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Challenges Facing Middle-Income Countries
The ‘World Development Report 2024’ highlights the significant challenges middle-income countries face as they strive to transition to high-income status. Rising debt, aging populations, protectionism in advanced economies, and the pressures of accelerating the energy transition are key obstacles.
Current Status and Aspirations
There are currently 108 countries classified as middle-income, many of which aspire to reach high-income status within the next two to three decades. The report provides insights into how these countries can overcome the “middle-income trap.”
Successful Transitions
The report notes that a few economies have successfully transitioned from middle to high-income status by:
- Disciplining powerful incumbents to foster enterprise
- Rewarding merit to develop talent
- Capitalizing on crises to implement policy changes
Strategy for Middle-Income Countries
The World Bank emphasizes the need for a similar approach, given that middle-income countries generally have smaller pools of skilled talent compared to advanced economies and are less efficient in utilizing these talents.
Opportunities for Reform
Populism and climate change present opportunities for these countries to dismantle outdated systems and create space for new, more effective arrangements.
The “3i Strategy”
To escape the middle-income trap, the report proposes a “3i strategy”:
- Initial Phase: Implement foundational reforms and policies.
- Investment and Infusion Phase: Once a country reaches lower-middle-income status, it should focus on adopting and spreading advanced technologies across the economy.
- Innovation Phase: Develop and implement innovative solutions to sustain growth and development.
The strategy involves adopting a sequenced and progressively sophisticated mix of policies tailored to each country’s development stage.
