World Bank's Definition of Middle-Income Economies
Middle-income economies are defined as those with per capita incomes between $1,136 and $13,845.
The World Bank notes that growth slows significantly once economies reach about 11% of U.S. per capita income, hindering their transition to high-income status.
Importance of State Intervention
State intervention is crucial to overcome the middle-income trap, as it can guide investments, technology infusion, and innovation.
A responsive state can direct private sector efforts and support underperforming firms, promoting a competitive and productive economic environment.
Lessons from South Korea and Chile
South Korea: Emphasized strong state intervention to develop an export-driven economy, rewarding successful firms with resources and technology while allowing failures to occur.
Chile: Focused on state support for specific industries (e.g., salmon farming), showing that targeted interventions can lead to economic success.
Both countries highlight the need for a neutral state that supports performance-based benefits rather than favoritism.
Challenges for India
Increased power of wealthy individuals close to the state complicates effective investment and economic strategy.
The manufacturing sector's stagnation and a reliance on low-productivity jobs hinder structural economic transformation.
Real wage growth has not kept pace with GDP growth, affecting consumer demand and overall economic health.
Balancing state intervention with democratic principles is essential; historical examples from South Korea and Chile show the risks of sacrificing democracy for growth.
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