Middle income trap
The middle income trap is a theorized economic development situation, where a country which attains a certain income (due to given advantages) will get stuck at that level. The concept has been coined in 2007.
Countries in the middle income trap have lost their competitive edge in the exportation of manufactured goods because their wages are on a rising trend. However, they are unable to keep up with economically 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 $10,000 to $12,000 at constant (2011) prices. They suffer from low investment, slow growth in the secondary industry, limited industrial diversification and poor labor market conditions.
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.
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. As the Republic of Korea has proven, building a high-quality education system which encourages creativity and supports breakthroughs in science and technology is key.
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- Growth Prospects: Beware the Middle Income Trap
- Asia 2050: Realizing the Asian Century
- Indonesia Risks Falling into the Middle Income Trap
- China Risks 'Middle Income Trap' without free market revolution
- What Is the Middle Income Trap, Why do Countries Fall into It, and How Can It Be Avoided?
- Philippines Faces Middle Income Trap
- Russians are stuck in 'Middle Income Trap'
- Latin America's Middle Income Trap