World Development Report 2024: The Middle-Income Trap

Digital technologies—such as the internet, mobile phones, social media, and web-based information systems—have a large capacity to promote both social mobility and talent development. The internet, for example, allows individuals to find information, which makes them more productive; email allows for the exchange of ideas, which leads to knowledge diffusion; smartphones can be used for mobile banking, which promotes entrepreneurship; and data systems provide government with a wealth of information that can be used to efficiently target interventions.

In selecting students for higher education programs, merit-based selection requires standardized measures of merit such as test scores. Higher-income parents typically have the means to invest in tutoring services for their children, ensuring a critical advantage for them to improve their test scores. To level the playing field and give students from more disadvantaged backgrounds opportunities, countries can leverage digital technologies to deliver instructional materials to many more students online (box 8.3).

Expanding occupation choice and rewards

Climbing the economic and social ladder may not be possible when individuals cannot gain access to jobs or realize their entrepreneurial potential on the basis of merit. In many countries, attending an elite school is not sufficient to secure a top job because connections—not merit—determine recruitment (see chapter 5). Although combating such discriminatory practices is a necessary first step, it is not sufficient because it does not address the inherent information asymmetry between job candidates and employers. Job candidates rely on social networks to learn about job openings and employers’ characteristics. Meanwhile, employers rely on these networks to ascertain workers’ skills and trustworthiness. This is particularly true in countries with a high degree of informality and limited information about labor markets.

Box 8.3 Improving students’ test scores by using online studying assistance from the Khan Academy

In 2004, Sal Khan, a Bangladeshi American, began tutoring his cousin Nadia in mathematics using a phone and Yahoo Doodle. As Nadia improved her performance in mathematics, word of Khan’s service spread, and he began tutoring a handful of his cousins and family members. In 2006, lacking the time for one-on-one tutoring, he began recording videos and posting them on YouTube, offering them to everyone to watch at their own pace. In 2008, this initiative turned into the Khan Academy. It has since produced more than 8,000 video lessons on a wide range of academic subjects, including mathematics, sciences, literature, and computer science, as well as supplementary practice exercises and materials for educators. The learning materials, all provided free of charge, are available in many different languages. Today, they are a supplement to in-class learning, giving teachers more time to focus on individual students’ needs.

In July 2017, the Khan Academy became the official practice partner for the College Board’s Advanced Placement courses. Students who study for the college entrance exam, the SAT, for at least 20 hours via the Khan Academy increase their scores, on average, by 115 points (of a possible 1,600).

To address these issues, countries need institutions that can serve as reliable, timely conduits of information. Online job portals—proliferating quickly across middle-income countries—are a cost-effective mechanism to communicate job openings to job-seekers. But information on job opportunities needs to be combined with credible certifications of skills. In South Africa, a job matching program provided candidates with information about job openings and a credible assessment of their own skills. Giving job-seekers this assessment to share with firms increased employment and earnings and enabled them to better align their beliefs about their job performance and their search strategies.

Although lack of information creates unrealistic expectations for many job-seekers about the type of work and wages they can find, some interventions can help. In Ethiopia, a job fair experiment that brought firms and job-seekers together allowed firms to advertise openings more widely and job-seekers to apply for more positions. It also improved employment outcomes for less-educated job-seekers. In South Africa, young job-seekers who live far from the city centers where jobs are located overestimated their employment prospects and underestimated actual commuting costs. By increasing their access and exposure to the broader labor market job-seekers were able to adjust their expectations and accept jobs closer to home.

Giving job-seekers access to “better” networks—those of more influential individuals—can also boost their opportunities. Mentoring improves outcomes mostly by teaching mentees about entry-level jobs and labor market dynamics. A mentoring program in Uganda that assisted vocational students during their school-to-work transitions increased their employment prospects three months after graduation, and their earnings were higher one year later.

Nurturing scientific inquiry and enhancing research capabilities

The process of nurturing innovation can start early. Identifying high-potential, high-performing students—advanced learners—in the early school grades and inculcating in them a mindset for scientific inquiry is crucial. In India, Atal Tinkering Labs, with the sponsorship of the government, sets up in schools physical laboratories that are equipped with scientific kits and apparatuses for use by students between the sixth and twelfth grades. The opportunity to “tinker” and learn by doing is intended to sow the seeds of a scientific mindset and an entrepreneurial spirit from an early age. Between 2016 and mid-2022, the program funded 9,600 spaces in 34 states and Union Territories.

Mechanisms to identify advanced learners are also important. Testing plays an important role. Instead of using a single absolute measure such as the student’s place in the national distribution of test scores, teachers can identify students with the greatest potential or the best performers in every classroom or school. In fact, they can do so repeatedly and not just in one high-stakes test, which leads to a larger, more equitable talent pool. Advanced learners can be offered opportunities—such as participating in advanced classes or attending selective schools—that match their interests and abilities without necessarily hurting other students’ outcomes.

Developed countries such as Finland, France, Japan, the Netherlands, Spain, the United Kingdom, and the United States provide special publicly backed programs for advanced learners. Developing countries such as Colombia and Mexico have followed suit. Programs vary in format. In the United States, many schools and school districts run a broad array of programs for advanced learners, whereas in Israel, the National Mentoring Program matches advanced learners in 10th and 11th grades with top professionals in students’ areas of interest to collaborate on a project of mutual interest. In a similar vein, exposing young children—particularly those from disadvantaged backgrounds—to inventors and scientists can widen this pipeline. In the United States, several private initiatives bring children together with inventors; in Spain, workshop initiatives bring children and scientists together.

Building and expanding high-quality universities that can train top talent and contribute to innovation requires an efficient system of public funding for research, as well as fluid university-industry connections to promote the exchange of knowledge. Public spending on research and development (R&D) is lower in middle-income countries—0.3 percent of the gross domestic product (GDP) of the median middle-income country—than in high-income countries—1.4 percent of GDP in the median high-income country. Thus it is more efficient for middle-income countries to focus their public funding on a few strategic areas of research such as STEM, health, and the energy transition, with funds allocated in a competitive fashion. For example, the Pakistan Science Foundation gives competitive research grants to scientists, engineers, technologists, innovators, academics, and entrepreneurs who need support to build on their initial research findings and develop new products, prototypes, and pilot-scale production in nanotechnology, material science, and artificial intelligence.

There are many examples of partnerships aimed at expanding countries’ research and educational capacities. In Argentina, the Instituto Balseiro is a highly selective public institution that trains undergraduate and graduate students in physics, nuclear engineering, and other STEM fields by means of a partnership between Cuyo National University and the National Atomic Energy Commission. Admitted students receive full scholarships and have access to state-of-the-art labs and highly personalized training, which allows them to pursue highly successful careers, both domestically and abroad. In Israel, several higher education institutions—such as the Technion and the Weizmann Institute—have had a strong STEM orientation since their inception. In 2013, Israel’s eight universities produced more patents than the country’s firms, military labs, and private labs combined. Partnerships with world-class universities can serve as a strategy to develop a research base. The Egypt-Japan University of Science and Technology (E-JUST) offers graduate courses on electronics and communications, mechatronics and robotics, energy and environment, computer science, industrial science and manufacturing, chemicals and petrochemicals, and materials science. The Indonesian Biodiversity Research Center (IBRC) was created in 2010 by Udayana University, Diponegoro University, the State University of Papua, the University of California at Los Angeles, and the Smithsonian Institution to promote biodiversity research and build educational and scientific capacity in Indonesia.

Governments can also provide tax incentives to companies that collaborate with universities, such as a generous tax deduction, as in Sri Lanka. Establishing a regulatory framework for knowledge exchange is key, particularly in relation to the intellectual property produced by universities with public resources. Universities, in turn, typically establish technology transfer offices (TTOs) to promote university-based innovation and entrepreneurship. In 2003, the State University of Campinas (Unicamp) established Brazil’s first TTO, Inova; four years later, Unicamp was the second most frequent patent applicant in Brazil. Governments can also provide land and infrastructure close to universities to attract firms, usually in science and technology parks and incubators. The significant additional advantages of government support through universities include funding projects that are near the knowledge frontier, promoting the design of more industry-relevant education, fostering the development of an entrepreneurship ecosystem, facilitating workforce development, aiding in technology commercialization, and mitigating the risks of corruption through mechanisms such as peer review, whistleblower protection, and public disclosure of information. Furthermore, universities can enhance oversight and monitoring processes, adding robustness to the governance framework.

One outcome of university-industry collaboration is venture creation by university faculty, staff, students, and postdoctoral students, with private investors serving as venture capitalists. For example, the Tshimologong Digital Innovation Project in Johannesburg, South Africa, is a product of collaboration between the University of the Witwatersrand, the province of Gauteng, and firms such as IBM, Cisco, Microsoft, and Telkom. Tshimologong (“place of new beginnings”), located in an inner-city neighborhood of Johannesburg, is close to a major research university and urban infrastructure and is accessible not only to students from the university but also to disadvantaged youth who enjoy free training in computer programming, cybersecurity, and digital animation through the program’s Digital Skills Academy. The project has created more than 105 start-ups and seeks to inspire additional university-based incubators in Africa.

Universities can also partner with local companies to provide services. In Manizales, Colombia, for example, the Universidad Nacional de Colombia and Universidad Autónoma de Manizales are participating in a partnership, Innvestiga, to encourage innovation and productivity enhancement among local firms. It gathers scientists and engineers from these institutions and supports the needs of small and medium enterprises (SMEs) by generating solutions in materials science and processes and providing services such as research, prototyping, and lab tests.