Economic development theorists and practitioners are increasingly using the term “middle-income trap” to describe the situation where developing economies’ convergence to the development frontier comes to a halt once their income per capita reaches a middle-income level. The term is ambiguous: is it a halt in convergence or slowdown in growth, and what exactly is the definition of middle-income? Nevertheless, the concept has been successfully used to create a scare that developing countries are more likely to run out of breath or even give up the race in the middle of the track than to continue catching up with the leading economies. Eichengreen et al. and several IMF economists are among those who provide empirical evidence that the “middle-income trap” is real and that developing countries do get stuck at some low-level equilibrium.
Middle Income Countries
CORRUPTION: The Unrecognized Threat to International Security
Working Group on Corruption and Security, Carnegie Endowment for International Peace
Systemic corruption has an unrecognized bearing on international security. Policymakers and private companies often pay insufficient attention to corruption when deciding what foreign and defense policies to pursue or where to invest. Greater understanding of the nature of acute corruption and its impact on global security would contribute to a better assessment of costs and benefits and therefore to improved policy and practice.
The role of Africa's fourth generation
Post-colonial Africa is in its fourth generation. Over the past few decades, each generation has had a specific role to play: the first generation fought for, and gained, independence from their colonisers. The second generation, marked by greed and corruption, largely destroyed all that the first had fought for. The third was tasked with cleaning up the mess made by the second. So where does that leave us – Africa's fourth post-independence generation? It is up to us to build large-scale prosperity for Africa for the first time in its post-colonial history. Although much remains to be done, the second generation's mess has largely been cleaned up and Africa is the most stable it has been in decades. Inter- and intra-state conflict is declining and trade is booming. Africa's 5 % annual GDP growth is four times that of the EU, and between 2011 and 2015, African countries will account for seven of the ten fastest-growing economies in the world.
The Western Balkans Case
The Western Balkans have a lot going for them: ideal location next to the world’s largest economic bloc, a well-educated workforce, relatively low wages and decent infrastructure. FDI and investors should be rushing in … but are they?
Southeast Europe is the next frontier of EU expansion and includes six countries: Albania, Bosnia & Herzegovina, Kosovo, Macedonia, Montenegro and Serbia. These countries have a lot in common and an equal amount of differences. They are all relatively small open economies, with a growth strategy premised on deeper international integration. Some, especially Macedonia, are more advanced in attracting international investors but as a whole, the region seems to be stuck in a classical Middle Income Trap: they are too rich to compete on low-cost manufacturing but are too poor to be global innovators. After a strong recovery following war and conflicts in the 1990s, the growth momentum has stalled over the last five years and the region has been particularly vulnerable to external shocks.
When the negotiations for IDA17 were wrapped up in December, there was great relief that IDA deputies were supportive of an IDA expansion despite their own significant budget difficulties. As part of that package, the World Bank Group itself pledged to give IDA $3 billion from profits.
This was a generous gesture by the World Bank (albeit a drop in the bucket of total aid), but how good was it for the global development effort? Consider the following—net disbursements of official grants and concessional loans (the category where IDA flows appear) have expanded from $39 billion per year in the 1980s (in constant 2005 dollars) to $85 billion in 2010 and 2011. In contrast, official non-concessional lending (the category where IBRD and IFC flows appear) has stayed steady. The latter was $15 billion in the 1980s and $22 billion in 2010/11. This picture is even more striking when considering the amounts in terms of recipient GDP. Grants and concessional flows to low income countries have gone from 3% of their GDP in the 1980s to 13% today, while non-concessional flows to lower middle-income countries (excluding India and China) have gone from 0.7% to 0.3% of their GDP. In fact, from 2000 to 2009, non-concessional flows to lower middle- income countries (and to developing countries as a whole) were negative, implying that developing countries repaid more to official development agencies than they received in gross disbursements.
I approached Lant Pritchett’s new book ‘The Rebirth of Education’ with glee and trepidation. Glee because Lant is one of the smartest, wittiest and best writers and thinkers on development. Trepidation because this issue is an intellectual minefield of Somme-like proportions (remember the epic Kevin Watkins v Justin Sandefur battle?). And sure enough, Lant took me into all kinds of uncomfortable places. Allow me to share my confusion.
First the book. Based on a data-tastic summary of a lot of research and case studies, Lant argues, in the words of the book’s subtitle, that ‘Schooling Ain’t Learning’:
- In India less than half of children surveyed in grade 5 could read a story for second graders (and over 1 in 4 could not read a simple sentence), and only slightly more than half could do subtraction. Results over several years were getting worse, not better. See graphic for more examples.
- In Tanzania over 65 percent of students who sat the 2012 examination for secondary school (Form IV) completers failed, with the worst possible results.
- A majority of 15 year-olds in low- and middle-income countries have only learned enough to reach the bottom 5 percent of their peers in high-income countries.
With Aaron Flaeen and Saurabh Mishra
Many developing countries have successfully made the transition from low-income to middle-income status, thanks to rapid economic growth, but have subsequently got stuck in a middle income trap. A great deal of research has been done on what explains much faster growth in the developing world than in the developed world (Acemoglu et al 2011; Baldwin 2011; Commission on Growth and Development 2008; Rodrik 2013; UNIDO 2011). But little is known about why so few countries succeed in making the transition from middle-income to high-income status (The Economist, 2013). This is a worrying trend and an issue of major concern, especially because the majority of poor people now live not in low-income but in middle-income countries (Chandy and Gertz, 2011; Sumner and Kanbur, 2011). So what is a middle income trap? What should policy makers do?
We have examined these questions in the context of Malaysia, whose structural transformation from low to middle income has made it one of the most prominent manufacturing exporters’ in the world. However, in a competitive global economy, like many other middle-income economies, it is sandwiched between low-wage economies on one side and more innovative advanced economies on the other.
Find a good longread on development? Tweet it to @worldbank with the hashtag #longreads.
The Economist’s much tweeted-about "Geography of Poverty" highlights a "poverty paradox" – that more of the world’s extremely poor people now live in middle-income countries rather than in the poorest ones. The finding comes from a new paper by Andy Sumner of the Institute of Development Studies. But the situation could change by 2025 if the number of poor people grows in fragile states, say Homi Kharas of the Brookings Institution and Andrew Rogerson of the Overseas Development Institute in the Economist. Veteran journalist Katherine Boo, author of a new book on life in a Mumbai slum, discusses the challenge of portraying poor people as individuals in the media, in an interview with Guernica in "Reporting Poverty." Big Chinese cities are starting to adopt measures with the potential to ease pollution and "improve the long-term quality of Chinese growth," according to a story in the New York Times. "A Chinese City Moves to Limit New Cars" describes, among other things, restrictions in Guangzhou expected to cut the number of cars on city streets in half. And finally, imagine vicariously smashing mosquitoes, riding a motorbike through the streets of Lagos, or remembering life in a rural village. The BBC writes about a Nigerian video game-maker who believes Africans and non-Africans alike may want to tap into the African experience through games.