The Bank's analytical income categories (low, middle, high income) are based on the Bank's operational lending categories (civil works preferences, IDA eligibility, etc.). These operational guidelines were established based on the view that since poorer countries deserve better conditions from the Bank, comparative estimates of economic capacity needed to be established. GNI, a broad measure, was considered to be the best single indicator of economic capacity and progress; at the same time it was recognized that GNI does not, by itself, constitute or measure welfare or success in development. GNI per capita is therefore the Bank's main criterion of classifying countries.

The process of setting per capita income thresholds started with finding a stable relationship between a summary measure of well-being such as poverty incidence and infant mortality on the one hand and economic variables including per capita GNI estimated based on the Bank's Atlas method on the other. Based on such a relationship and the annual availability of Bank's resources, the original per capita income thresholds were established. Thereafter, the original thresholds have been updated every year to incorporate the effect of international inflation, which is now measured by the average inflation of Japan, the United Kingdom, the United States and the Euro Zone. Thus, the thresholds remain constant in real terms over time.

The economies whose per capita GNI falls below the Bank's operational cutoff for "Civil Works Preference" are classified as low-income economies; economies whose per capita GNI is higher than the Bank's operational threshold for "Civil Works Preference" and lower than the threshold for 17-year IBRD loans are classified as lower-middle income economies; and those economies whose per capita GNI is higher than the Bank's operational threshold for 17-year IBRD loans and lower than the threshold for high-income economies are classified as upper-middle income economies. [Note: In 2008, the Bank streamlined IBRD categories to eliminate the 17-year term operational threshold. The analytical threshold between lower-middle and upper-middle income remains and is updated each year as explained above.]

But as late as 1989, there were some anomalies in the countries included in the middle-income group (a holdover of earlier listings of what constituted "developing" vs. "industrial" countries). An explicit benchmark between the middle-income and high-income countries was established in 1989 at $6,000 per capita in 1987 prices.

In general discussions in Bank reports, the term "developing economies" has been used to denote the set of low and middle income economies. Bank publications with notes on the classification of economies state that the term "developing economies... does not imply either that all the economies belonging to the group are actually in the process of developing, nor that those not in the group have necessarily reached some preferred or final stage of development."

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