Over 100 countries face significant challenges
More than 100 countries, including major economies such as China, India, Brazil, and South Africa, are facing significant challenges that may prevent them from reaching high-income status in the coming decades.
According to the World Bank’s World Development Report 2024: The Middle Income Trap, these countries are struggling to break free from the so-called “middle-income trap,” where economic progress stagnates after reaching a certain threshold.
The report, which draws on data and insights from the last 50 years, finds that nations often hit this economic “trap” when their per capita GDP reaches about 10% of the U.S. level, roughly $8,000 per person. Only 34 middle-income economies have successfully transitioned to high-income status since 1990.
A significant portion of these countries either benefitted from European Union integration or discovered previously untapped oil reserves.
At the close of 2023, a total of 108 countries were classified as middle-income, with annual GDP per capita ranging from $1,136 to $13,845.
These nations, home to six billion people (75% of the global population), contribute over 40% of global GDP and account for more than 60% of carbon emissions. Alarmingly, they also face a disproportionate share of the world’s poverty, with two-thirds of people living in extreme poverty residing in middle-income nations.
Indermit Gill, Chief Economist of the World Bank Group, emphasized the importance of these countries in determining the future of global prosperity. “The battle for global economic prosperity will largely be won or lost in middle-income countries,” Gill said. However, he noted that many of these countries rely on outdated strategies for advancing to high-income status, such as over-reliance on investment or prematurely shifting to innovation.
The World Bank report suggests a new approach, the “3i strategy”—Investment, Infusion, and Innovation—to guide countries at different stages of development. In the early stages, countries should focus primarily on investment (the 1i phase). As they reach lower-middle-income levels, they should incorporate technology transfer and infuse these technologies across their economies (the 2i phase). Finally, at the upper-middle-income level, countries should balance investment, infusion, and innovation (the 3i phase), pushing the frontiers of technology rather than merely borrowing ideas from abroad.
South Korea is cited as a successful example of the 3i strategy in action. In 1960, its per capita income was only $1,200, but by the end of 2023, it had surged to $33,000. The report highlights how South Korea’s initial focus on public and private investment evolved into policies that encouraged domestic firms to adopt foreign technologies. By the 1970s, companies like Samsung had transformed from simple manufacturers into global innovators, driving demand for skilled professionals and fostering innovation in the broader economy. The report notes that while the journey to high-income status is challenging, progress is achievable. Somik V. Lall, Director of the 2024 World Development Report, emphasized the need for countries to embrace reforms and openness to realize the benefits of sustained economic growth. Other nations, such as Poland and Chile, have successfully followed similar paths by raising productivity and leveraging foreign technologies to drive innovation and economic progress.
