Middle Income Country (MIC)

A classification used by the World Bank Group to refer to nation-states with a per capita Gross National Income (GNI) within a predetermined bandwidth

What is a Middle Income Country (MIC)?

The term Middle Income Country (MIC) is used by the World Bank Group to refer to nation-states with a per capita Gross National Income (GNI) within a predetermined bandwidth. The MIC categorization enables the World Bank to analyze and determine specific policy prescriptions for countries within the category.

 

Middle Income Country (MIC)

 

The policy prescriptions are usually based on enabling economic development and providing financial services to all countries. Countries with a GNP higher than $1,206 and lower than $12,475 are considered to be MICs.

 

Summary

  • The term Middle Income Country (MIC) is used by the World Bank Group to refer to nation-states with a per capita Gross National Income (GNI) within a predetermined bandwidth.
  • GNI per capita is considered to be the best indicator of the economic progress of a country. The World Bank Atlas method is a system of exchange rate conversation, which uses the Atlas factor, which replaces the usage of simple exchange rates.
  • MICs are especially important in areas such as financial stability, international trade, the development of sustainable energy in the face of climate change, etc.

 

World Bank Classifications for Countries

Historically, every economy’s been classified as high income, middle income, or low income by the World Bank. Earlier, the term developing economies was used to club lower and middle income countries but was dropped in 2016 owing to a lack in the specificity of the term. The classifications currently used are largely based on several indicators, such as income levels, lending status, and region.

Middle income countries are a very diverse set of countries according to the variables mentioned above. Thus, they are further classified into lower middle income and upper middle income economies, which enables policymakers to determine suitable policy prescriptions.

While lower MICs struggle with the provision of basic necessities, such as clean water and food, upper MICs tend to face larger governance-related problems, such as rampant corruption.

The lower middle income economies are countries where the per capita GNI falls between $1,026 and $3,955. The countries that are part of the upper MIC classification with a GNI that falls between $3,956 and $12,475. Out of the total 109 MICs all over the world, there are 53 lower MICs and 56 upper MICs.

 

Middle Income Country - Classification

 

What is Gross National Income (GNI)?

GNI per capita is considered to be the best indicator of the economic progress of a country. It is a broad measure that is measured in current US dollars, and the Atlas method of three-year exchange rates are used to convert the US dollar value into the national currency of the economy being measured.

GNI is defined as the total money earned by all the businesses and citizens of a country over a financial year. It is a broader and more suitable indicator than Gross Domestic Product (GDP) since it includes oversees income in addition to GDP.

Thus, GNI is able to include investment income regardless of where that income was accrued. It may include foreign investment, economic developmental aid, and remittances.

 

Importance of Middle Income Countries

The combined population of all MICs accounts for approximately five billion people, which is two-thirds of the world population. MICs represent one-third of the global gross domestic product (GDP) and include a total of 109 countries. Out of the total, the four largest countries, also called the BRIC countries, comprising Brazil, Russia, India, and China together make up about half of the world’s population.

MICs are considered key to global economic growth. It is especially important in areas such as financial stability, international trade, the development of sustainable energy in the face of climate change, etc.

 

World Bank Atlas Method

The World Bank Atlas method is a system of exchange rate conversation, which uses the Atlas factor. It replaces the usage of simple exchange rates, thus reducing the impact of exchange rate fluctuations while comparing national incomes across countries.

The Atlas factor is determined by averaging the exchange rate of the currency for the latest three years. The number is then adjusted for inflation, both on a national level and international level.

International inflation is measured using the SDR deflator, which is derived from the International Monetary Fund’s Special Drawing Rights (SDRs). The SDR inflator is essentially the weighted average of the GDP deflators of a handful of countries with the largest economies, which include China, the US, the UK, Japan, and the eurozone.

 

More Resources

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

  • Economic Indicators
  • Bretton Woods Agreement
  • Gross National Product
  • Asia-Pacific Economic Cooperation (APEC)

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