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Title page 1

Contents 3

1. What an effective enabling state can do: the role of the state in South Korea's and Finland's transitions to high income, high innovation countries 5

2. The role of states in economic development in ECA 8

States in pre-1990 ECA - creating foundations as well as obstacles for growth 8

Different speeds of growth and innovation in post-1990 ECA 9

How has institutional performance differed between HIC convergers and others? 11

ECA's Large fiscal footprints and the need for efficient delivery of enabling services 15

Avoiding capture: ensuring that markets and opportunities remain competitive 18

Pursuing institutional and policy reforms in good and in bad times 20

3. Evolving the role of the state across different functions 23

The role of states in innovation in ECA 24

4. Conclusions and policy implications 27

Figures 5

Figures 1a and 1b. Corruption and Public Administration Quality (MIC averages, OECD, and South Korea 1960-2022) 5

Figure 2. which states succeeded in the MIC to HIC transitions in ECA and how fast GNI per capita, Atlas method (current US$) 10

Figure 3. Global Innovation Index ratings 11

Figure 4. Rule of Law performance 1996 to 2022 12

Figure 5. GDP per capita and government effectiveness 12

Figure 6. Current middle-income countries compared to HIC convergers five years prior to reaching high income levels 13

Figure 7a and 7b. Governance and Enterprise Restructuring and Competition Policy 14

Figure 8. Public Sector Corruption Index with pre-and post-1990 periods for selected countries 14

Figure 9. Overall business environment (1993-2023) 15

Figure 10a and 10b. Government expenditure and Size of Government in MICSs by Region 16

Figure 11. Progress on Digitizing core Government Systems 17

Figure 12. Access to State Business Opportunities trends 2000-2020 18

Figure 13. State capture index, 1996-2022 19

Figure 14. Competitiveness among firms and meritocratic selection of management (WEF) 19

Figure 15. State Legitimacy trends - 2005 to 2022 20

Figure 16. Net Lending/Borrowing as % of GDP 22

Figure 17. Change in growth rates before and after the global financial crisis 22

Figure 18. R&D expenditure as % of GDP 25

Figure 19a and b. R&D spending and patent applications (including and excluding Western Europe) 25

Figure 20. Employment ratios of tertiary graduates 26