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 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. [2]

Contents

Origin of the term ''Middle Income Trap'' :

Economists Indermit Gill and Homi Kharas coined the term at World Bank in 2006 when they were working in the ground strategies for Eastern Asian economics. MIT is a new phenomenon and was first mentioned in 2007 in the world bank report.

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 and 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]

Avoidance

Avoiding the middle income trap requires identifying strategies to introduce new processes and find new markets to maintain export growth. It is also important to increase domestic demand, because 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 to move from resource-driven growth based 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

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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. "The middle-income trap turns ten". World Bank. 26 August 2015. Retrieved 9 March 2021.
  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?". Cheung Kong Graduate School of Business (CKGSB).{{cite web}}: CS1 maint: url-status (link)
  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.

Further reading