The World Bank stated in its World Development Report that the lesson learned over the previous fifty years was that as nations became wealthier, they fell into a “trap” where their average per capita income was only 10% of the US level, or $8,000 (£6,261).
According to the World Bank, more than 100 nations – including China, India, Brazil and South Africa – run the risk of falling into a “middle-income trap” if they don’t implement drastic economic growth plans.
As per the Washington-based development organization located in Washington, unless emerging market countries reduced their reliance on investment to boost growth, they would find it difficult to catch up to US living standards.
The World Bank stated in its World Development Report that the lesson learned over the previous fifty years was that as nations became wealthier, they fell into a “trap” where their average per capita income was only 10% of the US level, or $8,000 (£6,261).
Just 34 middle-income economies have become high-income since 1990; nearly one-third of these have done so as a result of either oil that hasn’t been discovered yet or admission into the European Union.
The senior economist of the World Bank, Indermit Gill, estimated that, given the current trends, it would take China 10 years and India 75 years to reach a per capita income of 25% of that in the US.
“The battle for global economic prosperity will largely be won or lost in middle-income countries,” Gill said. “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.
“A fresh approach is needed: first focus on investment; then add an emphasis on the infusion of new technologies from abroad; and, finally, adopt a three-pronged strategy that balances investment, infusion, and innovation. With growing demographic, ecological and geopolitical pressures, there is no room for error.”
By the end of 2023, 108 nations with yearly per capita incomes between $1,136 and $13,845 were categorized as middle-income by the World Bank.
Six billion people, or 75% of the world’s population, live in middle-income countries, while two out of every three are extremely poor. More than 60% of carbon emissions came from them, they produced more than 40% of the world’s gross domestic product, and they faced greater obstacles than their forebears in breaking free of the middle-income trap, including rapidly ageing populations, an increase in protectionism in developed economies, and the need to expedite the energy transition.
According to Gill, it would be difficult for nations to escape the middle-income trap.
“We are not naïve enough to think this will be easy. Middle-income countries will have to work miracles – not only to lift themselves up to high-income status but also to shift away from carbon-intensive growth paths that will lead to environmental ruin.”
For each country, the World Bank suggested a “3i strategy” based on the level of development. Low-income nations might concentrate only on measures meant to boost investment – the so-called 1i phase. They had to change course and broaden the policy mix in the 2i phase – investment and infusion – after they attained lower-middle-income status.
This required importing foreign technologies and implementing them throughout the economy. Countries in the upper-middle income level ought to change course once more and focus on the last three Is: innovation, infusion, and investment.
According to the research, South Korea exemplifies the 3i strategy in each of its three phases. Its per capita income was only $1,200 in 1960. By 2023’s end, that figure has increased to $33,000. South Korea started with a straightforward set of policies to promote both public and private investment.
In the 1970s, that changed to an industrial policy that pushed local companies to use imported technology and advanced production techniques. The Korean businesses answered.
Formerly a manufacturer of noodles, Samsung started producing TVs for local and international markets. It did this by obtaining technology licences from NEC and Sanyo, two Japanese corporations. The need for engineers, managers, and other qualified workers increased as a result of Samsung’s success. In response, the government of South Korea took action.
The Ministry of Education gave public institutions more funding and established goals to assist them in acquiring the new skill sets that local businesses are requesting. Samsung is currently one of the two biggest smartphone manufacturers in the world and a global pioneer in and of itself.
Similar courses were taken by other nations, such as Chile and Poland. Poland concentrated on increasing production through the adoption of Western European technologies. Chile promoted international technology transfer and leveraged it to spur homegrown innovation. One of the greatest achievements was bringing Norwegian salmon farming techniques to the Chilean environment, which helped the country become a major salmon exporter.