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.
