Third World — Meaning and Modern Classifications

Key takeaways

• “Third World” is an outdated Cold War term that originally described countries not aligned with either Western (capitalist) or Soviet (communist) blocs.
• Today the phrase is generally avoided as imprecise and potentially derogatory; preferred terms include developing, low- and middle-income (LMIC), frontier, and least developed countries (LDCs).
• Modern classification systems used by the IMF, World Bank, WTO, UN, and market indexes (e.g., MSCI) emphasize income, human development, and market accessibility rather than Cold War politics.
• Understanding contemporary classifications helps policymakers, investors, and researchers assess opportunities, risks, and needs in different economies.

Definition and historical context

During the Cold War, French demographer Alfred Sauvy coined the phrase “Third World” to describe countries that were neither part of the capitalist West (the First World) nor the communist East (the Second World). Many of these countries were newly independent or former colonies and had lower levels of industrialization.

As geopolitical conditions changed, especially after the end of the Cold War, the term lost analytical usefulness and gained pejorative connotations. Modern usage favors terms that describe economic and social conditions rather than political alignment.

Characteristics of developing economies

Countries historically labeled “Third World” typically share some of the following features (to varying degrees):
* Lower gross domestic product (GDP) and GDP per capita.
Higher poverty rates, lower levels of formal employment, and weaker labor markets.
Gaps in education, health care access, and sanitation.
Underdeveloped infrastructure (transport, energy, communications).
Greater economic volatility and vulnerability to external shocks.

International institutions (IMF, World Bank, UN) often classify such countries as low-income or lower-middle-income and provide financial and technical assistance aimed at infrastructure, health, education, and institutional development.

Modern classification frameworks

Several contemporary systems replace or clarify the old “First/Second/Third World” framing:

Income-based (World Bank / IMF)
* Countries are grouped by gross national income (GNI) per capita into low, lower-middle, upper-middle, and high-income categories.
*These categories guide lending, aid eligibility, and program design.

Human development (UN HDI)
* The Human Development Index ranks countries by education, life expectancy, and income per capita, providing a broader measure of wellbeing than income alone.

Least Developed Countries (LDCs) — UN designation
* The UN identifies a subset of countries with very low socioeconomic development and high vulnerability. This status confers specific international support measures and is periodically reviewed.

Trade-based (WTO classifications)
* The WTO recognizes “developing” and “least developed” members; countries can self-identify, though classifications may be contested. WTO status affects special and differential treatment in trade.

Market classifications (MSCI and others)
* Financial indexes classify markets as developed, emerging, or frontier based on market accessibility, liquidity, and regulatory environment. Frontier markets often overlap with lower-income or less-developed economies and are considered higher risk but potentially higher return for investors.

Frontier markets (example list)

Frontier-market lists change over time; one reference used by investors is MSCI’s Frontier Markets Index. Examples of countries that have appeared in such frontier-market groupings include:
* Croatia, Estonia, Iceland, Latvia, Lithuania, Slovenia, Romania, Serbia
Kazakhstan, Kenya, Mauritius, Morocco, Tunisia
Bahrain, Jordan, Oman
Bangladesh, Pakistan, Sri Lanka, Vietnam
WAEMU (West African Economic and Monetary Union members)

Note: Inclusion in frontier indices varies by methodology and annual reviews.

Least Developed Countries (LDCs)

The UN’s LDC category identifies countries with low income, weak human assets, and high economic vulnerability. Current examples include:
Afghanistan, Angola, Bangladesh, Benin, Burkina Faso, Burundi, Cambodia, Central African Republic, Chad, Comoros, Democratic Republic of the Congo, Djibouti, Eritrea, Ethiopia, Gambia, Guinea, Guinea-Bissau, Haiti, Kiribati, Lao PDR, Lesotho, Liberia, Madagascar, Malawi, Mali, Mauritania, Mozambique, Myanmar, Nepal, Niger, Rwanda, Senegal, Sierra Leone, Solomon Islands, Somalia, South Sudan, Sudan, Timor-Leste, Togo, Tuvalu, Uganda, United Republic of Tanzania, Yemen, Zambia.

(These listings are periodically updated by the UN and other organizations.)

Implications for policy and investment

• Policy: Modern classifications guide where international aid, development programs, and concessional financing are directed. Identifying a country’s needs requires combining income metrics with human development and vulnerability assessments.
• Investment: Investors use classifications (emerging vs. frontier) to evaluate market access, liquidity, regulation, and risk–return profiles. Frontier markets can offer high growth potential alongside greater political, economic, and operational risks.

Conclusion

“Third World” is an outdated, historically rooted label that has been replaced by more precise and respectful classifications reflecting income, human development, market openness, and vulnerability. Using contemporary frameworks—such as income groupings, the HDI, LDC status, and market indices—provides a clearer basis for policy decisions, development assistance, and investment strategies while avoiding Cold War-era terminology.