More than 100 countries including China, India, Brazil, and South Africa—face serious obstacles that could hinder their efforts to become high-income countries in the next few decades, according to a new World Bank study that provides the first comprehensive roadmap to enable developing countries to escape the “middle-income trap.”
“The Middle Income Trap finds that as countries grow wealthier, they usually hit a “trap” at about 10% of annual U.S. GDP per person—the equivalent of $8,000 today,” part of the statement reads from the World Bank.
Since 1990, only 34 middle-income economies have managed to shift to high-income status and more than a third of them were either beneficiaries of integration into the European Union, or of previously undiscovered oil.
At the end of 2023, 108 countries were classified as middle-income by the World Bank each with annual GDP per capita in the range of $1,136 to $13,845.
The classified countries are home to six billion people representing 75 percent of the global population, with two out of every three people living in extreme poverty.
“They generate more than 40% of global GDP and more than 60% of carbon emissions. And they face far bigger challenges than their predecessors in escaping the middle-income trap,” the statement reads from the World Bank.
“The battle for global economic prosperity will largely be won or lost in middle-income countries,” said Indermit Gill, Chief Economist of the World Bank Group and Senior Vice President for Development Economics.
“But too many of these countries rely on outmoded strategies to become advanced economies. They depend just on investment for too long or they switch prematurely to innovation,” said the Chief Economist of the World Bank Group.
The World Bank report proposes a “3i strategy” for countries to reach high-income status.
Depending on their stage of development, all countries need to adopt a sequenced and progressively more sophisticated mix of policies.
“Low-income countries can focus solely on policies designed to increase investment the 1i phase. But once they attain lower-middle-income status, they need to shift gears and expand the policy mix to the 2i phase: investment and infusion, which consists of adopting technologies from abroad and spreading them across the economy,” part of the statement reads.
“The road ahead won’t be easy, but it’s possible for countries to make progress even in today’s challenging conditions,” said Somik V. Lall, Director of the 2024 World Development Report.
“Success will depend on how well societies balance the forces of creation, preservation, and destruction. Countries that try to spare their citizenry the pains associated with reforms and openness will miss out on the gains that come from sustained growth,” said Somik.
Source: World Bank