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Low-income countries are falling behind

Joey Politano · Apricitas Economics · ·11 min read
Commentary by Hex Index staff

Joey Politano delivers a stark, data-driven verdict that challenges the comforting narrative of inevitable global progress: the historic era of economic convergence is over, and the world's poorest nations are actively diverging from the wealthy West. This is not merely a statistical blip; it is a structural reversal driven by a perfect storm of pandemic debt, inflationary shocks, and geopolitical fragmentation that threatens to lock billions into a "lost decade" of stagnation. For busy readers tracking global stability, the urgency lies in understanding that the mechanisms once thought to guarantee catch-up growth have broken down, leaving low-income countries uniquely vulnerable to external shocks they cannot afford to absorb.

The Great Divergence

Politano begins by dismantling the assumption that the post-2000s boom in emerging markets was a permanent trend. He notes that while extreme poverty was slashed from over 40% to under 10% in four decades, that momentum has "now stalled." In fact, the situation has deteriorated: "global extreme poverty rates have actually risen over the last four years." This reversal is the piece's most alarming finding. The author illustrates the sheer scale of the disparity by pointing out that the 10th percentile of American income is "two and a half times as much as the 90th percentile of Indian income." Such a gap is not just a number; it represents a fundamental chasm in human welfare, access to healthcare, and educational opportunity.

Low-income countries are falling behind

The core of the argument rests on the concept of "economic convergence." Classical theory suggests that poorer nations should grow faster than rich ones by adopting existing technologies. However, Politano observes that "instead of converging, they are diverging." He highlights that while China and India continue to grow faster than the US, their relative momentum has slowed, and for many other nations, the trend is negative. "Pakistan has been buffeted by major natural disasters, an extended energy shortage, and a debt crisis," while Nigeria has seen its output per person slide for nearly a decade. The author's framing here is effective because it moves beyond abstract GDP figures to the tangible realities of energy shortages and political instability that prevent growth.

Critics might argue that focusing on aggregate national data obscures the success stories of specific regions like Kenya or Ethiopia, which have managed to maintain convergence. However, Politano counters this by noting that even these "standout performers" have seen their growth slow significantly due to internal conflicts, suggesting that the headwinds are systemic rather than isolated.

The world's low-income countries are falling behind, and that is terrible news for humanity.

The Mechanics of Failure

Politano identifies three specific, structural drivers that have severed the link between low-income potential and actual growth. First, the disparity in fiscal capacity. High-income nations could deploy massive stimulus packages to cushion the pandemic's blow, a luxury unavailable to the developing world. "A country like the US could borrow billions to mitigate the economic impacts of COVID-19 in ways that would be difficult for Brazil and almost impossible for Cameroon." This creates a feedback loop where rich nations recover faster, widening the gap.

Second, the inflationary surge hit the poor disproportionately. Since low-income households spend the highest share of their income on essentials like food and energy, global price spikes are devastating. "When energy prices spiked, countries like Italy could afford to order more liquefied natural gas shipments in ways that countries like Pakistan simply could not." This is a crucial insight: inflation is not a neutral tax; it is a regressive force that erodes the gains of the most vulnerable first.

Third, and perhaps most critically, is the role of geopolitical conflict. The author notes that "global combat deaths have risen significantly since 2020," with conflicts in places like Ethiopia, Sudan, and Gaza causing direct economic devastation. Beyond the immediate violence, the spillover effects on supply chains and trade barriers have choked growth globally. Politano writes, "increases in tariffs, sanctions, and other barriers to trade can reduce global economic output and impose costs even on countries that don't participate in trade wars directly." This reframes geopolitical conflict not just as a security issue, but as a primary driver of global economic inequality.

A Shift in Aid Strategy

Moving from diagnosis to prescription, Politano leverages his personal experience as a former Peace Corps volunteer to critique traditional aid models. He argues that the old framework of sending volunteers for in-kind interventions is ill-suited for modern crises. The Peace Corps model, he notes, "relies on in-kind interventions that are limited in scope, require the mass overhead of a federal bureaucracy, and can't be rigorously evaluated post-service." The pandemic exposed this fragility, as volunteers were evacuated and programs halted.

In contrast, the author champions direct cash transfers as a superior mechanism. Citing evidence that recipients are best positioned to determine their own needs, he states that "cash transfers are an extremely effective way of delivering aid." He highlights the success of GiveDirectly in Uganda during the pandemic, where direct funding helped families survive when traditional aid structures failed. This argument is compelling because it shifts the focus from the donor's intent to the recipient's agency, supported by rigorous data showing massive direct consumption and health benefits.

The piece concludes with a call to action for Giving Tuesday, focusing on Rwanda as a case study for successful convergence. Despite its tragic history, Rwanda has maintained steady growth, with rising access to electricity and falling infant mortality. Politano suggests that targeted support can accelerate this progress, noting that "it's truly possible to change someone's life for the price of a cup of coffee a day."

Bottom Line

Politano's strongest contribution is his rigorous dismantling of the idea that market forces alone will close the global wealth gap; the data clearly shows that without intervention, the gap is widening. The piece's greatest vulnerability lies in its reliance on direct cash transfers as a primary solution, which, while effective for immediate relief, may not address the deep-seated institutional failures and infrastructure deficits that prevent long-term industrialization. Readers should watch for how global institutions adapt their lending and aid policies in response to this new reality of divergence, as the old playbook is no longer working.

Sources

Low-income countries are falling behind

by Joey Politano · Apricitas Economics · Read full article

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Over the last forty years, the world has made historic progress in reducing the scourge of global poverty. The share of the human population living in extreme poverty (less than $2.15 a day) has fallen from more than 40% to less than 10% within a generation, lifting hundreds of millions of people out of acute suffering. Yet progress has been too slow—and even worse, it has now stalled.

The COVID-19 pandemic, ensuing inflation, and the rise in international conflict have made it so that global extreme poverty rates have actually risen over the last four years. Declines in the less-extreme forms of global poverty more common in middle-income countries have continued but at a much slower pace than during the 2010s. Unless something changes, institutions like the World Bank warn of a possible “lost decade” for the war on global poverty.

That would be a disaster given the massive existing disparities within the global economy. Annual per-capita output in the United States, the world’s largest frontier economy, is $73k—roughly 26 times the average for the low-income countries where 766M people currently live. Even lower-middle-income countries like India, Nigeria, and the Philippines average only one-ninth America’s economic output. That lower GDP represents less consumption of food, healthcare, and technology, less investment in infrastructure, education, and housing, and less general welfare for billions of people across the globe. Indeed, between-country economic inequality is so large that the 10th percentile of American income is two and a half times as much as the 90th percentile of Indian income.

To reach high living standards, low and middle-income countries must achieve “economic convergence”—not only growing their economies but growing them substantially faster than frontier countries like the US so they can “catch up”. A relatively-normal 2.5% increase in US economic output would deliver an average of $1,800 a year extra to Americans, but to achieve those same dollar gains Sierra Leone would need to more-than-double the size of its economy. Yet much of classical economic theory predicts countries like Sierra Leone should swiftly converge with the US—after all, frontier economies have to earn most of their growth by making difficult discoveries along the scientific frontier, while low-income countries can make substantial gains through rapid deployment of existing technologies like trains, phones, electricity, schools, ...