The risks of falling into the Middle Income Trap have increasingly become a focus of discussions on the long-term economic and social development prospects of developing countries. These risks, and how to minimize them, are being debated at the highest levels of policy making in some of the fastest growing emerging economies, even while these countries remain a source of envy to the rest of the world. The term Middle Income Trap is by now also being widely used in economic literature as well as business-oriented media. We draw satisfaction from the fact that some of our previous writings (Gill and Kharas, 2008; Kohli et al. 2009) (co-authored with other colleagues) seem to have helped popularize this term. At the same time, we realize that some have interpreted and used the term quite differently from what we had in mind when we first introduced the term Middle Income Trap in our writings and presentations. This article offers our perspective as to what the Middle Income Trap is, why so many countries fall into it, and the key challenges involved in avoiding the trap. With policy makers as its primary audience, the article is deliberately short in length and straightforward in language.
The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.
This paper seeks to explain the factors that inhibit greater collaboration between Development Assistance Committee (DAC) donors and non-DAC donors, arguing that the problem is less about divergent values than about incentives that derive from the politics of today's aid system and architecture, and from different development experiences. It argues that even among like-minded DAC members, progress on aid coordination and cooperation has been disappointing. This augurs badly for advocates of a more harmonious aid system encompassing a broader group of development partners. On this basis, the aid community would be better off defining differential and flexible standards, which permit DAC and non-DAC donors to adhere to those elements most applicable to them. We identify two areas where more collaboration may be feasible. The first is for partner countries to push for greater transparency among donors, which would allow for greater coordination at the recipient country level. The second is to formalise and build on existing triangular cooperation initiatives, which would test the potential for interagency trust and learning. Although these areas are narrow, they are concrete ways of taking the first steps towards broader donor collaboration.
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