The World Bank in Middle Income Countries: Middle Income Countries are a diverse group by size, population and income level, and are home to 75% of the world’s population and 62% of the world’s poor. MICs also represent about one-third of global GDP and are major engines of global growth.
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. 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.
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. However, it 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. They suffer from
low investment, slow growth in the
secondary sector of the economy,
limited industrial diversification and
poor labor market conditions.
In
macroeconomics, the
secondary sector of the economy is an
economic sector in the
three-sector theory that describes the role of
manufacturing. It encompasses
industries that
produce a
finished, usable product or are involved in
construction.
This sector generally takes the
output of the primary sector (i.e.
raw materials) and creates
finished goods suitable for sale to
domestic businesses or
consumers and for
export (via distribution through the
tertiary sector). Many of these industries consume
large quantities of energy,
require factories and use
machinery; they are often classified as
light or
heavy based on such quantities. This also produces
waste materials and
waste heat that may cause
environmental problems or pollution (see
negative externalities). Examples include
textile production,
car manufacturing, and
handicraft.
Manufacturing is an important activity in promoting
economic growth and
development. Nations that export manufactured products tend to generate higher marginal
GDP growth, which supports higher
incomes and therefore marginal
tax revenue needed to fund such government expenditures as
health care and
infrastructure. Among
developed countries, it is an important source of well-paying jobs for the
middle class (e.g., engineering) to facilitate greater
social mobility for successive generations on the economy. Currently, an estimated 20% of the
labor force in the United States is involved in the secondary industry.
The secondary sector depends on the primary sector for the raw materials necessary for production. Countries that primarily produce
agricultural and other raw materials (i.e., primary sector) tend to
grow slowly and
remain either under-developed or developing economies. The value added through the
transformation of raw materials into finished goods reliably generates
greater profitability, which underlies the
faster growth of developed economies.
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 in escaping the trap is in
moving from resource-driven growth that is
dependent 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.
Diversifying exports is also considered important to escape the middle income trap.
Some analysts have suggested that China's
Belt and Road and
Made in China 2025 initiatives are, in part, a strategy for that country to escape the middle income trap.
Dual-Sector Model (developing economies) ..
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