On the basis of level of development economies can be classified in two categories:

  1. Developed economy
  2. Developing economy

The countries are labelled developed or rich and developing or poor on the basis of real national and per capita income and standard of living of its population.

1. Developed Countries

Developed countries have higher national and per-capita income, high rate of capital formation - high savings and investment. They have highly educated human resources, better civic facilities, health and sanitation facilities, low birth rate, low death rate, low infant mortality, developed industrial and social infrastructures and a strong financial and capital market. In short, developed countries have high standard of living.

2. Developing Countries

Developing countries are low on the ladder of development. They are sometimes also called underdeveloped, backward or poor countries. The national and per capita income is low in these countries. They have backward agricultural and industrial sectors with low savings, investment and capital formation. Although these countries have export earnings but generally they export primary agricultural products. In short, they have low standard of living and poor health and sanitation, high infant mortality, high birth and death rates and poor infrastructure.