Achieving high growth is not easy. But sustaining it is much more difficult. Which is why instances of sustained high growth are fewer than those of growth faltering after a few years. Most countries hit a wall at middle-income levels, failing to catch up with rich nations like the United States of America, Japan, South Korea or the European ones. In its World Development Report 2024, the World Bank stated that only 34 economies ever managed to cross over to the high-income group since 1990 while the average per-person income of these countries never exceeded 10% of that of America. Earlier, in 2008, the Commission on Growth and Development, a body of 19 developing country leaders and two academics that focused on sustainable economic growth, observed that only 13 economies had grown 7% a year on average for 25 years or longer.
These hits and misses explain the periodic global attention on sustaining high growth rates, which can enable faster poverty reduction, generate employment, achieve better living standards and much else. The recent examination of success stories for insights by the World Bank focuses on the ‘middle-income trap’ and how some countries avoided it. Its past publication, the Growth Report, 2008, on behalf of the abovementioned body, had studied ‘catch-up’ growth or convergence to rich country levels. The analysis noted that rapid sustained growth of the kind seen in the second half of the 20th century was unheard of earlier. However, it was distinctly possible because of an open and integrated world economy, which enabled sourcing direct investments, knowledge and rapid learning from abroad while markets could be stretched beyond domestic boundaries.
Understanding the causes, consequences, and internal dynamics of the successful cases of sustained rapid growth (the 2008 exercise) or why countries got stuck or failed to become rich is a reasonable attempt to identify mistakes and challenges over time and across countries. The idea is to look for common underpinnings and distil useful features and policy tips for leaders and policymakers who are directly involved in crafting growth strategies for their countries. The more aware they are, the better the caution about pitfalls and the lesser the tendency to take the sustained high growth rate for granted.
Based on its research understandings, the World Bank proposes a sequenced, three-pronged plan. First, low-income countries traverse the path of attracting investment to move up the income ladder. Then, at the lower-middle-income stage, adopt foreign technology to export more. Because technology diffusion, know-how and learning need skilled people, investing in these and expanding the skilled labour pool by increasing female participation (a noticeable drawback of this country group) are critical requirements. The US’s growth in half a century, 1960-2010, is proof of this: more than a third of this came from lowered racial and gender discrimination in education and the workforce without which per-person annual income in the US today ($80,000) would be $30,000 less. Finally, catapulting to high-income level demands global innovation. Here, South Korea’s outstanding economic performance — a 27.5 times increase in per-person income in 63 years to $33,000 by the end of 2023 — remains unmatched.
To complete the recall, the 2008 growth report identified some commonalities and policy ingredients for possible emulation or replication by other countries to sustain strong growth. The most important one was that no country had sustained rapid growth without maintaining remarkable rates of public investment — in infrastructure, education, and health; whereas infrastructure spending was widely neglected. Such spending, it reasoned, crowds in private investment, not elbow it out.
Where we stand, several aspirants to the rich-country club have explicit self-set goals — China by 2035, Vietnam and Indonesia by 2045, and India by 2047, to name a few. How seriously should they take such proposals? Or heed the warnings? Or should they dismiss these altogether considering the ‘middle-income trap’ concept is not without its critics?
For one, the reasons why growth rates plateaued or slipped to lower trend vary vastly — from economic shocks and crises, especially financial, to political conflict and instability, policy failures, inability to shift course or modify economic structures for fresh impetus and investment opportunities, amongst others. While cross-country experiences offer insights and perspectives, it isn’t clear or straightforward whether these are transferable or replicable for similar success. Contexts, histories, institutions, structures, handicaps, comparative advantages and so on are not fully mappable from one country to another.
To be sure, such learnings and proposals are non-binding, with a caveat that adoption be country-specific. They do however provide a framework, given the observed historical patterns.
Yet it would be difficult to say that the ideas and the lessons are not influential because economic growth is an immensely desirable ideal. Not merely as an end, but for everything it can enable. Lessons and policy prescriptions for accelerating and sustaining rapid growth can therefore be catchy. For example, the observation that exceptional public investment rates went together with sustainable economic growth proved extremely powerful in its acceptance. This is because the global financial crisis sucked out world demand, leaving countries dependent on domestic demand, thereby enhancing its appeal. Many countries, including India, embarked on public infrastructure spending to fill the deficit and stimulate investments and growth. Yet, as India’s case shows, years of public capex have supported growth but the crowding-in of private investment remains elusive. The investment drought persists for more than one decade.
That said, the repeatedly observed sources of sustained high growth over time and across the world are expanding markets and trade, which have reaped competitiveness and prosperity for all countries that engaged in it. This includes China and before that, the east Asian tigers, Japan, and so on. It is no coincidence that the World Bank’s research finds that more than one-third of the countries that crossed into the high-income region after 1990 either on account of their integration with the European Union (market expansion) or through the discovery of oil. The case rests there.
Renu Kohli is an economist with the Centre for Social and Economic Progress, New Delhi
