The World Bank’s latest World Development Report 2024 highlights concerns over the middle-income trap for 108 countries, including India and China.
Key Highlights:
- Middle-Income Trap: Countries typically encounter a growth stagnation when their GDP per capita reaches approximately 10% of annual U.S. GDP per person, roughly $8,000. This stagnation prevents further progress to high-income status.
- Historical Data: Since 1990, only 34 middle-income countries have transitioned to high-income status. Over a third of these nations either joined the European Union or benefited from significant oil discoveries.
- Current Status: At the end of 2023, 108 countries were classified as middle-income, hosting 75% of the global population and generating over 40% of global GDP. These nations face significant challenges, including aging populations, rising protectionism, and the urgent need for energy transitions.
- India’s Position: India, classified as a lower-middle-income country since 2007, has a current GNI per capita of $2,540. At current growth rates, it will take India 75 years to achieve one-quarter of U.S. income per capita.
Key Recommendations:
- 3i Strategy:
- Investment: Initial focus on boosting investment.
- Infusion: Incorporate new technologies from abroad to enhance productivity.
- Innovation: Transition to a phase where countries push the boundaries of technological progress, rather than merely adopting existing technologies.
- Policy Measures:
- Stimulate Business Dynamism: Reward firms that add value to encourage economic growth and deepen capital markets.
- Enhance Social Mobility: Provide equal opportunities for women, minorities, and disadvantaged groups. For example, removing barriers for women entrepreneurs in India could significantly boost real income.
- Economic Efficiency: Reflect environmental costs in energy prices to promote sustainability and efficient resource use.
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Frequently Asked Question:
What is the middle-income trap and when does it typically occur?
The middle-income trap occurs when a country’s GDP per capita reaches around $8,000, causing growth stagnation and preventing progress to high-income status.
How many middle-income countries have transitioned to high-income status since 1990?
Only 34 middle-income countries have transitioned to high-income status since 1990.
How many countries are currently classified as middle-income?
At the end of 2023, 108 countries were classified as middle-income.
What are some challenges faced by middle-income countries?
Middle-income countries face challenges such as aging populations, rising protectionism, and the urgent need for energy.
What percentage of the global population is hosted by middle-income countries?
Middle-income countries host 75% of the global population.