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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 2007 who defined it 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]
The term was coined by economists Indermit Gill and Homi Kharas in 2007 when they were working on the ground strategies for East Asian economics in the World Bank report "An East Asian Renaissance: Ideas for Economic Growth". [3] [4]
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, but 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 and, increasingly, aging populations. [5]
Sociologist Salvatore Babones and Political scientist Hartmut Elsenhans call the middle-income trap a "political trap" as economic methods to overcome it exist. However, few countries use them because of their political situation. They trace the causes of the trap to the structural problems and the inequalities generated in the early development process. According to them, the wealthy elites then follow their interests by bargaining for a strong currency which shifts the economy's structure towards the consumption of luxury goods and low-wage labor laws, which prevents the rise of mass consumption and mass income. They argue that countries can escape the middle-income trap by investing in physical and human infrastructure, enforcing social policies like higher minimum wages, and having a weak currency that makes exports competitive and stimulates domestic employment. [6] [7]
According to Asian Development Bank, avoiding the middle-income trap requires identifying strategies to introduce new processes and find new markets to maintain export growth. It is also essential 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. [8] The biggest challenge is moving from resource-driven growth based on cheap labor and cheap capital to high productivity and innovation, which 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. [9]
According to the The Economist basing on data from the World Bank, from 1960 to 2022, only 23 economies has been said to have escaped the middle income trap, most notably the Four Asian Tigers of Hong Kong, Singapore, South Korea, [10] and Taiwan, Seychelles in Africa, Poland in Central Europe, as well as Saudi Arabia in the Middle East. [11] [12] Diversifying exports is also considered important to escape the middle income trap. [13]
Significant debates exist regarding the empirical validity of the “middle-income trap.” [14]
Other economists either find that there is no middle income trap [15] or claim that debates about a “middle-income trap” appear anachronistic: middle-income countries have exhibited higher growth rates than all others since the mid-1980s. [16]
The Asian Development Bank (ADB) is a regional development bank established on 19 December 1966, which is headquartered in 6 ADB Avenue, Mandaluyong, Metro Manila 1550, Philippines. The bank also maintains 31 field offices around the world to promote social and economic development in Asia. The bank admits the members of the UN Economic and Social Commission for Asia and the Pacific, and non-regional developed countries. Starting with 31 members at its establishment, ADB now has 68 members.
In ancient times, Maldives were renowned for cowries, coir rope, dried tuna fish, ambergris (maavaharu) and coco de mer (tavakkaashi). Local and foreign trading ships used to load these products in the Maldives and bring them abroad.
The economy of Vietnam is a developing mixed socialist-oriented market economy. It is the 35th-largest economy in the world by nominal gross domestic product (GDP) and the 26th-largest economy in the world by purchasing power parity (PPP). It is a lower-middle income country with a low cost of living. Vietnam is a member of the Asia-Pacific Economic Cooperation, the Association of Southeast Asian Nations and the World Trade Organization.
The Four Asian Tigers are the developed East Asian economies of Hong Kong, Singapore, South Korea, and Taiwan. Between the early 1950s and 1990s, they underwent rapid industrialization and maintained exceptionally high growth rates of more than 7 percent a year.
The category of newly industrialized country (NIC), newly industrialized economy (NIE) or middle income country is a socioeconomic classification applied to several countries around the world by political scientists and economists. They represent a subset of developing countries whose economic growth is much higher than that of other developing countries; and where the social consequences of industrialization, such as urbanization, are reorganizing society.
The 1997 Asian financial crisis was a period of financial crisis that gripped much of East and Southeast Asia during the late 1990s. The crisis began in Thailand in July 1997 before spreading to several other countries with a ripple effect, raising fears of a worldwide economic meltdown due to financial contagion. However, the recovery in 1998–1999 was rapid, and worries of a meltdown quickly subsided.
The economy of Africa consists of the trade, industry, agriculture, and human resources of the continent. As of 2019, approximately 1.3 billion people were living in 53 countries in Africa. Africa is a resource-rich continent. Recent growth has been due to growth in sales, commodities, services, and manufacturing. West Africa, East Africa, Central Africa and Southern Africa in particular, are expected to reach a combined GDP of $29 trillion by 2050.
BRIC is a term describing the foreign investment strategies grouping acronym that stands for Brazil, Russia, India, and China. The separate BRICS organisation would go on to become a political and economic organization largely based on such grouping.
The Kuznets curve expresses a hypothesis advanced by economist Simon Kuznets in the 1950s and 1960s. According to this hypothesis, as an economy develops, market forces first increase and then decrease economic inequality. The Kuznets curve appeared to be consistent with experience at the time it was proposed. However, since the 1970s, inequality has risen in the US and other developed countries, which invalidates the hypothesis.
The Asian Century is the projected 21st-century dominance of Asian politics and culture, assuming certain demographic and economic trends persist. The concept of Asian Century parallels the characterisation of the 19th century as Britain's Imperial Century, and the 20th century as the American Century.
The economy of the Middle East is very diverse, with national economies ranging from hydrocarbon-exporting rentiers to centralized socialist economies and free-market economies. The region is best known for oil production and export, which significantly impacts the entire region through the wealth it generates and through labor utilization. In recent years, many of the countries in the region have undertaken efforts to diversify their economies.
The Tiger Cub Economies collectively refer to the economies of the developing countries of Indonesia, Malaysia, the Philippines, Thailand and Vietnam, the five dominant countries in Southeast Asia.
The Chinese Century is a neologism suggesting that the 21st century may be geoeconomically or geopolitically dominated by the People's Republic of China, similar to how the "American Century" refers to the 20th century and the "British Centuries" to the 18th and 19th, same in the 17-18th centuries dominated by France and the 15-16th centuries dominated by Spain. The phrase is used particularly in association with the prediction that the economy of China may overtake the economy of the United States to be the largest in the world. A similar term is China's rise or rise of China.
The economy of East Asia comprises 1.6 billion people living in six different countries and regions. The region includes several of the world's largest and most prosperous economies: Taiwan, Japan, South Korea, China, Hong Kong, and Macau. It is home to some of the most economically dynamic places in the world, being the site of some of the world's most extended modern economic booms, including the Taiwan miracle (1950–present) in Taiwan, Miracle on the Han River (1974–present) in South Korea, Japanese economic miracle (1950–1990) and the Chinese economic miracle (1983–2010) in China.
While beginning in the United States, the Great Recession spread to Asia rapidly and has affected much of the region.
The Chinese economic reform or Chinese economic miracle, also known domestically as reform and opening-up, refers to a variety of economic reforms termed "socialism with Chinese characteristics" and "socialist market economy" in the People's Republic of China (PRC) that began in the late 20th century, after Mao Zedong's death in 1976. Guided by Deng Xiaoping, who is often credited as the "General Architect", the reforms were launched by reformists within the ruling Chinese Communist Party (CCP) on December 18, 1978, during the "Boluan Fanzheng" period. The reforms briefly went into stagnation after the 1989 Tiananmen Square protests and massacre, but were revived after Deng Xiaoping's southern tour in 1992. The reforms led to significant economic growth for China within the successive decades, considered to be one of the economic miracles in human history. In 2010, China overtook Japan as the world's second-largest economy by nominal GDP, before overtaking the United States in 2016 as the world's largest economy by GDP (PPP). On the other hand, a parallel set of political reforms were launched by Deng and his allies in the 1980s, which also inspired the then Soviet Union's Glasnost and Perestroika, but eventually ended in 1989 due to the crackdown on Tiananmen Square protests, halting further political liberalization.
The Asian Development Bank Institute (ADBI) is an Asian think tank focused on identifying effective development strategies for Asia and the Pacific, and on providing support to ADB member countries in managing development challenges. It was established in Tokyo in 1996 as a subsidiary of Asian Development Bank, with initial and subsequent financing from the Government of Japan. ADBI is located on the 8th floor of the Kasumigaseki Building in Kasumigaseki, Chiyoda, Tokyo. ADBI was ranked 1st in the world among government-affiliated think tanks in the 2020 Global Go To Think Tanks Index Report by the Think Tanks and Civil Societies Program of the University of Pennsylvania.
Salvatore Babones is an American sociologist, and an associate professor at the University of Sydney.
The Philippines' history with the World Bank started in 1945 when they became one of the first members of the International Bank for Reconstruction and Development (IBRD). Their first project with the Bank came in 1957 with the Binga Power Project. Since then, the Philippines has received $2.14 billion of disbursed loans from the IBRD. The Philippines is in the constituency entitled EDS 15, comprising Brazil, Colombia, Dominican Republic, Ecuador, Haiti, Panama, Suriname, and Trinidad and Tobago, and headed by Executive Director Fabio Kanczuk.
The economy of South Asia comprises 2 billion people living in eight countries. The Indian subcontinent was historically one of the richest regions in the world, comprising 25% of world GDP as recently as 1700, but experienced significant de-industrialisation and a doubling of extreme poverty during the colonial era of the late 18th to mid-20th century. In the post-colonial era, South Asia has grown significantly, with India advancing because of economic liberalisation from the 1980s onwards, and extreme poverty now below 15% in the region. South Asia has been the fastest-growing region of the world since 2014.
