Podcast 🎧 & blog: Digital growth beyond the middle-income trap with Indermit Gill

By Federico Plantera

Indermit Gill is the Chief Economist of the World Bank and Senior Vice President for Development Economics. Let’s start from there, proud as we are to have hosted his keynote at this year’s e-Governance Conference. 

Known for his pioneering research and policy influence, Gill introduced the idea of the “middle-income trap” – a concept that continues to shape how nations approach economic transformation in the digital era. Something that strongly resonated with many of the conference participants, who felt it captured the challenges and hopes facing countries transitioning through digitalisation (as they made sure to let us know). 

And just after his speech set the tone and the tempo for the entire event to follow, we sat down with him for a conversation about the hard realities of long-term reform and the public role in innovation. Throughout, Gill was clear: getting out of the middle-income trap isn’t about copying past models, but making digital transformation serve people. And enable institutions to keep pace with ambition. 

Country representatives are grappling with how to turn digital transformation into genuine development. Their questions echo the message that digital tools alone are not enough. Dig in to find out, in this XL-sized episode, why meaningful change requires building the institutional capacity to integrate, govern, and innovate. 

Understanding the Middle-Income Trap 

The idea of the “middle-income trap” remains central to understanding global development today. According to Gill, many countries successfully climb from low to middle income by reallocating resources, importing technologies, and attracting foreign capital. But then they stall. 

“What we’ve seen is that when countries go from low income to middle income, they start by reallocating resources to more productive activities. They also start importing technology, and they also start attracting foreign capital,” he explains. “That gets them to be middle income. But beyond that, they can’t go much further unless they begin to develop institutions that actually allow innovation to take place, that allow people to take risks, that allow people to build trust.” 

According to Gill this transition is where many governments falter. Infrastructure upgrades and digital services expand but without parallel gains in productivity or innovation. The policy mindset must shift. For lower-middle-income countries, the priority is the widespread diffusion of available technologies. But upper-middle-income countries must move toward adaptation and eventually, innovation. Gill asks: “Are we adapting policy to our needs? Are we getting better, and building institutions that allow people to go and innovate?” 

Innovation as a Public Project 

So how do governments transition from diffusion to innovation? First, they frame policy as a public project. “It’s not just a matter of setting up special economic zones or hoping the private sector will drive everything. The state has a clear role to play.” 

While it may be tempting to think of development in terms of investment volumes or digital penetration rates, the long-term game is institutional. What distinguishes countries that escape the trap is not just their economic mix, but their institutional depth. From effective courts to data protection frameworks, these layers of trust enable societies to move from digital access to digital agency. “Technology without institutions won’t get you very far. But institutions without technology won’t get you anywhere either. You need both,” Gill continues. 

“Moving past incentives, countries need governance capacity that is able to manage complexity, maintain credibility, and provide long-term support for innovation.” South Korea, in that sense, offers a strong and compelling example. “They started out by importing technology, diffusing it widely. But they also made targeted investments in infrastructure and education and then developed institutions that enabled innovation. Over time, they became one of the world’s top economies.” 

Public investments in R&D, in university and private sector collaboration, and in sectoral policies that support digital entrepreneurship are all crucial. But even more important is clarity of purpose. “You don’t want to be doing everything,” he said. “You want to be doing the things that you do well. And then you want to support them with a kind of ecosystem that allows them to succeed.” 

And on the international level, there’s no contradiction between strategic autonomy and collaboration – partnerships fit well into the picture. “The whole point of strategic autonomy is not to be autarkic. It’s just to be able to say, ‘I can do these things, and I can do them on my own if I want to.’ That’s a huge difference.” 

From Digital Infrastructure to Inclusive Prosperity 

All the while, artificial intelligence and other fast-developing technologies are reshaping development prospects around the world. Is this a second chance for late-comers to the innovation fair? 

For countries amid structural transformation, this creates both new opportunities and new vulnerabilities. Gill notes that the potential is there, particularly if governments can focus their efforts on foundational improvements. “I think there are huge opportunities for AI in developing countries. But I don’t think that means that they should go and try to build large language models or anything like that. What they should do is strengthen their data systems, make sure that people are actually using the data to deliver services, and then think about where AI can come in.” 

The leapfrogging effect, often cited in development discourse, is only realistic if innovation strategies are coordinated and taken seriously. “If people do that, then I think they could leapfrog, but only if they treat it very seriously,” he says, through clear priorities and institutional backing. 

This, however, is still no fixed recipe for becoming innovation-driven economies. Measured as he remains, “if you ask whether a country is going to become a frontier innovator in ten years, one of the best in the world, then the answer is ‘probably not’. But if you’re talking about countries that are going to be well on their way to becoming that, then I say yes.” 

This optimism rests on a few key conditions. Public investment in essential infrastructure, a long-term economic outlook, and stronger international cooperation are necessary ingredients. “I think the biggest mistake would be to assume that progress is automatic,” he warns. “It’s not. It takes planning, commitment, and the willingness to prioritise the hard, slow work of building institutions.” 

Inclusive prosperity isn’t a guaranteed outcome of digital change, but a deliberate goal. And reaching it depends on aligning vision, policy, and governance capacity – especially for those still trying to build their way beyond the middle. 

The recording is inspired by Indermit Gill’s keynote “Middle income trap: breaking the growth barriers” held at the e-Governance Conference 2025. Listen to his keynote on the Conference platform.

Online tickets are available until end of June 2025 here >>> https://fienta.com/o/3654

Find out more >>> https://2025.egovconference.ee/