Abstract
We examine the importance of total factor productivity (TFP) growth in middle-income countries based on cross-country panel data for the period 1975–2014. We find that TFP growth contributed significantly to a country’s upward transition from middle-income to high-income country group. The TFP growth model reveals that the catch-up effect, human capital, smaller population, weak currency, and research and development (R&D) growth are significant sources of TFP growth. We do not find a systematic difference in the TFP growth models for middle-income countries. In analyzing the role of factors influencing TFP growth at different income stages, strengthening innovative activities and building innovative capacities are important in overcoming the challenges that middle-income countries face when transitioning to the high-income group. Governments of upper-middle-income countries need to initiate reform to motivate innovation by optimizing national R&D systems, and redesigning the educational system to target promoting innovation.
Highlights
In the past half century, the global economy has achieved outstanding growth performance, and many developing countries were able to reach the middle-income country status.1 Among them, only a few would eventually leap to the high-income level, while the rest of middle-income countries could not upgrade their levels of income due to stagnant economic growth
According to the October issue of the 2016 World Economic Outlook published by the International Monetary Fund, global economic growth will remain subdued in 2016 at below 3.1% growth and will increase slightly to 3.4% growth in 2017.2 A continuing fall in the trade volume growth and persistent economic slowdown of most advanced economies cast a significant doubt about the feasibility of sustainable global economic growth
The objective of our research is to examine whether total factor productivity (TFP) growth is essential for economic growth and how much TFP growth accounted for economic growth in middle-income countries
Summary
In the past half century, the global economy has achieved outstanding growth performance, and many developing countries were able to reach the middle-income country status. Among them, only a few would eventually leap to the high-income level, while the rest of middle-income countries could not upgrade their levels of income due to stagnant economic growth. In the past half century, the global economy has achieved outstanding growth performance, and many developing countries were able to reach the middle-income country status.. In the aftermath of the 2008 global financial crisis, the global economy is being challenged by a significant slowdown in economic growth despite many economic stimulus packages pursued by governments in response to the challenge. There has been rising attention in searching for causes of the current ongoing growth slowdown, and for a wide range of policies to address the deferment of economic development. The issues of hindrance of economic growth in middle-income countries have become pivotal, since emerging countries have accounted for the majority of the growth of global demand in recent years due to the fact that emerging markets expanded much faster than the advanced economies
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