First World

What Does “First World” Mean?

The modern definition of “first world” is used to classify countries that are highly industrialized and with advanced economies. First-world countries include the United States, Canada, Japan, and Western European countries.

Historical Definition of “First World”

The use of the term “first world” initially arose during the Cold War and was used to define countries that aligned themselves with the North Atlantic Treaty Organization (NATO). Countries that aligned with the opposition, also known as the Warsaw Pact, were called the “second world.” Countries that did not adhere to a faction were part of the “third world.”

Under the historical definition, the “first world” consisted of the United States, Western Europe, and their allies, as illustrated in the graphic above. The “second world” consisted of the Soviet Union, China, Cuba, and their allies. The “third world” included Latin America, Africa, and the Middle East. After the Soviet Union’s fall in 1991, the term “first world” changed considerably to classify wealthy nations.

Criteria for “First World” Classification

Following the modern definition of the “first world,” countries that are part of the designation are primarily characterized by political stability, economic stability, a high standard of living, and a capitalist economy. Common metrics used to identify such countries include:

1. Human Development Index (HDI)

The Human Development Index (HDI) is a statistical measure developed by the United Nations to assess the economic and social development of countries around the world. The HDI consists of three dimensions: (1) the long and healthy life dimension, (2) the education dimension, and (3) the standard of living dimension.

The HDI ranges from 0 (very low level of human development) to 1 (very high level of human development). Although there is no HDI cut-off for a country to be part of the “first world,” the higher the HDI, the greater the indication that the subject country is part of the classification.

2. Per Capita Gross Domestic Product (GDP)

Per capita GDP illustrates the average economic output per person and is calculated by dividing a country’s gross domestic product – the data of which can be found on the World Bank website, among other sources – by its population.

The per-capita GDP metric indicates an individual’s average living standards and economic well-being. Although there is no cut-off for a country to be part of the “first world,” the higher the per capita gross domestic product, the greater the indication that the subject country is part of such classification.

3. Literacy Rate (%)

Literacy rate refers to the percentage of individuals aged 15 and above that are proficient at reading and writing. A higher literacy rate provides a greater indication of a country that is part of the “first world.”

4. Life Expectancy (Years)

Life expectancy is the average age that an individual is expected to live to from birth. A higher life expectancy provides a greater indication of a country with a strong healthcare system that is part of the “first world” classification.

Example of Classification

Based solely on the provided metrics for each hypothetical country below, which one is likely part of the modern definition of the “first world”?

Answer: Countries D and E demonstrate a high GDP per capita, literacy rates, and life expectancies. It is likely that the two countries are part of the “first world.”

More Resources

CFI is the official provider of the global Commercial Banking & Credit Analyst (CBCA)™ certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional CFI resources below will be useful:

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