The World Bank announced on Thursday that over 100 countries risk falling into a “middle-income trap” unless they implement bold economic growth strategies.
Countries such as South Africa, India, Brazil, and China face significant challenges that could impede their progress toward becoming high-income nations in the coming decades.
The World Development Report 2024: The Middle Income Trap reveals that as countries become wealthier, they often encounter a “trap” when their GDP per capita reaches approximately 10 percent of the annual US GDP per person.
Somik Lall, Senior Advisor to the World Bank Group Chief Economist and Director of the report, noted that the outlook for these countries is bleak. “Over the past 30 years, only 34 middle-income economies have successfully transitioned to high-income status, while others remain trapped,” he said.
The study highlights that middle-income countries face tougher challenges compared to their predecessors, including rapidly aging populations, increasing protectionism in advanced economies, and the urgent need for faster energy transitions. It presents a “comprehensive roadmap” to help developing countries escape the “middle-income trap” and achieve high-income status.
Lall suggests that countries should abandon outdated methods and adopt a “3i strategy” involving a phased approach with progressively sophisticated policies tailored to their development stage.
Low-income countries should focus initially on investment policies (the 1i phase). As the benefits of investment diminish, they should then shift to “infusion,” incorporating global ideas and integrating them into local economies.
For upper-middle-income countries, the final phase involves “innovation,” where they strive to become global leaders and producers.
Lall emphasized that success will depend on how well societies manage the balance between creation, preservation, and destruction. “Countries that avoid the discomfort of reforms and openness will miss out on the benefits of sustained growth,” he concluded.