Abstract
While the Middle-Income Trap (MIT) has gained popularity in Europe, Asia and America in the past 15 years, little data exists about its impact on Africa. This is because, until recently, Africa had recorded minimal economic growth. However, since the year 2000, several African countries have recorded rapid economic growth to attain middle-income status, but very few have transitioned to high-income levels. This study aimed to establish Zambia’s standing regarding the MIT. A unit root model was used to test for income convergence between Zambia and the United States of America (US). In line with the study model, income convergence is equivalent to the absence of unit root in the natural log difference in per capita income between the US and Zambia. The Augmented Dickey-Fuller, Phillips-Perron test which accounts for serial correlation and GLS detrended augmented Dickey-Fuller test were used to test for the unit root. All tests identified unit root indicating the lack of GDP per capita convergence between Zambia and the US. These results indicate Zambia is at a high risk of falling into MIT. To break from the MIT, Zambia should diversify its economy and shift from input led growth to growth based on economic efficiency. The lack of sustained economic growth in Zambia is due to 1) the inability to identify new growth drivers at the middle-income stage, 2) failure to institute the required political and institutional reforms to sustain growth at MIC level.
Highlights
To break from the Middle-Income Trap (MIT), Zambia should diversify its economy and shift from input led growth to growth based on economic efficiency
This study focuses on causes of the middle-income trap that are more related to Lower-Middle-Income Countries (LMICs) in Africa
The variables were generated by converting all the GDP per capita to natural logarithm (Growth) of the 19 countries that were included in the study subtracting the natural logarithm of each of other 18 countries from the natural log of GDP per capita of the US
Summary
The term has no all-around acknowledged definition, which restricts its utilization in the monetary talk. Along these lines, the point of this article is to assist with building up an applied system for monetary examination, including the MIT idea. The transition from low to middle, and eventually, high-income status is an important economic development target for any developing country. Most scholars have argued that innovation and increase in productivity at the country level are crucial to sustaining economic growth. The gradual development of an economy from a traditional resource-driven growth to growth based on economic efficiency depends on its ability to formulate and implement innovative economic policies. All advanced economies of today went through economic development stages, which, if understood, can provide useful lessons for Least Developed Countries (LDCs)
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