Implications for Global Development

Another contribution of this argument is to extend insights from economic sociology to the domain of development. Especially in financial economics, many have argued that economic models are

“an engine, not a camera,” moving and not just describing markets.⁸ I argue that similar dynamics

5Fantom and Serajuddin (2016), p. 16.

6See Barnett and Finnemore (1999); Johnson (2014).

7

https://www.un.org/development/desa/dpad/publication/recognition-and- application-of-the-least-developed-country-category-by-un-development-system-organizations/

8See MacKenzie (2006). See also Blyth (2002); Shiller (2017).

exist in the economy experienced by developing countries, where ideas about what development is powerfully shape development outcomes themselves.

In particular, my argument suggests a new interpretation of the phenomenon widely known as the “middle income trap.”⁹ This phrase is commonly used to describe the situation many countries face when they develop enough to reach middle income status but then plateau, never graduating to high income status. While economists have pointed to many real structural impediments to explain this pattern, my argument suggests that the Middle Income Country (MIC) category may also be partially responsible: Perhaps the stagnation results from the changes that take place in how international observers treat countries when they become classified as middle income. If, for example, foreign aid helps a low income country to reach middle income status but then falls off, then it is no wonder that improvements in the country’s position do not continue. As my project has illustrated, the effects of classifications are too numerous and multifaceted to expect this reductionist story to explain the full picture, but the intuition remains that the classification effect could partly account for the middle income trap.

This is especially important to consider because numerous countries are scheduled to graduate from these developing country categories. Already, 75% of the world’s poor live in MICs, and this proportion will increase over time.¹⁰ Current projections indicate that, by 2025, half of today’s low income countries will be middle income countries who will become eligible for graduation from the IDA lending category.¹¹ The UN expects that 16 of its 48 LDCs will graduate by 2025.¹² These numbers are unprecedented: for example, recall that only 5 countries have completed the gradua-tion process since the founding of the LDC category. This suggests that the political dynamics I described in this dissertation are about to affect a much larger group of countries.

Some may feel that international organizations should stop classifying altogether, but this

pre-9See Eichengreen et al. (2013); Kharas and Kohli (2011); Felipe et al. (2012). See also “The Middle-Income Trap,”

The Economist, March 27, 2012.

10See Sumner (2012).

11See Moss and Leo (2011); Morris and Gleave (2015).

12See UNCTAD (2016).

scription is infeasible. Classifications are just one way that international organizations develop and disseminate ideas and narratives. It is impossible to strip international organizations of these nor-mative underpinnings, and without classifications, they would influence discourse in other ways.

Furthermore, the cognitive and strategic mechanisms suggest that there will always be a demand for classifications. Even if international organizations could coordinate to stop supplying them, this does not prevent other actors from satisfying this demand.

Another reading of my argument is that international observers should stop using classifica-tions. Consistent with this approach, one of the asks made by the Raise the MIC movement is for the World Bank to make clear that their classifications should not be used to set foreign aid levels or justify price differentiation.¹³ This could make a difference on the margin, perhaps clar-ifying for some users who are confused about what the categories entail. To some extent, it may reduce the cognitive effects of classifications by calling users’ attention to the biases that result when classifications are used incorrectly. But it does very little to address the strategic incentives to use classifications, in particular, those of donors. An alternative approach would be to petition donors directly to illustrate the dangers of herding their allocative behaviors around these thresh-olds. Since donors do have an interest in advancing development, it is possible that awareness of these dynamics will be sufficient for them to change their approaches to allocating aid. It would be more effective, however, to do this while also making aid agencies more independent.¹⁴ The less that aid agencies must justify their behaviors to their funders, the less they will need to distort their behaviors.

The most meaningful policy implications of my argument concern the classifiers themselves.

Classifiers have little control over who will or will not use their classifications, but my argument shows that they can at least anticipate the user base of their classification. When an international organization decides to produce a classification, it should consider the audiences who may rely on

13Author’s interview with Denys Nazarov, Associate Director of Global Policy, AIDS Healthcare Foundation, April 7, 2017, phone interview.

14See Honig (2019).

it for cognitive or strategic reasons. Designing simpler, more intuitive classifications will likely attract a broader user base, while more complex or technical classifications will be more likely to be used by specific audiences. In this way, international organizations can try, to the best of their abilities, to design classifications that appeal only to the audiences they intend. Additionally, classifying organizations should consider actual and not just intended audiences when consider-ing revisions to their systems.¹⁵ These recommendations will reduce unintended consequences, such as those that resulted from the unanticipated popularity of the World Bank income classifica-tions. Conversely, international organizations can also apply my theoretical framework to develop classifications that will become widely used, should they wish to promote their ideas to a broad audience. Choosing classifications with fewer categories and intuitive names will strengthen the cognitive appeal, and they can especially market their classifications to actors who can build these systems into their operational policies and justifications of their actions in external reviews.

In sum, when international organizations consider graduating or reverse graduating a country from a particular grouping or classification, they should take into consideration the expected re-sponse of external actors when estimating the impact of such a move. Moreover, international organizations should plan for the politicization of any classification they introduce, as my project illustrates that global development institutions, intentionally or unintentionally, affect how devel-oping countries are perceived and treated in the international economy.