“Middle-income countries are home to three out of every four people — and nearly two-thirds of those who struggle in extreme poverty. They are responsible for 40 per cent of the world’s total economic output — and nearly two-thirds of global carbon emissions. In short, the global effort to end extreme poverty and spread prosperity and livability will largely be won or lost in these countries.” These words by Indermit Gill, the World Bank’s chief economist, appear in the World Development Report 2024, entitled “The Middle-Income Trap”, which is the idea that economies tend to get stuck on the road to the high incomes of the US, Canada, Europe, Japan, South Korea, Australia and quite a few others.
Is there really such a trap? A 2024 IMF working paper by Patrick Imam and Jonathan Temple, “At the Threshold: The Increasing Relevance of the Middle-Income Trap”, is sceptical: “Looking in more detail at the individual transitions?.?.?.?there is little evidence of a distinct middle-income trap, as opposed to limited mobility more generally.” A 2021 paper by Dev Patel, Justin Sandefur and Arvind Subramanian, “The New Era of Unconditional Convergence”, concluded more bluntly that “debates about a ‘middle-income trap’?.?.?.?appear anachronistic: middle-income countries have exhibited higher growth rates than all others since the mid-1980s”.
Nonetheless, closing gaps in average prosperity between rich and poorer countries is painfully slow and hard. The likely persistence of these gaps matters for human welfare, political stability and our ability to tackle global challenges, notably climate change. Not least, they make the idea that the latter will be managed by “degrowth” absurd. Which of these middle-income countries will accept such stagnation? Will India?