The Development Gap Ratio: A Novel Framework for Measuring Structural Inequality Between Nations

This study introduces the Development Gap Ratio (DGR)—a novel inequality measure that reconceptualizes between-country inequality as disparities in development capacity rather than merely differences in observed income levels. The DGR quantifies the distance between a country's actual GDP per capita and its potential optimal level given its fundamentals, revealing structural dimensions of global inequality that conventional metrics overlook. Using gradient boosting techniques and analyzing 58 developing countries (2003-2022), we establish the DGR's validity as a meaningful economic indicator and demonstrate how it reveals four distinct development regimes with varying inequality implications. Our findings show that countries with similar income levels often achieve dramatically different percentages of their potential GDP—some realizing less than 50\% of their economic potential while others exceed 100\%—revealing profound structural inequality in development capacity. By systematically comparing our measure with traditional inequality metrics, we show that the DGR captures a dimension of between-country inequality hidden in conventional analyses, illuminating systematic differences in how effectively nations convert their fundamental characteristics into economic achievements. This reconceptualization challenges orthodox assumptions about the dynamics of global inequality and provides policy makers with a more nuanced framework for addressing structural barriers that perpetuate economic disparities between nations.