Convergence Success and the Middle‐Income Trap

Abstract

This paper investigates the economic growth experiences of middle‐income economies over the period 1960–2014 focusing on two groups of countries. The “convergence success” group includes middle‐income economies which have graduated to a high‐income status or have achieved rapid convergence progress. When an economy in the “nonsuccess” group experienced growth deceleration and failed to advance to a high‐income status, we defined such episodes as the “middle‐income trap.” We observe no clear pattern that the relative frequency of growth deceleration was higher for upper middle‐income economies, thereby refuting the “middle‐income trap hypothesis.” The probit regressions show that “convergence successes” tend to maintain strong human capital, a high working‐age population ratio, effective rule of law, low‐priced investment goods, and high levels of high‐tech exports and patents. Adding to unfavorable demographic, trade, and technological factors, rapid investment expansion, hasty deregulation, and hurried financial opening could cause the “nonsuccesses” to fall into the middle‐income trap.