A new study by the World Bank highlights a significant challenge facing over 100 developing nations, including major economies like China, India, Brazil, and South Africa. These countries, which are striving to reach high-income status, are at risk of being caught in the “middle-income trap,” a phase where economic growth stalls as countries reach a certain income level. The World Development Report 2024: The Middle-Income Trap provides the first comprehensive roadmap to help these countries navigate this challenge and achieve sustainable, high-quality growth.
According to the report, countries typically encounter the middle-income trap when their per capita GDP reaches about 10% of the annual U.S. GDP per person, roughly $8,000 in today’s terms. This income level falls within the World Bank’s classification of “middle-income” countries. Since 1990, only 34 middle-income economies have successfully transitioned to high-income status. Notably, more than a third of these successful transitions were due to either integration into the European Union or the discovery of significant natural resources like oil.
At the close of 2023, 108 countries were classified as middle-income, with annual GDP per capita ranging from $1,136 to $13,845. These nations are home to six billion people—75% of the global population—and account for two-thirds of the world’s extreme poverty. Despite generating over 40% of global GDP and contributing more than 60% of carbon emissions, these countries face substantial challenges in overcoming the middle-income trap, including rapidly aging populations, rising protectionism in advanced economies, and the urgent need to accelerate the energy transition.
The World Bank’s report proposes a strategic approach, known as the “3i strategy,” to help countries overcome the middle-income trap and achieve high-income status. This strategy outlines a sequenced and progressively sophisticated mix of policies that countries should adopt based on their stage of development.
The report introduces a “3i strategy” to help countries achieve high-income status, requiring a phased and increasingly sophisticated policy mix. In the initial 1i phase, low-income countries focus on boosting investment. As they progress to lower-middle-income status, they enter the 2i phase, which adds the adoption and diffusion of foreign technologies. Finally, in the 3i phase at the upper-middle-income level, countries must integrate innovation, not just borrowing from global technological frontiers but actively advancing them.
The World Development Report 2024 emphasizes that escaping the middle-income trap requires a nuanced and flexible approach tailored to each country’s unique circumstances. By following the 3i strategy, countries can gradually build the capabilities needed to transition to high-income status, ensuring sustainable and inclusive growth. As these countries implement the recommended policies, they will be better equipped to tackle the complex challenges they face—such as demographic shifts, global economic changes, and environmental sustainability. The World Bank’s roadmap provides a valuable guide for policymakers as they work to secure a prosperous future for their nations.
For more detailed insights and the complete roadmap, you can access the full World Development Report 2024: The Middle-Income Trap on the World Bank’s official website.
