The average per capita income in the bloc has not exceeded $8,000 for decades.
by Laura Delle Femmine – El País – 02 Aug 2024*
More than a hundred countries have been stagnating for years without their per capita income making the leap to the next step. These are the 108 developing economies that, according to a report published yesterday by the World Bank, were still mired in the so-called middle-income trap at the end of 2023: a kind of limbo in which countries whose per capita GDP advances up to a certain threshold – set at 10% of the same indicator in the United States (equivalent to around 8,000 dollars a year, or 7,400 euros at the current exchange rate) – and then exhaust their growth. This is not a trivial issue, as these territories, which include giants such as China, India and Brazil, account for 75% of the world’s population, 40% of economic activity and 60% of carbon emissions. For this reason, the multilateral institution considers them “crucial for global prosperity in the long term” and proposes a roadmap for them to navigate towards the high-income category.
The concept of the middle-income trap was coined almost two decades ago by economists at the World Bank, who observed how developing countries’ per capita GDP often hits a glass ceiling of around one-tenth of US per capita income when it leaves the low-income zone. The Washington-based institution considers middle-income economies to be those with a per capita income in the range of 1,136 to 13,845 dollars (between 1,050 and 12,800 euros).
Getting out of this limbo is not easy and the numbers bear this out: since 1990, only 34 economies have managed to make the leap to join the ranks of high-income countries and, since the 1970s, the average income of the bloc analysed has stagnated and has never exceeded 10% of that of the United States. “Income levels in sub-Saharan Africa, where more than half of the population lives in middle-income countries, are the same as they were a decade ago. Economic growth rates in middle-income countries have been falling and are expected to grow by only 4 per cent on average in the 2020s, down from 5 per cent in 2010 and 6 per cent in 2000,” the agency says.
However, there are countries that have achieved this. South Korea is one of the most notable examples: in 1960 it had a per capita income of 1,200 dollars, which by the end of last year had grown to 33,000. The Asian country achieved this result thanks to a mix of public investment and private capital, which from the 1970s onwards resulted in an industrial policy that encouraged companies to bring in technology from abroad. Among the companies most receptive to these measures is the now world-renowned Samsung, which went from noodle maker to one of the world’s most innovative companies.
China aims to reach the per capita income of high-income countries by 2035. In India, the target date is 2047; and 2045 for Vietnam. South Africa plans for its per capita income to reach $7,000, up from $2,800 in 2010, by 2030. Middle-income countries are also those where the majority of the population lives in extreme poverty: more than 60% of the total, compared to 36.5% in low-income economies, which account for 9% of the world’s population and 0.6% of GDP. The advanced economies, on the other hand, account for only 15.7% of the global population, but 60.8% of world GDP.
Faced with this paralysis, the World Bank presents in its World Development Report 2024 not only a diagnosis of the situation; it also offers a strategy for these economies to become part of the high-income countries by becoming more “sophisticated”. The recipe involves a double transition: encouraging investment when the level of income is still low and then combining it with technologies imported from abroad, promoting their penetration in all activities and, from there, complying with the second transition through the leap to in-house innovation. A transition in which developing countries often fail.
*Automatically translated from Spanish