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World Development Report 2024: Middle-Income Trap
Context:
World Bank report “World Development Report 2024” reveals that over 100 countries, including China, India, Brazil, and South Africa, are facing significant challenges in advancing to high-income status due to the “middle-income trap.”
Middle-Income Trap:
- In 2007, the World Bank’s report “An East Asian Renaissance: Ideas for Economic Growth” introduced the term “middle-income trap.”Middle-income trap happens when a country is stuck at a middle-income level and can’t grow further because it fails to adapt its economy.
- Middle-income trap typically occurs when countries reach about 10% of annual U.S. GDP per capita, approximately $8,000 today.
- Since 1990, only 34 middle-income countries have transitioned to high-income status, with many benefiting from European Union’s integration or oil discoveries.
Current Status of Middle-Income Countries:
- As of the end of 2023, 108 countries were classified as middle-income, with GDP per capita ranging from $1,136 to $13,845.
- These nations are home to around six billion people, representing 75% of the global population, and contain two-thirds of the world’s extreme poor.
- They contribute to over 40% of global GDP and more than 60% of carbon emissions, while facing challenges such as: Ageing populations, rising protectionism, and the need for an accelerated energy transition.
The 3i Strategy for Economic Advancement:
- The report proposes a “3i strategy” to help countries escape the middle-income trap:
- Investment (1i Phase): Low-income countries should focus on increasing investment to stimulate growth.
- Infusion (2i Phase): Once lower-middle-income status is achieved, countries should adopt foreign technologies and spread them across their economies.
- Innovation (3i Phase): At the upper-middle-income level, countries should innovate and develop their own technologies, moving beyond merely adopting foreign ideas.
- World Bank emphasises that the path to high-income status is fraught with challenges, but progress is possible through a balanced approach that includes- 1) Investment, technology infusion, and innovation. 2)It states that countries that resist necessary reforms may miss out on the benefits of sustained economic growth.
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Examples of Successful Implementation:
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Economic Survey 2023-24: India’s Economic Trajectory and Development Finance Utilisation:
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