Middle-income Trap Research Articles

Middle-Income Trap and the Evolving Role of Institutions along the Development Path

Middle-Income Trap and the Evolving Role of Institutions along the Development Path

Methodological tools and economic models to analyse the transition to a new development trajectory in China

The primary objective of this conceptual paper is to provide the reader with a methodological toolkit for analysing China’s transition to a new economic trajectory based on qualitative production factors such as research and development and innovation, as well as highly skilled human capital, etc., which thereby could help the country in escaping the middle-income trap. The nature of the proposed methodology is impact assessment, i.e., the paper discusses the ways and means of assessing and predicting the impact of policy measures on the economy. The use of a specific set of indicators and the application of the DEA-SBM and the PSM-DID models is proposed for quantitative analyses amended by the Markov Chain Model for predictions. The main contribution of this paper to the existing body of knowledge is the proposition of a comprehensive model for evaluating economic development in general. By exploring the role of economic policies, a deeper understanding can be obtained of how the economy should be reformed and developed. It is a valuable and practical approach to compare differences and solve problems at the macro, mezzo, and microeconomic levels that can be applied to other regions and countries facing similar challenges.

Statistical Analysis of Factors Influencing Economic Growth in Zambia

Abstract: The focus of this research is to investigate the factors influencing the economic growth in Zambia. The motivation of this research is due to the unsustainable growth trends that Zambia has been experiencing in recent years. There is an assessment on whether it’s a Least Developed Country status is beared on the vulnerability to a Mid Income Trap therefore by using adapted unit root model, Granger causality tests were conducted to establish which variables affect Zambia's Gross Domestic Product (GDP) per capita income level and predispose it to the Middle Income Trap (MIT). Thus, per capita income, labor productivity, agriculture share to GDP, and manufacturing industry share to GDP were investigated. The results have shown that agriculture share of GDP strongly affects GDP per capita income while manufacturing share of GDP has a weaker effect on GDP per capita. The results obtained further indicate that a change in agriculture share of GDP strongly affects the manufacturing output. Therefore, Zambia should increase investment in agriculture and manufacturing to maintain a positive GDP per capita income growth and to catalyze growth in the secondary sectors

Update on Indonesia’s East Java Province: Still a Case of ‘Balanced Development’?

Since the 1980s, surveys have portrayed East Java Province as an economic success story, with high levels of growth spread across all major sectors in rural as well as urban settings. East Java appears a victim of its own success with large-scale investors in the processed food sector considering relocating to Central Java where minimum wages are lower. In terms of domestic investment, housing, industrial estates and offices (27 per cent), transportation and warehousing (14 per cent) and food (8 per cent) were the main destinations in Q1 22. In Q2 2022, the principal sources of foreign investment were the United States (43 per cent, comprising mainly PT Freeport Indonesia’s Rp 5 trillion realised investments in its Gresik copper smelter), Hong Kong (19 per cent), Singapore (15 per cent) and Japan (9 per cent). Another aspect of the balanced development thesis was that trade was not the driving force in growth. That still seems to be so. Input-output analysis appears to show that the province’s surplus is actually not very large – suggesting a high degree of complementarity between East Java’s agricultural, manufacturing and export sectors. While the balanced development thesis was never meant to imply that East Java’s regions had experienced a uniform stage of development, it is possible to identify ‘winners’ and ‘losers’ within the province. So, what is East Java’s future trajectory and does it continue to deserve a reputation for balanced development? In terms of investment, balance may still be the hallmark of provincial development. In order to navigate through the ‘middle-income trap’, the province will need to invest more in human capital to foster entrepreneurship, productivity and wellbeing. Management of the provincial economy will be increasingly difficult as the intricate and complex nexus of politics and business in the province evolves.

Economic Adaptability in the Absence of Democratic Corporatism: Explaining Lithuania’s Export Performance*

Viewed in light of democratic corporatism literature, Lithuania is a deviant case. Although it lacks essential institutional prerequisites deemed important for export success and flexible adaptation to external shocks, the small Baltic country has been among the best performers in the European Union on these dimensions. Lithuania has become very internationally integrated and has managed to quickly adjust to numerous shocks, such as the Russian financial crisis of 1998–99, the Global Financial Crisis of 2008–2009, and the COVID-19 pandemic. In this article, we analyse Lithuania’s export specialization and show how particular institutional elements have supported flexible adaptation and competitiveness improvements: we cover the labour market, state’s involvement in terms of domestic compensation and public goods provision, education and skills, and the role of political legitimacy. Lithuania’s case has implications for the literature on the political economy of small states and the debate regarding the middle-income trap.

Blue Sukuk: Strategi Dan Konsep Pembiayaan

Blue economy has substantial correlation with one of the sustainable development goals pillar, ocean ecosystem. Indonesia that is the biggest archipelago country in the world which has the second longest coastline has opportunity to escape from the middle-income trap by using blue economy. Projects that have important role in developing the ocean ecosystem need to be financed, and one of the financing instruments is sukuk (Islamic bond). Sukuk that used to finance ocean ecosystem projects is known as blue sukuk. This study aims to analyze alternative projects that can be financed using the instrument and strategy to make blue sukuk can be accepted globally. This research is using a qualitative method. Data that is used in this research is secondary data obtained from DJPPR, IDX, SDGs National Secretary, and related journals. Research is performed using descriptive study. This study finds that financing concepts with blue sukuk can be implemented to all projects in ocean ecosystem SDGs. Moreover, modified ijarah structure in blue sukuk and fully independent SPV is a strategy to make this instrument acceptable for all mazhab.

The Impact of Parental Migration on Multidimensional Health of Children in Rural China: The Moderating Effect of Mobile Phone Addiction.

Improving physical, mental and cognitive health is a strategic choice to help developing countries cross the middle-income trap. This paper used data from the 2019 China Rural Children Health and Nutrition Survey (n = 826), and used the Ordered Probit (Oprobit), Logit and ordinary least squares (OLS) analytical methods to systematically analyze the implications of parental migration on multidimensional health. The results indicate that parental migration significantly harms the physical and mental health of rural children, and that mobile phone addiction has a significant moderating effect. Moreover, parental migration has a greater impact on the physical health, mental health and cognitive ability of boys and rural children with low family income, while parents with higher nutrition knowledge and education can effectively improve the physical health and cognitive ability of their children. In conclusion, in order to improve the multidimensional health of rural children, the government should strengthen the policy of care and support for children whose parents migrate. Schools and families should pay attention to the supervision of rural children's mobile phone addiction.

Structural change, productive development, and capital flows: does financial “bonanza” cause premature deindustrialization?

AbstractRecent contributions to the literature on industrialization and development have confirmed that manufacturing continues to play a key role as a driver of economic development. As a corollary, these contributions highlight the importance of premature industrialization as a barrier to economic development and as one of the main sources of the middle-income trap. In this paper, we analyze the factors that may have hindered industrial development in the past four decades. In particular, we focus on the role of (non-Foreign Direct Investment) net capital inflows as a potential source of premature deindustrialization. We consider a sample of 36 developed and developing countries from 1980 to 2017, with major emphasis on the case of emerging and developing economies (EDEs) in the context of increasing financial integration. We show that periods of abundant capital inflows may have caused a significant contraction of manufacturing share to employment and GDP, as well as the decrease of the economic complexity index. We also show that the phenomena of “perverse” structural changes are significantly more relevant in EDE countries than in advanced ones and that they may similarly occur across EDE countries, regardless of structural differences in the way manufacturing contributed to their development. Based on such evidence, we conclude with some policy suggestions highlighting capital controls and external macroprudential measures taming international capital mobility as useful policy tools for promoting long-run productive development on top of strengthening (short-term) financial and macroeconomic stability.

LIMITS OF MIDDLE-INCOME TRAP IN THE REGIONAL CONTEXT

The paper aims to analyze the theoretical framework of the middle-income trap concept, depending on the possibilities of eliminating this phenomenon, in the regional context of the Moravian-Silesian Region. The presumption of this issue works with the aim that the issue of the middle income is one of the main features that are currently appearing in modern economies to a greater or lesser extent, all the more urgently in connection with the permanent situation of coronavirus pandemics, which includes all aspects of social life in modern democratic societies within the European Union. The paper addresses the most important issues and analyses the possibilities to reduce the negative effects of the middle-income trap in longer-term periods. The text points out the position of the Moravian-Silesian Region in the Czech Republic, in terms of its powers and evaluates the possibilities that the actors of the Moravian-Silesian Region have. Keywords: Middle-income trap, region, regionalism, multi-level governance, self-government

A correção do desalinhamento da taxa de câmbio real pode ajudar os países a escapar da armadilha da renda média? Uma análise de uma economia baseada em recursos naturais: Chile

ABSTRACT Chile is classified as a high-income country but suffers from the same weaknesses affecting middle-income countries. The same policies that have encouraged the dependency on natural resources and restricted the expansion of the productive and export base, have prevented the use of exchange rate policy as an instrument of economic and social development. The performance of the economy is greatly determined by the evolution of the terms-of-trade which is negatively correlated with the real exchange rate. Also, the nominal exchange rate has been used mainly as an instrument for price stability purposes rather than for economic development. Building on the exchange rate misalignment concepts developed by the New Developmentalism, the analysis shows that, at the macroeconomic level, the real exchange rate has appreciated over time. However, the evidence also shows that the industrial/manufacturing sector has an external price competitive advantage in relation to the rest of the economy. This raises the broader question as to what extent is price competitiveness a powerful enough incentive for a broad-based structural change towards innovation and more knowledge intensive production which is needed to escape the middle-income trap.

Firm-level innovation, government policies and the middle-income trap: insights from five Latin American economies

Firm-level innovation, government policies and the middle-income trap: insights from five Latin American economies

Development of the digital economy, transformation of the economic structure and leaping of the middle-income trap

PurposeCurrently, China’s economy is in the critical phase of transforming economic development patterns and replacing old growth drivers with new ones. Whether it can successfully overcome the “middle-income trap” has become a significant issue attracting wide attention.Design/methodology/approachDriven by underlying digital technologies such as artificial intelligence, blockchain, cloud computing and big data, the fourth industrial revolution featuring the booming digital economy has provided significant opportunities for China’s economy to “overtake” and overcome the “middle-income trap”. The transformation of economic development pattern, the optimization of industrial structure, and the change of growth drivers, brought by the deep integration of digital and real economies are the keys to leaping over the “middle-income trap”.FindingsFrom the supply side, the digital economy can improve the quality and efficiency of the supply side and promote the supply-side structural reform and economic growth from the following three aspects: First, promote the quality, efficiency and diversification of the supply system; second, promote networking, opening-up and synergy in the innovation system and third, promote the socialization, modularization and flexibility of production pattern. From the demand side, the digital economy can boost the new drivers of the “troika” of economic growth consisting of consumption, exports and investment by changing the market investment direction, promoting consumption upgrade and fostering export strengths. However, once these two attributes interact with each other, especially when data is combined with capital, the most adhesive factor in the market economy, a series of new social relations will then be produced based on the technical attribute, resulting in significant adjustments in social relations, involving both positive and negative externalities.Originality/valueTo overcome the “middle-income trap”, it is necessary to adapt to the laws of economic evolution and promote a fundamental change in economic growth drivers; boost the high-quality development of the digital economy by strengthening the support role of data in the digital economy; and accelerate digital industrialization and industrial digitalization to realize the integration of digital and real economies.

Relevance of middle-income trap (MIT) to the vision-based development in Bangladesh

PurposeThis study aims to investigate whether Bangladesh would avoid the middle-income trap (MIT) in its transition to a high-income country (HIC) according to its “Vision 2041”.Design/methodology/approachUsing both actual and forecasted secondary data, three MIT models of different approaches were used to evaluate the government’s vision-based projections. Moreover, crucial indicators of deindustrialization and institutional strength were linked to the investigation of potential transitions.FindingsAccording to the absolute definition and international forecasts, the Bangladesh economy might not fall into an MIT at its lower-middle-income level within the intended period due to being shorter than the defined limit. However, its real GDP per capita relative to the USA would remain far below the defined threshold limit of an upper-middle-income country (UMC) in 2041. Meanwhile, Bangladesh has reached the third of the five gradual phases and is awaiting a new transition in 2029. However, its vision-based plan would face challenges such as skills gaps, institutional reforms and successive global crises.Practical implicationsBangladesh might be trapped in MIT at the UMC level in the 2030s, with no path to renovate after the demographic dividend ends in 2047. In this regard, the government must demonstrate a strong political will to ensure the effectiveness of its policies and the viability of its institutions.Originality/valueThis study not only compared projections to forecasts using different MIT models but also connected transition phases to industrial policies and institutional strengths.

Middle Income Trap, Trade Openness and Income Convergence: Evidence from Turkey

Dünya Bankası’nın kişi başına GSYH ülke sınıflandırmasına göre Türkiye 1955 yılından araştırmanın yapıldığı 2021’e kadar geçen dönemde orta gelirli ülkeler grubunda yer almıştır. Bu çalışmada öncelikle Türkiye ekonomisinin karşılaştığı durumun orta gelir tuzağı olup olmadığı Türkiye ve referans ülke olarak alınan ABD GSYH’lerinin 1960 – 2021 dönemindeki yıllık farklarına bir geleneksel ve üç farklı yapısal kırılmalı birim kök test uygulanmak suretiyle araştırılmıştır. Bir yapısal kırılmalı test dışındaki tüm birim kök sınamalarının bulguları serinin durağan olmadığını göstermiştir. Diğer taraftan Türkiye’nin kişi başına GSYH’sinin referans ülke ABD GSYH’sine oranı ilgili dönem için nispi eşik olarak belirlenen 0,08 – 0,36 aralığında kalmıştır. Bulgular Türkiye’nin orta gelir tuzağına takıldığına dair kesin kanıtlar sağlamamakla birlikte bu riskin söz konusu olduğuna işaret etmektedir. Daha sonra Türkiye ve ABD GSYH’leri yakınsaması ile ticari açıklık, imalat sanayi ürünleri ithalatı ve ihracatı, tarımsal ürünler ithalatı ve ihracatı, ihracatın ithalatı karşılama oranı, reel efektif döviz kuru arasındaki uzun ve kısa dönem ilişkiler 1990–2021 dönemi yıllık verileri kullanılmak suretiyle araştırılmıştır. Uygulanan ARDL sınır testinin bulguları ticari açıklık düzeyindeki artışların uzun dönemde Türkiye ile ABD kişi başına GSYH’lerinin yakınsamasına neden olduğunu göstermektedir. İmalat sanayi ürünleri ithalatının toplam GSYH içindeki payındaki artışlar hem uzun hem de kısa dönemde, tarımsal ürünler ithalatının payındaki artışlar ise uzun dönemde ıraksamaya yol açmaktadır.

From structural to transition effects: Institutional dynamism as a deterrent to long-term investments by MNEs

The effect of institutional change on foreign direct investment is often conceptualized through the lens of an improving or deteriorating level of institutional quality that alters transaction costs. However, in the context of comprehensive government intervention in the past decades, this perspective ignores the potential uncertainties and costs associated with the process of institutional change. We propose that institutional change causes structural changes in transaction costs as well as accompanying transition effects due to uncertainty and learning costs. The extent of such transition effects is linked to the process characteristics of institutional change, e.g., institutional dynamism. In this paper, we examine the effects of institutional dynamism on foreign direct investment in long-term capital commitments and hypothesize a negative relationship between institutional dynamism and FDI, and a moderating effect of institutional dynamism on the relationship between institutional quality and FDI. Using investment data by US MNEs aggregated on the host country level, we find support for our hypotheses with some qualifications. We derive implications for the middle-income trap discussion as well as the ongoing fast-paced transition towards a sustainable global economy that is bound to shift attention from differences in the level of institutional quality towards differences in transition processes.

The Chinese model of development: A special East-Asian path of development for avoiding the middle-income trap?

Over the past couple of years, China has made formidable efforts to shift to new sources of economic growth, modernise the structure of its economy, accumulate human capital, and boost local innovation in order to graduate to a high-income economy. However, the pace of growth has slowed down in the past few years, entailing the risk of the country being stuck in a so-called middle-income trap (MIT). This paper reviews China's chance of avoiding the MIT by analysing four groups of factors – three quantitative and one qualitative – and using Japanese and South Korean development as reference points. The paper concludes that China is likely to be able to avoid the MIT and is expected to move into the high-income (HI) band within 7–8 years thanks to its achievements and structural reforms that have already begun. However, the paper also raises the question whether China will be able to avoid the ‘post-trap’ situation – the high-income trap – that has already trapped Japan and South Korea in the HI band.

The middle income trap: look closer and you’ll find it, but maybe not where you expected

ABSTRACT The phenomenon of the middle-income trap or growth slowdowns at any range is analysed using non-parametric local regression with the relative change in per capita GNI as a function of per capita GNI relative to the high-income country average. The existence of a middle-income trap or range of relative GNI at which convergence halts is found to be determined by the degree of smoothing in the model. Support is found for the existence of ‘traps’ for lower-(middle)-income countries up to 10–13% of the high-income country average per capita GNI as well as for countries above 54%.

Examining the Regional Disparity of Agricultural Development: A Distribution Dynamics Approach

Many scholars have argued that the increased disparity in agricultural development among countries is the crux of the regional inequality problem and exerts adverse effects on individuals’ well-being. This study thus aims to examine the distribution dynamics of global agricultural development. Specifically, it examines whether the disparity in agricultural development among countries vanishes over time and whether convergence can be achieved. On that account, a new distribution dynamics analysis method based on the stochastic kernel approach is employed at the country level. The proposed model can address the inadequacies of traditional econometric modelling methods and visualisation tools in the distribution dynamics literature. The research outcomes are as follows. Firstly, the global agricultural income disparity is primarily due to the Global South countries’ low productivity level, which lowers the world average, indicating that these countries need more fiscal and financial aid from Global North countries to boost their agricultural sector productivity levels. Secondly, regarding income division, upper-middle-income countries have been above the average output levels, indicating the invalidity of the middle-income trap for these countries’ agricultural sectors. This finding suggests that increased investment in agricultural productivity can overcome the middle-income trap. Thirdly, from a geographical perspective, Europe, Central Asia, and North America have a technological edge in the agricultural sector. In contrast, East Asia and Pacific countries have the potential to boost agricultural sector productivity. As a result, this study helps policymakers to design better schemes to improve the development of agriculture for each group and country type to improve the development of agriculture for each group and country type.

Human capital and the middle-income trap revisited

ABSTRACT Middle-income trap refers to the economic growth strategies that transition low-income countries into middle-income ones but fail to transition the middle-income countries into high-income countries. We observe the existence of a middle-income trap for upper-middle- and lower-middle-income countries. We examine the reasons for the middle-income trap using the Bayesian model averaging (BMA) and generalized method of moments (GMM). We also explore the transformation of middle-income economies into high-income economies using logistic, probit and Limited Information Maximum Likelihood (LIML) regression analyses. Random forest analysis is also used to check the robustness of the findings. BMA analysis shows that education plays an enabling role in high-income countries in determining economic growth, whereas the full potential of education is not fully utilized in middle-income countries. GMM estimations show that the education coefficient is positive and significant for high-income and middle-income countries. This implies that education plays a decisive positive role in achieving economic growth and gives a path to escape from the middle-income trap. However, the education coefficient for middle-income countries is approximately half that of high-income countries. Therefore, the findings of this study call for additional investment and focused strategies relating to human capital endowments.

On the bright side of the middle income trap. The Polish case

Abstract The paper relates to the paradigm of the middle income trap (MIT) and covers mid-run challenges to the Polish economic development. Our theoretical background is based on the concepts of comparative advantage and intra-industry trade, while the empirical analysis concentrates on a sample of 14 product clusters. Obtained results reveal the competitive position of the Polish goods leading in the global mid- and high-tech exports. These findings may serve for the evidence-based smart industry and trade policy-making in Poland, as well as of other emerging economies. The fundamental question is which industries could serve as the engines of international expansion and become likely winners.