Developed Economy

What is a Developed Economy?

A developed economy is an economy (country) with a high level of economic activity characterized by high per capita income or per capita gross domestic product (GDP), high level of industrialization, developed infrastructure, technological advancement, a relatively high rank in human development, health and education.

Characteristics of Developed Economies

The following are the characteristics of developed economies.

Characteristics of Developed Economies

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#1 – High Income

They have a high income as measured by per capita income. The definition of high income varies from institution to institution. The World Bank categorizes a per capita income of $12,376 or above as high income and any country with per capita income above this threshold along with high rank in other factors qualifies to be in developed countries list.

As per World Bank, 80 countries in the world make it to the high-income countries (GNI per capita) list topped by Switzerland ($83,580), Norway ($80,790), Iceland ($67,950) and United States ($62,850).

#2 – High Human Development Rank

Along with being rich, citizens of this economy should also experience a better quality of life which can be gauged by a number of factors including but not limited to, literacy rates, life expectancy, infant mortality rates and access to healthcare. To put this all together, an index is developed and compiled by the United Nations (UN) called the Human Development Index (HDI). UN releases the index periodically to assess the change in the quality of life in different countries over time.

As per the United Nations, Norway and Switzerland rank at the top in HDI with a rank of 0.953 and 0.944, respectively. United States ranks 13th with an HDI of 0.924 followed by the United Kingdom with an HDI of 0.922.

#3 – Service Sector Domination

As the economy achieves developed status, the service sector starts becoming a bigger part of the economy. The manufacturing is left to other developing countries while developed economies focus on innovation and developing futuristic value-added products.

#4 – Technological Advancements

They are much more technologically advanced due to their skilled workforce and the risk-taking that is in-built in their culture. They embrace newness, which is why they are deeply involved in the discovery of new advanced technologies in multiple fields.

#5 – High Level of Infrastructure Development

They are big investors in infrastructure development which leads even faster economic development. The quality of roads, rail, air, water, and civil infrastructure is much superior to that of less developed or underdeveloped countries.

Developed Economy Formula

There is no straightforward formula that can help label and economy as developed or developing. An economy can be called developed only when it ranks high on a number of parameters including per capita income, quality of life of the citizens, health, education, technological advancement. An economy that ranks high in any one of the parameters but falters on others cannot be termed as a developed.

Examples of a Developed Economy

United States, United Kingdom, Canada, Norway, Switzerland, Japan, and South Korea are some real-world examples. These economies can be termed as developed economies due to their high level of national incomeNational IncomeThe national income formula calculates the value of total items manufactured in-country by its residents and income received by its residents by adding together consumption, government expenditure, investments made within the country and its net more (gross national income of above $12,376) and high ranking in human development index(HDI) (above 0.850), enhanced level of infrastructure development, highly developed industrial base, and a better quality of life of its citizens.

Developed Economy

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There are several different advantages.

  • These economies generally are easier to do business in, which leads to higher job creation.
  • It gives higher freedom of expression to its citizens, which results in the constructive development of the country as well as its citizens.
  • These economies are more powerful and secure as compared to underdeveloped and developing economies.
  • These economies add a lot of value to the quality of life and business by constantly innovating.
  • They have developed technological leadership as most of the cutting edge technology is developed in these nations, which is then adopted by other nations.
  • These economies have a well-trained workforce as they invest heavily in education and skill development.
  • These economies are more efficient in capital and resource allocation as compared to developing economies.
  • It has a low cost of capital.
  • Developed countries generally adopt free-trade and free-market principles for faster economic development.
  • It helps other underdeveloped countries to improve their economy and bring their people out of poverty.
  • Developed countries help less developed or developing countries in various humanitarian as well as developmental causes.
  • As developed economies have a long track record in governance and management, developing economies copy and adapt to developed models to build their own models for faster development.


There are several different disadvantages.


Important Points

  • Few of these economies are now facing the brunt of competition from less developed economies and are trying to protect themselves by closing or limiting access to their economies.
  • Due to globalization, anything going wrong in these economies impacts other countries and sometimes the entire world.


Developed Economies have strong legacies. These economies are powerful and play an important role in maintaining peace across the world. They are the role models for many developing economies like China and India. These economies also offer great opportunities to developing nations in terms of opening their market for goods and services supplied by the developing economies. While there are some setbacks too but the net effect of developed economies in the world is generally positive. The world benefits immensely from the financial support and technological strength of all such economies.

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