Middle income trap
As wages rise, manufacturers often find themselves unable to compete in export markets with lower-cost producers elsewhere. Yet, they still find themselves behind the advanced economies in higher-value products. This is the middle-income trap which saw, for example, South Africa and Brazil languish for decades in what the World Bank call the “middle income” range (about $1,000 to $12,000 gross national income per person measured in 2010 money).
Typically, countries trapped at middle-income level have: (1) low investment ratios; (2) slow manufacturing growth; (3) limited industrial diversification; and (4) poor labor market conditions.
Avoiding the middle income trap
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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- "Indonesia risks falling into the Middle Income trap". Adb.org. 2012-03-27. Retrieved 2014-08-11.
- "Seminar on Asia 2050". Adb.org. 2011-10-18. Retrieved 2014-08-11.
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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