> “Middle-income countries are home to three out of every four people — and nearly two-thirds of those who struggle in extreme poverty. They are responsible for 40 per cent of the world’s total economic output — and nearly two-thirds of global carbon emissions. In short, the global effort to end extreme poverty and spread prosperity and livability will largely be won or lost in these countries.” These words by Indermit Gill, the World Bank’s chief economist, appear in the World Development Report 2024, entitled “The Middle-Income Trap”, which is the idea that economies tend to get stuck on the road to the high incomes of the US, Canada, Europe, Japan, South Korea, Australia and quite a few others.
> Is there really such a trap? A 2024 IMF working paper by Patrick Imam and Jonathan Temple, [“At the Threshold: The Increasing Relevance of the Middle-Income Trap”](https://www.imf.org/en/Publications/WP/Issues/2024/04/26/At-the-Threshold-The-Increasing-Relevance-of-the-Middle-Income-Trap-548369), is sceptical: “Looking in more detail at the individual transitions . . . there is little evidence of a distinct middle-income trap, as opposed to limited mobility more generally.” A 2021 paper by Dev Patel, Justin Sandefur and Arvind Subramanian, “The New Era of Unconditional Convergence”, concluded more bluntly that “debates about a ‘middle-income trap’ . . . appear anachronistic: middle-income countries have exhibited higher growth rates than all others since the mid-1980s”.
> Nonetheless, closing gaps in average prosperity between rich and poorer countries is painfully slow and hard. The likely persistence of these gaps matters for human welfare, political stability and our ability to tackle global challenges, notably climate change. Not least, they make the idea that the latter will be managed by “degrowth” absurd. Which of these middle-income countries will accept such stagnation? Will India?
> As the WDR stresses, the “ambition of the 108 middle-income countries with incomes per capita of between US$1,136 and US$13,845 is to reach high-income status within the next two or three decades. When assessed against this goal, the record is dismal: the total population of the 34 middle-income economies that transitioned to high-income status since 1990 is less than 250 million, the population of Pakistan.”
> This record is worrying, whether or not the notion of a “trap” is statistically significant. Moreover, adds the WDR, the path that works for low-income countries will not work for more advanced ones. It notes, crucially, that the gap between GDP per worker in middle-income countries and the US is far greater than the gap in availability of physical and human capital. Thus, the principal failure of middle-income countries lies not in accumulating too little capital, but in using it so poorly.
> The idea here is that the focus must shift from investment per se to infusion of new ideas available abroad, and then on to domestic innovation. What is needed, in sum, is development of a more sophisticated economy. That depends on the acquisition and development of knowhow. Infusion depends on the supply of skilled workers (engineers, scientists, managers) and openness to ideas from elsewhere (notably through direct investment and trade). Korea has had dramatic success with these approaches. Its focus on exports was particularly significant in facilitating infusion. The EU has similarly promoted infusion in Poland and other countries that became members recently. For innovation, exchanges of human capital are particularly important, including via education and work abroad. The resulting diasporas are a huge potential asset. Innovation also depends on access to global markets.
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> “Middle-income countries are home to three out of every four people — and nearly two-thirds of those who struggle in extreme poverty. They are responsible for 40 per cent of the world’s total economic output — and nearly two-thirds of global carbon emissions. In short, the global effort to end extreme poverty and spread prosperity and livability will largely be won or lost in these countries.” These words by Indermit Gill, the World Bank’s chief economist, appear in the World Development Report 2024, entitled “The Middle-Income Trap”, which is the idea that economies tend to get stuck on the road to the high incomes of the US, Canada, Europe, Japan, South Korea, Australia and quite a few others.
> Is there really such a trap? A 2024 IMF working paper by Patrick Imam and Jonathan Temple, [“At the Threshold: The Increasing Relevance of the Middle-Income Trap”](https://www.imf.org/en/Publications/WP/Issues/2024/04/26/At-the-Threshold-The-Increasing-Relevance-of-the-Middle-Income-Trap-548369), is sceptical: “Looking in more detail at the individual transitions . . . there is little evidence of a distinct middle-income trap, as opposed to limited mobility more generally.” A 2021 paper by Dev Patel, Justin Sandefur and Arvind Subramanian, “The New Era of Unconditional Convergence”, concluded more bluntly that “debates about a ‘middle-income trap’ . . . appear anachronistic: middle-income countries have exhibited higher growth rates than all others since the mid-1980s”.
> Nonetheless, closing gaps in average prosperity between rich and poorer countries is painfully slow and hard. The likely persistence of these gaps matters for human welfare, political stability and our ability to tackle global challenges, notably climate change. Not least, they make the idea that the latter will be managed by “degrowth” absurd. Which of these middle-income countries will accept such stagnation? Will India?
> As the WDR stresses, the “ambition of the 108 middle-income countries with incomes per capita of between US$1,136 and US$13,845 is to reach high-income status within the next two or three decades. When assessed against this goal, the record is dismal: the total population of the 34 middle-income economies that transitioned to high-income status since 1990 is less than 250 million, the population of Pakistan.”
> This record is worrying, whether or not the notion of a “trap” is statistically significant. Moreover, adds the WDR, the path that works for low-income countries will not work for more advanced ones. It notes, crucially, that the gap between GDP per worker in middle-income countries and the US is far greater than the gap in availability of physical and human capital. Thus, the principal failure of middle-income countries lies not in accumulating too little capital, but in using it so poorly.
> The idea here is that the focus must shift from investment per se to infusion of new ideas available abroad, and then on to domestic innovation. What is needed, in sum, is development of a more sophisticated economy. That depends on the acquisition and development of knowhow. Infusion depends on the supply of skilled workers (engineers, scientists, managers) and openness to ideas from elsewhere (notably through direct investment and trade). Korea has had dramatic success with these approaches. Its focus on exports was particularly significant in facilitating infusion. The EU has similarly promoted infusion in Poland and other countries that became members recently. For innovation, exchanges of human capital are particularly important, including via education and work abroad. The resulting diasporas are a huge potential asset. Innovation also depends on access to global markets.
!ping DEV-ECON&ECON