Middle Income Countries

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21 Aug, 2024

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Middle Income Countries, or MICs, are nations that fall between low-income and high-income countries in terms of their Gross National Income (GNI) per capita. These nations play a key role in the global economy. Such countries receive financial aid from the World Bank and other international organizations. They are also called middle-income economies.

MICs face several hurdles in the form of high levels of poverty, low industrial growth, and poor living standards. Their healthcare systems are underdeveloped, and such countries usually have inadequate infrastructure, limited access to good educational facilities, and significant income inequality. This classification enables international organizations to customize development programs and financial loans per the needs of such countries.

Middle Income Countries Definition

Middle Income Countries (MICs) are categorized as nations with moderate economic growth, occupying a position between low-income and high-income countries in terms of per capita income. This classification helps international organizations identify countries needing targeted financial assistance for development.
MICs contribute to world trade through Foreign Direct Investment (FDI) and tourism, promote regional cooperation, offer large marketplaces to corporations, and accelerate growth through research and innovation.
Some characteristics of such nations are a growing middle class, industrialization, and urbanization, among others.
They face several growth-related challenges, such as maintaining competitiveness, income disparity, infrastructure development, job creation, healthcare improvement, conflicts, etc.

Middle Income Countries Explained

Middle income countries definition identifies them as economies with gross national income (GNI) per capita ranging between $1,036 and $4,045. Limited economic diversification and insufficient sustainable development of resources and markets are observed in these nations. Around 75% of the world’s population lives in these countries, and they are home to 62% of the world’s poor. Middle-income countries generate about one-third of the world's gross domestic product (GDP), and they are a major driving force of global economic growth.

The World Bank continuously drives the growth and development of these nations. It plays the roles of a Global Actor, Client, and Shareholder to MICs. As a global actor, the World Bank leverages its authority and power from time to time to bring expertise from around the world to such countries to prompt economic growth.

When an MIC borrows or requests financial assistance from the World Bank, it becomes the client. As a shareholder, the World Bank provides financial assistance to MICs in the form of loans, grants, and technical assistance. In addition, the World Bank offers MICs advisory services and knowledge under Reimbursable Advisory Services (RAS) to facilitate economic growth.

MICs have been divided into two groups using the World Bank Atlas method:

Upper or High Middle Income Countries: These countries have a GNI per capita between $4,256 and $13,205.
Low and Middle Income Countries: These countries have a GNI per capita between $1,086 and $4,255.

The total number of countries in these categories is 108, with 54 countries in each category.

Characteristics

Middle income countries have certain characteristics that distinguish them from other countries. Here is a list of certain characteristics of these countries.

Moderate per capita income: According to the World Bank data, these countries have per capita income in the range of $1,036 to $4,045.
Diverse economic structures: MICs have diverse economic structures, and these economies see rapid growth. Some MICs rely heavily on natural resources, while other countries are more industrialized or service oriented. Certain MICs have made significant progress in reducing poverty and improving living standards for their citizens, while others continue to battle multiple challenges.
Spreading middle class plus urbanization: These countries are characterized by an increasing middle class population, and rapid urbanization is seen here.
Easy access to amenities: People living in MICs have access to basic facilities, infrastructure, and essential public utilities. Despite such progress, there exists a considerable gap in access to basic facilities between MICs and high-income countries.
Steady improvements in human development: The Human Development Index (HDI) shows gradual improvement in living standards, education, and healthcare services. The HDI is a composite tool that considers factors like income, education, and healthcare to assess overall human development.
Dependence on foreign aid and financing: Development and economic stability depend on financial aid received from international organizations. Though foreign aid and international financing can support an MIC’s growth, the countries must take more responsibility for growth, economic diversification, self-sufficiency, and sustainability across sectors.
Income disparity with persistent poverty: Uneven wealth distribution is observed in MICs. Poverty is also rampant. Based on policies and government interventions, the severity of such problems varies from one MIC to another.
Urban and rural divide: This results in urban areas seeing significant growth while rural areas remain backward and undeveloped.
Susceptible to economic recessions: MICs are vulnerable to economic crises, market fluctuations, and external disturbances. This is due to ineffective economic structures, high debt levels, currency devaluation, and income inequality, among other reasons.
Unstable governments and financial institutions: Governance and stability are questionable in many MICs. Economic policies are ineffective, making it difficult to tackle economic hurdles and problems.
Aspirations for improvement and the corresponding transition phase: People living in MICs strive to improve their living standards by earning more and securing access to better education, healthcare, housing, and other basic facilities. Hence, people aim to move from lower income levels to higher income groups.

Examples

Let us study a few examples to understand the traits of MICs, the difficulties they face, and their influence on regional and international scenes.

Example #1

Brazil is a middle income country with a sizable, varied economy with an expanding middle class. It is home to rising industries and has a moderate per capita income. Moreover, Brazil is significant globally despite issues like income inequality, poverty, and inadequate infrastructural development. Despite these negative factors, Brazil has strong economic potential, a diverse culture, and beautiful natural surroundings.

Example #2

Malaysia is a well-known MIC. Its broad economy, driven by industry, services, and tourism, has seen constant development and foreign direct investment (FDI) infusion. Moreover, all-around improvement has been observed in this country in various areas, including healthcare and education. Poverty reduction is a worthy cause that receives the attention it deserves from the relevant authorities in Malaysia.

As an MIC, Malaysia faces difficulties in the form of poor urban management, inequitable job availability and growth, a lack of environmental sustainability, and inadequate economic growth. Nevertheless, Malaysia is a preferred destination for business and leisure due to its mixed community and rich cultural history.

Importance

Let us discuss the importance of middle income countries:

World trade: They contribute significantly to world trade and economic growth.
New market establishment: They attract investments and new businesses by offering market expansion avenues to enterprises.
Foreign Direct Investment (FDI): MICs welcome FDI to facilitate business growth in the country. Companies from various countries around the world prefer operating out of MICs as labor costs are low, making exponential business growth possible.
Poverty alleviation: These nations play an important role in global poverty reduction.
Large markets: Multinational corporations can access large markets in these countries and make profits by selling their product and services across MICs.
Tourism boost: Increased commercial activities and the presence of varied entertainment avenues lead to a high influx of tourists in these countries.
Research: Pioneering research is a possibility in MICs as they are driven to look for solutions that address major economic problems. MICs are home to a growing number of research centers, and they are investing heavily in research and development.
Policymaking: Policy formulation to arrive at innovative solutions is undertaken in such countries. Also, they are active participants in global policy discussions.
Regional cooperation and stability: For multi-faceted and all-around economic growth, MICs play a role in boosting cooperation and regional stability across countries. These countries are increasingly collaborating to resolve regional disputes and promote regional economic development.
Relations with high-income nations: Due to the tremendous scope of growth, new business opportunities, large customer base, and numerous avenues for defense tie-ups, MICs bridge the gap between various nations operating at different levels of economic growth and stability.
Development vision: MICs provide a ready route for low-income countries to embark upon the journey toward growth and development. As a result, more and more nations might succeed in reducing poverty, illiteracy, poor health, and low living standards globally. They can also offer low-income countries access to markets, investment, and technology.

Challenges

Middle income countries face peculiar challenges that differentiate them from other nations. These challenges include:

Growth and competitiveness: MICs find it difficult to maintain competitiveness and steer growth in the global market.
Income disparity and poverty alleviation: Eliminating income disparity and reducing poverty is challenging in such countries due to large populations and inadequate resources.
Infrastructure development: MICs need infrastructure upgrades. They require investments in the energy sector, logistics, transportation, and telecommunication to support economic growth, boost connectivity, and improve living standards.
Unemployment and creation of job opportunities: MICs need to tackle excessive unemployment, and job creation for every population segment is tough.
Workforce employability: Educational programs and vocational training should be aligned with the skills and competencies demanded by labor markets. However, as access to education and skill development courses is low, the existing workforce is usually unable to meet increasing labor market needs.
Healthcare improvement: Providing quality healthcare services is a major challenge in MICs. This is because the healthcare infrastructure is poor, several resource constraints exist, and diverse diseases put undue pressure on the existing system, among other problems.
Balancing growth with sustainability: Reducing the harmful effects of urbanization and industrialization on the environment proves difficult in MICs. This includes air and water quality and climate change problems.
Uncontrolled urbanization management: When urbanization occurs in an unplanned manner, providing adequate services is tough. This is because resource allocation plans fail.
Conflict management: The resolution of conflicts is a major problem in MICs. MICs face an uphill task in the form of curbing conflicts at various levels. Conflict resolution calls for deliberate negotiations, diplomacy, and governance.

Frequently Asked Questions (FAQs)

1. Are middle income countries developing countries?

Middle income countries are considered developing nations as they continue to experience economic and social advancement despite their moderate income levels. While these nations encounter obstacles, they actively pursue further development and improvement.

2. Is America a middle-income country?

The United States, commonly known as America, is not classified as a middle-income country. Instead, it is recognized as a high-income country due to its per capita income and overall economic advancement.

3. What is the World Bank Atlas method in the context of middle income countries?

The World Bank Atlas method refers to the methodology used to convert Gross National Income (GNI) per capita from local currency to US dollars to accommodate exchange rate fluctuations. To do this, a three-year moving average of exchange rates, adjusted for inflation, is used. In the context of MICs, this method is used to classify countries into different income groups based on their GNI per capita.

4. Is Mexico a middle income country?

Mexico is officially categorized as a middle-income country, specifically falling into the upper-middle-income category per the World Bank’s classification. Its per capita income falls between the limits specified for low-income and high-income nations, reflecting its economic status.