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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. The term was introduced by the World Bank in 2006 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. According to the idea, a country in the middle income trap has lost its competitive edge in the export of manufactured goods because of 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. They suffer from low investment, slow growth in the secondary sector of the economy, limited industrial diversification and poor labor market conditions. Read all..

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Explanation

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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 idea, a country in the middle income trap has lost its competitive edge in the export of manufactured goods because of 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]

Since 1960, just 15 economies have escaped the middle income trap, including Hong Kong, Taiwan, Singapore, South Korea, Japan.[4]

Avoidance

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 is moving from resource-driven growth that is dependent on cheap labor and 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]

Some analysts have suggested that China's Belt and Road and Made in China 2025 initiatives are, in part, a strategy for the country to escape the middle income trap.[7][8]

See also

References

  1. 1 2 Graphic detail Charts, maps and infographics (2011-12-22). "Asias Middle Income Trap". Economist.com. Retrieved 2014-08-11.
  2. ↑ "The middle-income trap turns ten". World Bank. Retrieved 2021-03-09.
  3. ↑ "Indonesia risks falling into the Middle Income trap". Adb.org. 2012-03-27. Archived from the original on 2014-07-30. Retrieved 2014-08-11.
  4. 1 2 Shek, Colin (23 May 2019). "Aiming for the Top: Can China Escape the Middle Income Trap?".
  5. ↑ "Seminar on Asia 2050". Adb.org. 2011-10-18. Retrieved 2014-08-11.
  6. ↑ "Asia 2050: Realizing the Asian Century". Adb.org. 2013-05-09. Retrieved 2014-08-11.
  7. ↑ Saha, Sagatom (January 29, 2020). "The Future of Chinese Foreign Economic Policy Will Challenge U.S. Interests, Part 1: The Belt-and-Road Initiative and the Middle Income Trap". Jamestown Foundation. Retrieved 2020-02-13.
  8. ↑ "Made in China 2025: avoiding the middle-income trap". London School of Economics and Political Science. Retrieved 2021-03-09.

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