands for Less-Developed Country, which is a formal classification used by the United Nations.

How many Less-Developed Countries (LDCs) are there?

The number of countries classified as LDCs changes periodically as countries are added or graduate. As of recent classifications by the UN, there are typically around 45–46 countries on the list.

³### What are the main criteria for a country to be classified as an LDC?

The United Nations uses three primary criteria: low Gross National Income (GNI) per capita, a low Human Assets Index (HAI), and a high Economic and Environmental Vulnerability Index (EVI). These criteria assess income levels, human resource development (health and education), and susceptibility to external shocks.

²### Can a Less-Developed Country (LDC) graduate from the list?

Yes, a country can graduate from LDC status if it meets specific thresholds for at least two of the three criteria (GNI, HAI, EVI) during two consecutive triennial reviews by the UN Committee for Development Policy. Graduation signifies progress in economic and social development.

¹### Why is the LDC classification important?

The LDC classification is important because it serves as a basis for the international community to provide special support measures, including financial aid, trade preferences, and technical assistance, to help these countries overcome their structural development challenges and integrate more effectively into the global economy. This support is crucial for improving living standards and achieving broader development goals.