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.[1]
Dynamics
A country in the middle income trap will 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.[1] They suffer from low investment, slow growth in the secondary industry, 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 which encourages creativity and supports breakthroughs in science and technology.[4]
See also
References
- ^ a b Graphic detail Charts, maps and infographics (2011-12-22). "Asias Middle Income Trap". Economist.com. Retrieved 2014-08-11.
- ^ "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.
- ^ "Asia 2050: Realizing the Asian Century". Adb.org. 2013-05-09. Retrieved 2014-08-11.
Further reading
- Asia 2050: Realizing the Asian Century
- Indonesia Risks Falling into the Middle Income Trap
- Philippines Faces Middle Income Trap
- Russians are stuck in 'Middle Income Trap'
- Latin America's Middle Income Trap
- How China can avoid the middle income trap
- Yeldan, Erinç, Kamil Tascı, Ebru Voyvoda and Emin Ozsan (2013) “Escaping the Middle Income Trap: Which Turkey?” Turkish Enterprise and Business Confederation (TURKONFED), Istanbul.