World Development Report 2024:Economic Growth in Middle Income Countries will explore the challenges of economic growth in middle-income countries. Using the World Bank’s income classification, the world currently comprises of 26 low-income, 108 middle-income, and 83 high-income economies. With about 75 percent of the world’s population, middle-income countries now account for about 40 percent of global economic activity, 50 percent of the world’s extremely poor people, and 60 percent of global CO2 emissions.
Between 1990 and 2019, 31 middle-income countries transitioned to high income. Ten of them, such as Hungary and Poland, benefited by joining the European Union—whose economic model is characterized by vigorous trade and capital flows, freer enterprise, and social inclusion—during a period of healthy growth in Europe’s advanced economies. Others such as Kuwait and Saudi Arabia had the good fortune of being endowed with natural resources and timing policy reforms to coincide with high commodity prices. The rest, mostly economies in East Asia such as South Korea and Taiwan, China, grew to high income through difficult land reforms, early investments in education, postponing gratification by saving a lot and keeping imports artificially expensive, and becoming progressively more open to trade and investment relations with advanced economies.
For nations neither extraordinarily fortunate nor fierce, progress through middle income has been slower. The median middle-income economy still has a per capita income less than one-fifth that of the United States. It is understandable why middle-income countries are not satisfied with the status quo. Growth necessitates big changes in the organization of production, the distribution of economic rewards, and the husbandry of natural resources. Middle-income may be the phase of growth when change is most frenetic, making policymaking harder than either in low-income or in high-income economies.
It is not getting any easier. Foreign trade and investment channels are becoming constricted due to geopolitical tensions, the space for government policies has been shrunk by overlapping crises and populist pressures, and climate change is pressuring all countries to radically alter their growth strategies. Even without these headwinds, middle-income countries faced long odds in growing to high income. Geopolitical tensions, domestic divisions, and climate concerns appear to have made it nearly impossible. Middle-income countries will have to make miracles if they want to develop at the pace of economies that grew to high income in better times: they will have to radically transform enterprise, meet the expectations of a restless middle class, and transition to energy sources with much lower emissions intensities than what today’s rich countries utilized when they had middle-income economies.
Fortunately, there have also been major advances in our thinking about economic growth, perhaps none more relevant for middle-income economies than modern Schumpeterian growth theory. With its focus on creative destruction, explicit incorporation of heterogeneity among firms, workers and energy sources, and the recognition of institutional inertia, this body of work provides novel solutions for vexing problems. The WDR will bring these insights to bear on the problems faced by policymakers in middle-income countries.