Greater Heights

Growing to High Income in Europe and Central Asia

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Since 1990, 27 countries across the globe have reached high-income status, with 10 from Europe having joined the European Union. Another 20 countries from Europe and Central Asia have found their prospects for growing to high-income troubled, with concern they may have become caught in a so-called "middle-income trap." To overcome this, these countries must embrace a "3i strategy" of investment, infusion, and innovation.

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Since 1990, 27 countries across the globe have reached high-income status; of these, 10 are in the Europe and Central Asia region and have joined the European Union. Another 20 countries across Europe and Central Asia have become more prosperous since the 1990s. However, these middle-income countries (MICs) have found that their prospects for growing to high income have become troubled. This partly reflects the slowing pace of progress on structural reforms at home and a deteriorating global environment.

Climbing to high-income status in today’s environment will be harder still—because of high debt and aging populations in developing countries and growing protectionism in advanced economies. Greater Heights: Growing to High Income in Europe and Central Asia—a companion to the World Development Report 2024—outlines how MICs across Europe and Central Asia can reach high-income status by adopting a 3i strategy of investment, infusion, and innovation.

Key Messages

  • Overview
    Overview
  • Chapter 1. Transitioning to High Income—or Not
    Chapter 1. Transitioning to High Income—or Not
    • Since 1990, 27 countries across the globe have reached high-income status; of these, 10 are in Europe and have joined the European Union.
    • Concern is growing that another 20 countries across Europe and Central Asia may have become caught in a middle-income trap, a development phase of repeated growth slowdowns, with per capita incomes systematically below the high-income threshold.
    • To ensure that these countries overcome recent growth slowdowns and the challenges associated with the wobbly global environment, policy makers need to focus on two transitions.
    • Unleashing the Schumpeterian forces of creative destruction is essential to the transition to high-income status in the years ahead.
  • Chapter 2. Enterprises and Productivity
    Chapter 2. Enterprises and Productivity
    • MICs in Europe and Central Asia can reach high-income status only if firms are able to grow, innovate, and compete.
    • Traditional policies centered on supporting small and medium enterprises (SMEs) alone frequently prove misguided because they result in an excess of SMEs and do little to promote cumulative growth in jobs and output.
    • Domestic competition should be reinvigorated to allow new, dynamic firms to emerge.
  • Chapter 3. Talent and Social Mobility
    Chapter 3. Talent and Social Mobility
    • The shortage and misallocation of talent are becoming a binding growth constraint on countries in Europe and Central Asia.
    • Social mobility is the most important measure of the extent to which the talents of children are utilized well and, thus, whether societies have embraced a pro-growth focus.
    • The quality of education across the MICs in Europe and Central Asia has deteriorated substantially in recent decades.
    • To bolster social mobility and foster innovation, countries across Europe and Central Asia must dramatically overhaul education systems, particularly vocational and university education. 
  • Chapter 4. Energy
    Chapter 4. Energy
    • The MICs in Europe and Central Asia are on the verge of decoupling energy intensity and growth in emissions from growth in output, a feat accomplished thus far mostly by high-income countries (HICs).
    • The transition to lower energy intensity and lower emissions can become a transition to high-income status, but this link is not automatic and will require deliberate, well-sequenced steps.
    • Transmission networks need urgently to be upgraded, and adequate battery storage created so that the energy generated by the new entrants to the market is not wasted.
    • The transition to more efficient and lower carbon emissions creates losses among consumers, workers, and businesses and, so, encounters resistance.