Upper-Middle Income Countries
The upper-middle income category includes several countries from Latin America and Eastern Europe, as well as a handful in Asia and Africa. It includes all the BRICS except for India (Brazil, Russia, China, and South Africa). Nearing the income levels of advanced economies, these countries have considerable resources at their disposal, but their growth and development processes vary in the level of inclusiveness.
Argentina ranks 11th out of the 79 developing countries on the Inclusive Development Index (IDI), with its score (4.43 out of 7) representing a slight decrease (0.11%) from five years ago. While GDP per capita remains somewhat low and the poverty rate is relatively high for a country at its level of development, income and wealth inequality indicators show that inequality is not as significant a concern as in many other countries. Looking at the seven areas of the Framework, or the “inputs” into inclusive growth and development, Argentina’s strong points include relatively good basic services, especially health; a progressive taxation system; and good social protection. The country has registered small improvements in the quality of education, employment, and labor compensation, as well as in asset-building and entrepreneurship. However, red tape still makes it hard to create companies, while access to finance remains difficult and corruption levels high. Argentina needs to create more new businesses to reduce unemployment, particularly among the youth, and improve its infrastructure.
Brazil is 30th on the IDI, having weakened somewhat over the last five years. Brazil continues to benefit from relatively low unemployment, though formalizing the significant informal sector would bring in more tax revenue that could be spent on basic services and infrastructure – an imperative given that the country ranks close to the bottom on the public debt indicator (68th). Its economy is becoming more carbon intensive, ranking 65th on the trend for developing economies. The Framework indicators show that to make growth more inclusive, the education system must be upgraded, particularly so that young people from poorer socioeconomic backgrounds, currently doing less well, can benefit from a level playing field. Healthcare affordability and access must also be addressed. Corruption remains a major problem, undermining trust in the system and making it more difficult to achieve many development goals.
Chile ranks 10th on the IDI, with its score of 4.46 up by 2.07% in the last five years and reflecting good performance across a range of indicators. It tops the rankings for healthy-life expectancy (70.5 years) in its income group, and comes second only to Lithuania in GDP per capita. It achieves top-10 rankings in labor productivity, median living standards, and debt-to-GDP ratio. The Framework shows that in terms of strengths driving inclusive growth, Chile has been able to develop world-class infrastructure and basic services, and has markedly improved access to education over the years. In order to improve further, it must focus on delivering more equitable education outcomes regardless of socioeconomic background, reduce the extent of market dominance by a handful of firms, and make taxation more progressive and social security more comprehensive.
China comes in 15th among the developing economies on the IDI, but has seen improvements across a number of indicators in the last five years. China’s score has increased by 1.65% during this time, placing it 20th among 79 countries in terms of progress, despite relatively strong growth in GDP per capita and labor productivity. China has one of the highest carbon intensities of GDP among developing economies (ranking 67th), and wealth inequality has risen to extremely high levels. The Framework indicates that in terms of strengths, employment outcomes remain strong, thanks to reasonably vigorous competition, entrepreneurship, and business creation. Going forward, key priority areas include investment in productive infrastructure, and improvements in healthcare and access to education. Although the country has seen a significant reduction in poverty over recent decades, China could do more through an enhanced social safety net and targeted fiscal transfers.
Costa Rica is 9th on the IDI among developing economies. It is second only to Chile in terms of healthy-life expectancy (69.8 years), and its median living standard is high. On the other hand, inequality is of concern as the country appears in the bottom 15 developing countries for its income Gini. With regard to the Framework indicators, among the strengths of Costa Rica are the relatively good provision of basic services including sanitation and clean drinking water, and relatively high-quality and accessible healthcare. However, further improvement is needed in upgrading transportation infrastructure and enhancing access to education. The country could also improve incentives to work and invest via a more progressive and less distortionary tax system, while business creation and growth would benefit from more developed financial markets and better access to capital.
Malaysia ranks 16th on the IDI for developing economies, scoring 4.39. The country benefits from strong labor productivity and relatively high median living standards, though its wealth Gini indicates that inequality is of some concern and the high debt-to-GDP ratio indicates that the country could be putting future prosperity at risk. The Framework indicators show that Malaysia’s strong performance is underpinned by quality infrastructure and basic services, including good healthcare on a par with many advanced economies; and by banks and equity markets that provide businesses with reliable access to financial resources, helping boost business development and entrepreneurship. In terms of further enhancing the ability of the country to grow inclusively, the education system should provide quality education to all and the social safety net could be developed further.
Mexico ranks 29th on the IDI with a score of 4.13. This middling result has not changed much in recent years, in part driven by slow growth in GDP per capita and labor productivity since 2011. Inequality remains high, with the country ranked 62nd among developing economies. These and other indicators show that Mexico could do more to achieve a more inclusive growth process. The Framework indicates that youth unemployment, in particular, remains somewhat high at close to 10%, which is more than double the rate for the general population. This emphasizes the need to improve vocational and on-the-job training as well as, more generally, upgrading the education system to ensure greater equity of outcomes regardless of socioeconomic background. Mexico must also do more to boost its resources to invest in these areas, especially as the tax base remains constrained by the large size of the informal sector. Further, corruption and security concerns undermine confidence in the system.
Poland ranks 4th among developing economies on the IDI, its high score of 4.57 reflecting strengths in GDP per capita, labor productivity, healthy-life expectancy, and median living standards, in addition to relatively low poverty and inequality. In terms of Framework results, Poland tops the education and skills pillar: education and training are of comparatively good quality, and outcomes are relatively equitable among students from different income groups. The country also has the strongest social protection system among peers, though its tax system would benefit from reforms to strengthen incentives to work and invest. Investments must also be made in critical areas such as infrastructure and basic services, particularly healthcare.
The Russian Federation is ranked 13th among developing economies on the IDI. Its median living standard is relatively high compared with other emerging economies, and its poverty rate is low by developing-country standards. Its unemployment rate is also comparatively low, though youth unemployment is significant and many people are forced to work in the informal sector. The education system is universal and fosters reasonably equitable outcomes, though its quality must be improved to better confront the realities of a rapidly changing economy. Another area for improvement is financial intermediation, especially providing more financing for small and medium enterprises (SMEs), a sector that would benefit likewise from less red tape in starting and growing a business. A more progressive tax code and expanded social safety net would also improve Russia’s ability to deliver a more inclusive growth process to its citizens.
South Africa ranks 70th among developing economies on the IDI, despite having the 19th-highest GDP per capita in this group – a difference that represents significant underperformance on other factors key to socioeconomic well-being. Its healthy-life expectancy is just 54.4 years, placing South Africa 66th out of 79 countries, while its employment rate is the lowest of all countries bar Mauritania and Jordan. South Africa also suffers from extremely high income inequality, wealth inequality, and carbon intensity of GDP. Developing talent by improving the low level of tertiary enrollment would help to capitalize on the strength of the highly developed financial system and the country’s entrepreneurial culture.
Turkey’s score of 4.30 places it 20th on the IDI. It has the highest labor productivity among this group, high GDP per capita and living standards, and low poverty. In terms of Framework indicators these good outcomes are driven by strengths such as relatively high competition among companies, which ensures that large individual firms do not dominate the economy and stifle activity. Turkey also benefits from a fairly sophisticated financial sector, which adds to this business dynamism by providing investment. On the other hand, the unemployment rate is somewhat high, particularly among the young. This points to the continuing need to strengthen the education system, especially to make outcomes more equitable for students from all income groups. Expanding female participation in the labor force is also a priority, alongside reducing the wide gender gap in pay.
Venezuela ranks 26th among the 79 developing economies on the IDI, and its GDP per capita, while still relatively high, is decreasing at one of the fastest rates among developing economies. Venezuela’s natural capital is quickly depleting and its labor productivity has not grown in over five years. Additionally, despite much talk about providing more equitable outcomes, wealth inequality in the country is high. In terms of Framework indicators, corruption is widespread, and many Venezuelans have been driven to work in the informal sector. The quality of education is poor, not providing students with the skills needed for an economy undergoing rapid changes. Further, infrastructure is underdeveloped and the country struggles to provide even the most basic services to its citizens. Low levels of business activity reflect bureaucratic barriers and a lack of capital available for investment, even as employment has barely grown in five years.