The concept of inclusive growth needs to take into account changes in the size and economic command of the group conventionally defined as neither poor nor rich - the middle class. A growing middle class can play a crucial role in a country’s development through spurring economic growth and fostering more effective institutions. A large middle class increases the demand for domestic goods and services and helps fuel consumption-led growth. Middle-class parents have the resources to save and invest in their children’s education, building human capital for the country as a whole. Having a large middle class is also critical for fostering good governance. Its members can exert pressure on governments to become more accountable and responsive to its citizens while their taxes can help finance public provision of collective goods. Middle-class people are also more likely to support governments that protect private property and encourage private investment and are unlikely to be drawn into the kinds of ethnic and religious rivalries that spur political instability. CGD works to identify policies that foster the emergence of a large middle class and provide a better understanding of the economic and political consequences of its growth.
How do we measure and define middle class status? Being middle class implies a degree of economic security that those with incomes just above the World Bank’s $1.90 (2011 PPP) extreme poverty line or its $3.10 (2011 PPP) poverty line for middle-income countries simply do not enjoy. Over 2 billion people belong to the group we call ‘strugglers’ - individuals whose incomes currently place them above international poverty lines, but who remain vulnerable to falling back into poverty. At CGD, we currently define the middle-class in the developing world as those living in households in which daily income per capita is $10 (2005 PPP) per person per day or above – the level at which the risk of falling back to poverty for an individual is estimated to be just 10 percent.
More and more countries conduct regular household surveys that allow us to monitor the growth of the middle class and the ‘strugglers’ group. CGD strives to improve the measurement of material well-being across developed and developing countries by encouraging the use of simple, robust, and durable indicators such as median income/consumption and making this data easier to access for development professionals.