Middle income trap

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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 World Bank defines 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.

Contents

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 industrialised 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. [2]

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. [3]

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. [4]

Some analysts have suggested that China's Belt and Road Initiative is, in part, a strategy for the country to escape the middle income trap. [5]

See also

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References

  1. 1 2 Graphic detail Charts, maps and infographics (2011-12-22). "Asias Middle Income Trap". Economist.com. Retrieved 2014-08-11.
  2. "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.
  3. "Seminar on Asia 2050". Adb.org. 2011-10-18. Retrieved 2014-08-11.
  4. "Asia 2050: Realizing the Asian Century". Adb.org. 2013-05-09. Retrieved 2014-08-11.
  5. 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.

Further reading