Technology adoption and the middle‐income trap: Lessons from the Middle East and East Asia

Rabah Arezki,Ha Nguyen,Rachel Yuting Fan

doi:10.1111/rode.12775

Abstract

AbstractThis paper documents the existence of a “middle‐income trap” for the Middle East and North Africa region and contrasts the evidence with that of the East Asia and Pacific region. The results are twofold. First, nonparametric regressions show that the average rate of economic growth in the Middle East and North Africa has not only been significantly lower than that in the East Asia and Pacific region, but has also tended to drop at an earlier level of income. Second, econometric results point to the Middle East and North Africa having experienced a relatively slow pace of technology adoption in general‐purpose technologies and that a slower adoption pace of technology is associated with significantly lower economic growth. The paper concludes that barriers to the adoption of general‐purpose technologies related to the lack of contestability in key sectors constitute an important channel of transmission for the middle‐income trap.

Highlights

The term “middle-income trap”, first coined by Gill, Kharas and others (2007), refers to the possibility that economies could get stuck at a certain level of income.1 The term was meant to spark a debate on development policies in middle-income countries (Gill and Kharas, 2015)
This paper documented the existence of a “middle-income trap” for the Middle East and North Africa region (MENA)
It argued that MENA economic woes offer new insights into the debate on the trap, which has far focused on the East Asia and Pacific region (EAP)

Summary

Introduction

The term “middle-income trap”, first coined by Gill, Kharas and others (2007), refers to the possibility that economies could get stuck at a certain level of income. The term was meant to spark a debate on development policies in middle-income countries (Gill and Kharas, 2015). We document the existence of a middle-income trap for MENA and contrast this to EAP. Results from non-parametric regressions show that growth in GDP per capita and total factor productivity (TFP) in MENA quickly decline as income levels rise. For all technologies, when controlling for the level of income, MENA falls behind EAP in terms of the pace of adoption. The contribution of this paper is not to give a definitive answer about the empirical validity of the middle-income trap but rather provide evidence that MENA is subject to much lower levels of growth along the income ladder compared to EAP. This paper documents MENA’s slow pace of adoption in GPT which can help explain the pervasive low growth in TFP.

Empirical Evidence for the Middle East’s Middle-Income Trap

Empirical Evidence for the Slow Pace of Technology Adoption in MENA

Findings

Conclusion