In this article, we take a look at the 25 least developed countries in Asia. You can skip our detailed analysis of uneven economic development in Asia and go directly to the 10 Least Developed Countries in Asia.
Asia is one of the fastest developing regions in the world, and is widely regarded as the manufacturing hub of the world, with the most developed countries on the continent being Japan and South Korea. Much of the GDP of Asia is concentrated in China, Japan, South Korea and India.
However, there are many countries in Asia that lag behind in financial independence, rule of law, political stability, financial transparency and GDP growth. These are primarily situated in South Asia, Central Asia and West Asia.
Asian Development Dynamics: Why Did China Develop Faster Than India?
The two countries that are the easiest to compare in terms of socio-economic development in Asia are China and India. China is the second largest economy in the world, behind the US, while India is the fifth largest.
China had a head start of 12 years in market reforms compared to India. However, the latter’s market reforms were also slower to implement and lacked comprehensive coverage. Both countries have become outsourcing hubs for different reasons, with China leading in manufacturing and India making progress in services such as information technology.
The share of services in India’s GDP as of 2021, is 47.5%, while that of the manufacturing sector is only 14%. On the other hand, for the past decade, India has had a trade surplus in services but it covers only 20% of its deficit in manufacturing.
India’s services-oriented trajectory was set by government policies and investments, but the country lagged behind in infrastructure, that is critical for manufacturing, such as power plants, ports and roads.
This is where China had an advantage, as the manufacturing sector is crucial for growth acceleration in developing economies, with its importance over services for developing economies grounded in sound empirical data. Capital accumulation is an aggregate source of economic growth and it is much lower in services, while its positive effects are far more pronounced in manufacturing sectors of developing economies.
Manufacturing is also far friendlier to economies of scale relative to services, due to cost advantages in labor and productivity. Further, foreign investment in the manufacturing sector has greater technology-transfer effects, due to the industry being more labor intensive.
Therefore, China developed faster than India, owing to a head start in market reforms, low-cost labor and the expansion of its manufacturing sector, despite the potential for economies of scale in both countries due to huge population sizes.
Why Are So Many Asian Economies Still Underdeveloped?
Several factors keep many Asian economies underdeveloped. These include corruption, poor state of rule of law, political instability, violence and lack of comprehensive market and labor reforms, among others. The least developed countries in Asia are also trailing the more developed Asian economies in formulating policies to attract Foreign Direct Investment (FDI).
The above factors lead to self-reinforcing feedback loops. For instance, least developed countries of Asia lag far behind more developed Asian countries in technology-transfer from international companies, perpetuating underdevelopment.
By contrast, relatively developed Asian countries like Thailand and Indonesia have been far more active in incentivizing production links via subcontracting arrangements between domestic companies and foreign companies.
Many high tech companies like Alphabet Inc. (NASDAQ:GOOG), Amazon.com, Inc. (NASDAQ:AMZN) and Microsoft Corporation (NASDAQ:MSFT) have a presence in developing Asian countries like India.
Let’s now move on to the 25 least developed countries in Asia.
We have defined ‘least developed countries in Asia’ as ones that have low human development and GDP per Capita. In this regard, we’ve selected Asian countries from the Human Development Index (HDI) of 2021-22 with the lowest scores. We then took into account their GDPs per Capita and then assigned each country two rankings based on their HDI scores and GDPs per Capita.
Finally, we’ve ranked them based on the average of the two rankings and listed them in a descending order of low development. For countries with the same averaged-out values, we’ve used their rankings in GDP per Capita as the tiebreaker.
Note: North Korea is a rogue country, with the UN lacking data on their human development but we do have credible estimates of their GDP per Capita. For this purpose, we've ranked it based on its GDP per Capita.
25. Mongolia
HDI Ranking: 22
GDP Per Capita Ranking: 24
Average Ranking: 23
Mongolia is located in Central Asia. The country has a GDP per Capita of $4,566 as of 2021 and an HDI score of 0.739. The country’s economy is mostly reliant on the mining industry, leaving little room for appropriate market diversification. In addition, Mongolia also has a shortage of skilled workers.
24. Iran
HDI Ranking: 26
GDP Per Capita Ranking: 20
Average Ranking: 23
Iran has vast reserves of fossil fuel but the country suffers from resource curse, due to the same oil wealth. Further, the country has been adversely affected by Western sanctions.
23. Sri Lanka
HDI Ranking: 27
GDP Per Capita Ranking: 16
Average Ranking: 21.5
Sri Lanka is one of the least developed countries in the world, primarily because of factors like corruption and political instability, combined with an economy that lacks diversification. Sri Lanka has further spiraled down after the country defaulted in May, 2022, leading to economic collapse.
22. Jordan
HDI Ranking: 20
GDP Per Capita Ranking: 21
Average Ranking: 20.5
Jordan is located in West Asia, and has a GDP per Capita of $4,103 as of 2021. The main issues with the Jordanian economy is that it lacks diversification in the economy, with the country’s infrastructure also being outdated.
21. Indonesia
HDI Ranking: 17
GDP Per Capita Ranking: 23
Average Ranking: 20
Indonesia is located in Southeast Asia, with a GDP per Capita of $4,333 as of 2021. The country is far better-off than most other countries on the list. The human capital in the country has attracted companies like Alphabet Inc. (NASDAQ:GOOG), Amazon.com, Inc. (NASDAQ:AMZN) and Microsoft Corporation (NASDAQ:MSFT). However, it still lags far behind the more developed countries in Asia.
20. Lebanon
HDI Ranking: 18
GDP Per Capita Ranking: 22
Average Ranking: 20
Lebanon is a West Asian country with a GDP per Capita of $4,136 as of 2021. The country has one of the highest levels of public debt in the world, averaging 155% of the its GDP in the past two decades. Another huge problem in the country is corruption; Lebanon ranked 154th out of 180 countries on the Corruption Perception Index of 2021.
19. Iraq
HDI Ranking: 13
GDP Per Capita Ranking: 25
Average Ranking: 19
There are a number of reasons why Iraq is one of the most underdeveloped countries in Asia. The country has been mired in internal violence since the US invasion in 2003, as well as government corruption and income inequality. Moreover, it has one of the most oil-dependent economies in the world. As the World Bank notes, oil comprised 99% of the country’s exports, making up 42% of Iraq's GDP over the past decade.
18. Palestine
HDI Ranking: 19
GDP Per Capita Ranking: 18
Average Ranking: 18.5
Palestine is located in West Asia. A number of factors like restriction on trade, poor infrastructure, political instability and occupation by Israel has left Palestine underdeveloped. Palestine has a GDP per Capita of $3,664 as of 2021.
17. Vietnam
HDI Ranking: 16
GDP Per Capita Ranking: 19
Average Ranking: 17.5
Vietnam is located in Southeast Asia. The country has been underdeveloped due to income inequality and political instability. However, Vietnam has massively leaped forward in recent years in its manufacturing capacity, adding 1.5 million jobs in the sector between 2014 and 2016.
It is also the hot new destination for US supply chains, with 20% of them having shifted to Vietnam, from China’s share in 2019, due to the US-China trade war. In this regard, Vietnam’s development outlook is expected to significantly improve over the course of the next decade.
High technology US companies like Microsoft Corporation (NASDAQ:MSFT), Amazon.com, Inc. (NASDAQ:AMZN) and Alphabet Inc. (NASDAQ:GOOG) also operate in Vietnam.
16. Philippines
HDI Ranking: 15
GDP Per Capita Ranking: 17
Average Ranking: 16
The Philippines has a GDP per Capita of $3,460 as of 2021. A 34% of the country’s economy is estimated to be informal, shaving off much of the potential for economic growth.
15. Uzbekistan
HDI Ranking: 21
GDP Per Capita Ranking: 10
Average Ranking: 15.5
Uzbekistan has a GDP per Capita of $1,983 as of 2021. The country has been underdeveloped due to the Soviet legacy, which prevented it from liberalization even after independence.
For instance, in 1996, Uzbekistan went on a planned-economy drive, with measures like regulation of commodity prices, high taxes, high government spending and establishment of artificial monopolies through favoritism, among others, that created huge unemployment, misery and low economic growth rate.
14. Bhutan
HDI Ranking: 11
GDP Per Capita Ranking: 15
Average Ranking: 13
It would be unfair to characterize Bhutan as backward as other underdeveloped countries, since Bhutan has willfully foregone much of the economic development for environmental conservation.
As part of its Gross National Happiness philosophy, its constitution mandates that 60% of the country’s forest cover is preserved. This has resulted in much of the economic “underdevelopment”, which leaves it far behind many Asian economies.
13. Bangladesh
HDI Ranking: 10
GDP Per Capita Ranking: 12
Average Ranking: 11
Bangladesh is one of the least developed countries in Asia. It has a GDP per Capita of $2,458 as of 2021. The low development is driven, in part, by low urbanization, with only 40% of the country’s population urbanized.
Bangladesh also has one of the biggest informal economies, with 89% of its workforce employed in informal sectors, according to the estimates of Asian Development Bank.
12. Timor-Leste
HDI Ranking: 7
GDP Per Capita Ranking: 14
Average Ranking: 10.5
Timor-Leste is located in Southeast Asia, and it is one of the least developed Asian countries in 2023. Its GDP per Capita, as of 2021, is $2,741, with 60% of the workforce in the country employed in informal sectors, stunting much of its economic-growth potential.
11. Laos
HDI Ranking: 8
GDP Per Capita Ranking: 13
Average Ranking: 10.5
Laos is underdeveloped for several reasons, including political instability and economic dependence on neighbors like Thailand and Vietnam for trade and investment. However, things are changing fast for the country. The World Bank identified Laos as an integral link in the regional value chain.
From 2010 to 2017, Laos’ export revenue from manufactured goods increased from 12% to 17.3%, with the share of electronics and telecom-products export increasing by 35% during the same period. The country remains behind the more developed Asian countries but its outlook is expected to greatly improve by 2030.
