The World Bank has analyzed South Korea as a global model for overcoming the middle-income trap and advancing to a developed nation. The middle-income trap refers to the phenomenon where developing countries, after reaching middle-income status, fail to transition to high-income status and experience stagnation in growth.
In its report titled “The Middle-Income Trap,” released on Aug. 1, the World Bank stated that South Korea’s “income per capita per capita income stood at just $1,200″ but by last year, “the number had risen to about $33,000,” praising the country as a “growth superstar” and “required reading for policymakers in any middle-income country.”
The report cited Nobel laureate Professor Robert Lucas, who compared South Korea’s remarkable economic growth to a “miracle,” stating, “It would be a miracle if today’s middle-income economies manage to do in 50 years what Korea did in just 25.”
The 276-page report examines how middle-income countries experience growth stagnation and outlines strategies to overcome it. According to the World Bank, 108 countries were classified as middle-income, each with incomes per capita between $1,136 and $13,845. Since 1990, 34 of these middle-income economies have transitioned to high-income status.
The report proposes the “3i strategy”—investment, technology infusion, and innovation—as necessary elements to overcome the middle-income trap. It notes that while attracting large investments is crucial for initiating growth at the low-income stage, advancing beyond middle-income status requires the infusion of foreign technologies and a focus on innovation to achieve high-income status.
South Korea is a standout example of successfully applying the “3i strategy,” the report analyzed. The term “Korea” is mentioned 100 times throughout the report, which includes an analysis titled “A Growth Superstar: How the Republic of Korea Leveraged Foreign Ideas and Innovation.”
According to the report, South Korea successfully laid the foundation for economic growth starting with the “investment” phase. From the 1950s to the 1960s, the country prioritized openness by promoting exports and leveraging global markets to introduce domestic companies to competition.
Even after achieving middle-income status, the South Korean government focused on “technology infusion” by heavily investing in research and development (R&D) through tax incentives and direct investments in technical education to maximize corporate productivity. The report notes, “Korea invested heavily in human capital and ensured that job creation was aligned with the supply of necessary skills at various stages of development… This approach was more effective than in many wealthier countries.”
The World Bank notes that the final stage of “innovation” occurred around the 1997 Asian financial crisis. During this time, South Korea implemented major reforms and a comprehensive restructuring of the financial sector and chaebols to overcome the nationwide crisis. These measures helped reduce traditional collusion between companies, leading to “long-term innovation-driven growth and contributing to Korea’s transition to high-income status.”
The World Bank observes that the final stage of “innovation” occurred around the 1997 Asian financial crisis. At that time, South Korea undertook significant reforms and a comprehensive restructuring of the financial sector and chaebols to navigate the nationwide crisis. These efforts helped reduce traditional collusion between companies, leading to sustained innovation and Korea’s rise to high-income status.
