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Middle-Income Trap - Means >> .Economic Walls - Compass >> .
How to avoid middle-income traps? Evidence from Malaysia .
China and the end of extrapolation .
Avoiding middle-income growth traps .
Europe’s growth model .
Why did Europe’s growth take-off happen first? .
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.
From 1960 to 2010, only 15/101 middle-income economies escaped the middle income trap, including Hong Kong, Taiwan, Singapore, South Korea and Japan.
Dual-Sector Model (developing economies) ..
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.
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.
From 1960 to 2010, only 15/101 middle-income economies escaped the middle income trap, including Hong Kong, Taiwan, Singapore, South Korea and Japan.
How to avoid middle-income traps? Evidence from Malaysia .
China and the end of extrapolation .
Avoiding middle-income growth traps .
Europe’s growth model .
Why did Europe’s growth take-off happen first? .
