Middle income trap
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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 World Bank defines 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 idea, a country in the middle income trap has lost its competitive edge in the export of manufactured goods because of 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.
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—building a high-quality education system that encourages creativity and supports breakthroughs in science and technology that can be applied back into the economy.
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Middle income trap
- 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
- "The Middle-Income Trap. Mixed-Income Myths," The Economist October 17th -- 13th 2017, pp. 6-8.
- Yeldan, Erinç, Kamil Tascı, Ebru Voyvoda and Emin Ozsan (2013) “Escaping the Middle Income Trap: Which Turkey?” Turkish Enterprise and Business Confederation (TURKONFED), Istanbul.