Today's Edition
SULTAN KHALIFA ALRUBAEI (ABU DHABI)
The author is a Senior researcher/ Deputy Head of Research Sector at TRENDS Research & Advisory
Nations prioritise economic growth in their annual plans to improve citizens’ quality of life and provide necessary employment opportunities for their human capital.
However, they often face local and global crises that can slow down the economy, leading to a decrease in per capita GDP growth.
The relationship between economic growth and per capita income is a key indicator of a country’s economic health.
When economic growth matches population growth, the situation is considered ideal, as the economy can bring about positive changes in economic and social levels.
On the other hand, many countries struggle to accelerate growth or do so at rates insufficient to achieve sustainable development, stability, and prosperity for their citizens.
According to the World Bank’s classification of global economies by income, there are four groups: low-income countries, lower-middle-income countries, upper-middle-income countries, and high-income countries.
It is not only low-income countries that struggle; middle-income countries also face challenges.
These countries, with a total population of around six billion people and representing 40 percent of global output, face difficulties in achieving their ambitious goals of reaching high-income status.
The obstacles include rising debt and increasing protectionism in advanced economies.
The slowdown in economic growth in middle-income countries is often observed when per capita income reaches 10 percent of that in the United States, which is about $8,000.
After achieving significant growth as low-income countries, they transition to middle-income status but struggle to make significant progress in their economic and social development.
This category includes 108 developing countries, such as China, India, Brazil, and South Africa, with an annual per capita income ranging between $1,136 and $13,845.
Middle-income countries implement advanced strategies to catch up with developed economies but need to focus on investment and leveraging technology.
They face increasing challenges that hinder sustainable growth because average growth in the last two decades has declined due to geopolitical tensions, protectionism, climate change, the lack of an environment conducive to innovation, research and development, and an over-reliance on raw material exports.
As a result, middle-income countries are vulnerable to global fluctuations, deteriorating commodity prices, poor resource management, and income inequality, which negatively impact the business environment.
Growth in middle-income economies can be stimulated, but they need major reforms in finance, trade, labor markets, and governance to double the pace of income convergence with living standards in developed economies and transform from being growth hindrances to being drivers of global development.
The challenges are numerous and complex, including increasing debt that limits investment in infrastructure, education, and innovation, income inequality that threatens social stability, climate changes that negatively affect economic activities, and poor resource management.
International support and solidarity can help overcome these fundamental weaknesses, especially as many middle-income countries are still recovering from the effects of COVID-19, with rising conflicts, instability, and slowing global growth.
The international community can increase funding, reform the global financial structure, and facilitate technology access for the rest of the world.
If middle-income countries wish to overcome significant challenges in achieving sustainable growth rates-such as eradicating poverty, improving health and education, escaping the middle-income trap, and achieving high growth rates-they can restructure debt to ease the burden, improve education quality, encourage innovation by creating an environment that fosters research, protects intellectual property, streamlines bureaucratic procedures in economic activities, combats corruption, and diversifies their economies to move beyond the middle-income category and achieve economic growth that leads to high-income status.
