Middle income trap

The middle income trap is an economic development situation in which a country that attains a certain income (due to given advantages) gets stuck at that level.^[1] The term was introduced by the World Bank in 2006^[2] and is defined by them as the 'middle-income range' countries with gross national product per capita that has remained between $1,000 to $12,000 at constant (2011) prices.

Dynamics[]

According to the concept, a country in the middle income trap has lost its competitive edge in the export of manufactured goods due to rising wages. However, it is unable to keep up with more developed economies in the high-value-added market. As a result, newly industrialized economies such as South Africa and Brazil have not, for decades, left what the World Bank defines as the 'middle-income range' since their per capita gross national product has remained between $1,000 to $12,000 at constant (2011) prices.^[1] They suffer from low investment, slow growth in the secondary sector of the economy, limited industrial diversification and poor labor market conditions.^[3]

From 1960 to 2010, only 15 out of 101 middle-income economies escaped the middle income trap, including Hong Kong, Taiwan, Singapore, South Korea and Japan.^[4]

Avoiding the trap[]

Avoiding the middle income trap entails identifying strategies to introduce new processes and find new markets to maintain export growth. Ramping up domestic demand is also important—an expanding middle class can use its increasing purchasing power to buy high-quality, innovative products and help drive growth.^[5]

The biggest challenge in escaping the trap is in moving from resource-driven growth that is dependent on cheap labor and cheap capital to growth based on high productivity and innovation. This requires investments in infrastructure and education—building a high-quality education system that encourages creativity and supports breakthroughs in science and technology that can be applied back into the economy.^[6] Diversifying exports is also considered important to escape the middle income trap.^[4]

See also[]

• Dual-sector model
• Human capital

References[]

Further reading[]

This section needs to be updated. Please help update this article to reflect recent events or newly available information. (March 2021)

• Asia 2050: Realizing the Asian Century. Asian Development Bank. 2011-08-01.
• "Indonesia risks falling into the middle-income trap | Asian Development Bank". Archived from the original on 2014-07-30. Retrieved 2021-03-09.
• "Philippines faces middle-income trap | The Manila Bulletin Newspaper Online". 2013-02-13. Archived from the original on 13 February 2013. Retrieved 2021-03-09.
• Russians are stuck in 'Middle Income Trap'
• January 21; 2011 (2011-01-21). "The Middle Income Trap - Latin America's Middle-Income Class". Americas Quarterly. Retrieved 2021-03-09.CS1 maint: numeric names: authors list (link)
• "How China can avoid the middle income trap". www.theaustralian.com.au. 2015-04-28. Retrieved 2021-03-09.
• "The middle-income trap has little evidence going for it". The Economist. 2017-10-05. ISSN 0013-0613. Retrieved 2021-03-09.
• Tasci, Kamil; Erinc Yeldan; Voyvoda, Ebru; Ozsan, Mehmet Emin (2013). Escape from the Middle Income Trap: Which Turkey?. Turkish Business and Enterprise Confederation. doi:10.13140/2.1.3064.4488.