Washington, August 1, 2024 — A new World Bank study warns that over 100 countries, including major economies like China, India, Brazil, and South Africa, are struggling with the “middle-income trap,” a critical obstacle preventing their advancement to high-income status.
The World Development Report 2024, titled The Middle Income Trap, offers a comprehensive strategy to overcome this challenge.
The report reveals that many nations hit a growth plateau when their GDP per capita reaches approximately 10 percent of U.S. GDP, or around $8,000. This middle-income range, encompassing annual per capita GDP between $1,136 and $13,845, includes 108 countries home to 75 percent of the global population. Despite generating over 40 percent of global GDP, these countries are also responsible for more than 60 percent of carbon emissions and are facing significant hurdles, such as aging populations and rising protectionism.
Indermit Gill, Chief Economist of the World Bank Group, emphasized the urgency of adopting new strategies. “Too many middle-income countries rely on outdated methods to advance. A fresh approach is necessary: initially focusing on investment, then incorporating foreign technologies, and ultimately innovating,” he said.
World bank photo courtesy
The report proposes a “3i strategy” tailored to different stages of economic development. Low-income countries should start with a focus solely on investment. As nations progress to lower-middle-income status, they should integrate foreign technologies (infusion) into their economies. Finally, upper-middle-income countries should advance to a phase of innovation, pushing the global technology frontier.
The report highlights South Korea as a successful model of the 3i strategy. In 1960, South Korea’s GDP per capita was $1,200; by the end of 2023, it had soared to $33,000. The country initially emphasized investment, later adopted foreign technologies, and eventually became a global leader in innovation, exemplified by Samsung’s transformation from a local noodle-maker to a major smartphone manufacturer.
Poland and Chile are other examples of successful implementation of the 3i strategy. Poland’s emphasis on technology from Western Europe and Chile’s adaptation of Norwegian salmon farming technologies illustrate effective approaches to overcoming the middle-income trap.
Somik V. Lall, Director of the World Development Report, noted the challenges ahead but also the potential for progress. “Success will depend on balancing creation, preservation, and destruction in reform processes. Countries must embrace openness and reform to achieve sustained growth.” he said
This comprehensive roadmap aims to guide developing nations in overcoming the middle-income trap and achieving high-income status in the coming decades