A middleincome trap refers to a situation in which an mic falls into economic stagnation and becomes unable to advance its economy to a highincome level for certain reasons specific to mics. History is littered with examples of countries such as argentina, where. Asian, middleincome trap, panel analysis, and slowdown. While the empirical results show that middleincome countries do not really fall systematically into a trap, the concept of the middleincome trap is useful for guiding policy discussions. The middleincome trap is the phenomenon of hitherto rapidly growing economies stagnating at middleincome levels and failing to graduate into the ranks of highincome countries.
Escaping the middleincome trap 411 there began earlier than in southeast and south asia and because it was compressed in time. The recent slowdown in economic growth in china has also revived the debate on what causes middleincome traps and what type of policies can help to avoid. This paper discusses in more detail definitional issues on the socalled middle income trap. Recently, countries experiencing growth stagnation at middleincome levels, a condition gill and kharas 2007 termed the middle bm. For example, in his speech at the world economic forum in davos 2015, the chinese premier li keqiang mentioned the various reforms china has to undertake in order to. Focus the middleincome trap graphic detail the economist.
Growth strategies to avoid the middleincome trap by homi kharas. Going from a poor country to a middle income country is not easy. Brazil is well positioned to escape the middleincome trap. New evidence on the middleincome trap, nber working paper, 18673, january. While the middle income economies in east asia, such as malaysia and thailand, participate actively in the regions production network, they have not risen to the sta. It is up to its leaders to make the most of that opportunity.
Abstract in recent years, the term middleincome trap has entered common parlance in the development policy community. However, very few have made the additional leap needed to become high income economies. Rather, many have gotten stuck in what has been called a middle income trap or more appropriately perhaps, an imitation trap, as discussed latercharacterized by a sharp deceleration in growth. Overcoming the middle income trap the challenge for east asian high performers east asia has attained high growth on average, but good performance is not uniform across countries. Pdf this study aims at investigating the phenomena of the middleincome trap found in developing asian countries, such as china, india, indonesia. Only countries escaped this middleincome trap, becoming highincome economies in. Normally, high wages are often related to the high skilled worker. We call the ratio of a countrys income level to the us income level the countrys score on the catchup. If the targeted growth rate of the 12th plan is achieved, as is likely, 260 million people will be living in high income provinces by 2015. The middle income trap exists for some countries that make significant progress in reducing extreme poverty and experience structural change and growth but then find it difficult to make the climb from being a middle income country to achieve high income fullydeveloped status. We aim to develop a conceptual framework for the middleincome trap mit. Only countries escaped this middle income trap, becoming high income economies in.
The country is weak in human capital in terms of health and education. Jun 12, 2019 the world bank has a definition of middle income. We argue, first, that none of the papers referred to above has provided a definition of the middle income trap, much less a theoretical treatment of the phenomenon. The middle income trap has become a broad designation trying to capture the many cases of developing countries that succeeded in evolving from low to middle levels of per capita income, but. We nd that the concept survives a rigorous scrutiny of the data, with the growth patterns of 19. Rather, many have gotten stuck in what has been called a middleincome trapor more appropriately perhaps, an imitation trap, as discussed latercharacterized by a sharp deceleration in growth. The middle income trap is largely the result of a countrys inability to continue the process of moving from low valueadded to high valueadded industries. Homi kharas is senior fellow at the brookings institution. This public event will present new research results in the areas of regional patterns of reform.
There is no middle income trap despite the bimodal distribution of per capita, we do not believe there is evidence of a middle income trap. They now face difficult choices in a competitive global market if they are to. Prepared by shekhar aiyar, romain duval, damien puy, yiqun wu, and longmei. The middleincome trap can only be addressed by political reforms that facilitate appropriate economic policies. Middleincome trap world bank documents world bank group. The middle income trap is a theoretical economic development situation in which a country that attains a certain income due to given advantages gets stuck at that level. We develop and apply a test of some necessary conditions for a country to be. Convergence trap might better explain the difficult transition to highincome status faced by at least 70 countries. Otaviano canuto, senior adviser and former vice president of the world bank, is the coauthor of the day after tomorrow. The first comprehensive discussion about the problem of a middle income trap appeared in gill et al 2007. In recent years, the term middle income trap has entered common parlance in the development policy community. Recent research suggests that growth past a certain threshold requires a qualitative shift as economies transition from labour and capitalintensive growth to. The world economic forum is an independent international organization committed to improving the state of the world by engaging business, political, academic and other leaders of society to shape global, regional and industry agendas. And once a poor country makes it to middle income levels, breaking out of the middle income trap.
Escaping the middle income trap 411 there began earlier than in southeast and south asia and because it was compressed in time. In this study we examine the middleincome trap as a special case of growth slowdowns, which are identified as large sudden and sustained deviations from the growth path predicted by a basic conditional. Linda yueh on the middle income trap after three decades of rapid growth, china is now approaching the socalled middleincome country trap. If the same growth rate can be maintained until 2020, then one billion people would be living in high income areas by that time. Since we coined the term in 2006, the middle income trap has been. Pdf on may 9, 2016, linda glawe and others published the middleincome trap definitions, theories and countries concerned. This paper provides a working definition of what the middleincome trap is. The paper presents evidence in terms of both absolute and relative thresholds.
Incorporated as a notforprofit foundation in 1971, and headquartered in geneva, switzerland, the forum is tied to no political, partisan or national interests. In this study we examine the middle income trap as a special case of growth slowdowns, which are identified as large sudden and sustained deviations from the growth path predicted by a basic. What ireland and mexico show about middleincome trap. The term itself often has not been precisely defined in the incipient literature. Growth slowdowns and the middleincome trap international. Academic work has been underway in a joint policy research initiative titled avoiding the middle income trap. Bambang brodjonegoro, our minister of national development and planning bappenas about infrastructure development in in. If the targeted growth rate of the 12th plan is achieved, as is likely, 260 million people will be living in highincome provinces by 2015. The variable of the dependency ratio, on the other hand, has a negative effect on a countrys per capita income. The middleincome trap is the phenomenon of hitherto rapidly growing economies stagnating at middle income levels and failing to graduate into the ranks of high income countries. The term middleincome trap mit usually refers to countries that have experienced rapid growth and thus quickly reached middleincome status, but then failed to overcome that income range to further catch up to the developed countries. The first comprehensive discussion about the problem of a middleincome trap appeared in gill et al 2007.
The other problem the finance minister has is that all the increase in gdp growth is not really reflecting in tax collection figures, particularly on the income tax front. Dec 11, 2014 the world economic forum is an independent international organization committed to improving the state of the world by engaging business, political, academic and other leaders of society to shape global, regional and industry agendas. The term itself often has not been precisely defined in the. If the same growth rate can be maintained until 2020, then one billion people would be living in highincome areas by that time. The middleincome trap 159 contrary to what many growth theories predict, there is no tendency for low and middleincome countries to converge toward highincome countries figure s6. In americas quarterly 5 1, checked on 240120 4 bank indonesia, 20. It begins by laying out different approaches to defining the mit and by presenting as well as classifying the most. David bloom and jeffrey williamson argue that the demographic dividend explains up to half of the east asian miracle, which they define as growth of per capita incomes in excess of the steadystate rate.
But it often has not been precisely defined in the incipient literature. We aim to develop a conceptual framework for the middle income trap mit. Nov 30, 2016 the term middle income trap mit usually refers to countries that have experienced rapid growth and thus quickly reached middle income status, but then failed to overcome that income range to further catch up to the developed countries. Why do countries fall into it, and how can it be avoided. But now malaysia stuck in the middle income trap because there are not enough high wages job created in malaysia. Escaping the middleincome trap the global economic crisis brought into sharper focus the need for east asias middleincome countries to accelerate structural reforms needed to transition through the crowded middle of industrial development and emerge as highincome economies. Indermit gill is the director for development policy in the office of the chief economist of the world bank. The concept of a middle income trap has attracted enormous interest, but the existing literature lacks formal tests. In this study we examine the middleincome trap as a special case of growth slowdowns, which are identified as large sudden and sustained deviations from the growth. Fair warning, this answer may be a bit boring for some of us. June 2015 will inequality lead china to the middle income. For example, in his speech at the world economic forum in davos 2015, the chinese premier li keqiang mentioned the various reforms china has to undertake in order to successfully overcome the middleincome trap4.
Gill and homi kharas paper presented at the 37th paftad conference, singapore, june 35, 2015. Economics on the existence of a middle income trap by. Jan 28, 2018 the other problem the finance minister has is that all the increase in gdp growth is not really reflecting in tax collection figures, particularly on the income tax front. Pdf the middleincome trap definitions, theories and countries. This paper discusses in more detail definitional issues on. Im and rosenblatt, in a new paper, present a conceptual and empirical survey of the issues. We argue, first, that none of the papers referred to above has provided a definition of the middleincome trap, much less a theoretical treatment of the phenomenon. Yet they took dramatically different approaches to development in the postwar era. The concept of a middleincome trap has attracted enormous interest, but the existing literature lacks formal tests. However, very few have made the additional leap needed to become highincome economies. In fact, most countries that were middle income in 1960 remained so in 2008 see the middle cell of the chart.
To get a better understanding of whether the performance of the middle income trap has been different from other income this paper is a product of the operations and strategy unit, development economics. A handbook on the future of economic policy in the developing world. So, as luck would have it, i recently sat on a lecture by prof. Thailand and malaysia moved from low to middleincome level by leveraging cheap labor and competing on costs. Most of the research has demonstrated that economic. Hutchinson1 executive summary2 the middle income trap has come to dominate headlines and policy discussions in the asiapacific. Aug 05, 20 developing asias share of global gdp has risen inexorably over the last 30 years. Both ireland and mexico maintained a roughly similar level of development in terms of per capita income going back as early as the 1920s, and both adopted political democracy. Firstly, the bulk of em countries find themselves in middle income simply because they started out with very low per capita incomes and have yet to reach the higher income threshold. We start by defining four income groups of gdp per capita in 1990. Will india be able to avoid the middle income trap.
A middle income trap refers to a situation in which an mic falls into economic stagnation and becomes unable to advance its economy to a high income level for certain reasons specific to mics. The advantages of lowcost labour and imitation of foreign technology can disappear when middle and uppermiddleincome levels are reached. Convergence trap might better explain the difficult transition to high income status faced by at least 70 countries. In recent years, policymakers in slowergrowing middleincome countries have become preoccupied with the notion that they are stuck in a middleincome trap. The majority of countries that were poor fifty years ago are still poor today. Analysis and recommendations, the authors have looked at various challenges and opportunities across the region. The middle income trap mit refers to a situation that some countries face, where they are unable to compete against advanced economies with high levels of innovation and valueadding activities, but are also unable to compete with less developed economies that have cheaper labor. June 2015 will inequality lead china to the middle income trap.