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There is No Middle Income Trap

Ha Minh Nguyen's picture

Concerns about the so-called “middle-income trap” have recently emerged among many middle-income countries, particularly after the term was coined in 2007 by two World Bank economists.  Worried that they may become “trapped” at the middle-income level, these countries are seeking a set of policies that can help them achieve strong and sustained growth and eventually help them join the league of high-income countries.

 In our recent paper, we try to shed some light on both issues. First, we do not find that countries are trapped at middle income. “Escapees” – countries that escaped the middle-income trap and obtained a per capita income higher than 50% of the U.S. level – tend to grow fast and consistently to high income, and do not stagnate at any point as a middle-income trap theory would suggest. In contrast, “non-escapees” tend to have low growth at all levels of income. In other words, while the existence of a middle income trap implies that growth rates systematically slow down as countries reach middle-income status, no such systematic slowdown is apparent in the data. Second, we provide some descriptive and econometric evidence for a different set of “fundamentals” that enable middle-income countries to grow faster than their peers. We find that faster transformation to industry, low inflation, stronger exports, and reduced inequality are associated with stronger growth.

G20 Growth Strategies

Zia Qureshi's picture

G20 Leaders concluded their summit over the weekend in Brisbane, Australia. G20 summits represent the culmination of a process of preparatory work and discussion that lasts a whole year. Concerns about weak prospects for global growth and job creation took center stage in the G20 agenda this year. Economic recovery in advanced economies has been slow and uneven and growth in the faster-growing emerging economies also has slowed. There is a growing recognition that restoring more robust global growth requires not only addressing the legacies of the global financial crisis but also implementing deeper, structural reforms to raise potential growth.

Against this background, all G20 countries were asked to prepare medium-term growth strategies to provide a systematic framework for addressing policies and priorities in the growth agenda. The strategies that have been prepared are comprehensive in scope, spanning macroeconomic policies and structural reforms to promote strong, sustainable, and balanced growth. They have a particular focus on four policy areas that the Australian G20 Presidency emphasized as key elements of the growth agenda, namely, investment and infrastructure, employment, competition and business environment, and trade. The emphasis in the strategies on investment and structural reforms is appropriate: while the proper calibration of macroeconomic policies is important to support aggregate demand in the short term, in the medium term it is the productivity-enhancing structural reforms and investments that will drive strong and sustainable growth. The strategies have benefited from an extensive process of discussion and peer review within the G20, supported by technical assessments prepared by international organizations. Final versions of these strategies were released yesterday together with the Leaders’ Communiqué and the Brisbane Action Plan (which provides an overview of these strategies).

Corrosive Subsidies in MENA

Shanta Devarajan's picture

Air pollution in Cairo Half the world’s energy subsidies are in the Middle East and North Africa Region.  These subsidies have been criticized on grounds that they crowd out public spending on valuable items such as health, education and capital investment.  Egypt for instance spends seven times more on fuel subsidies than on health.  Furthermore, the allocation of these subsidies is heavily skewed towards the rich, who consume more fuel and energy than the poor.  In Yemen, the portion of fuel subsidies going to the richest quintile was 40 percent; the comparable figure in Jordan was 45 percent and in Egypt, 60 percent.
 

Chinese Lessons: Singapore’s Epic Regression to the Mean

Danny Quah's picture

Across all recorded history, 99% of humanity has never invented a single thing. Yet, it is a truth universally acknowledged that long-run sustained progress in economic well-being arises from human creativity and innovativeness. In this regard, the average human and indeed the great majority of humanity over the last seven million years provide a completely misleading guide to what is possible.

Misapplied, the Law of Averages misinforms.
 

Poverty in Sub-Saharan Africa: “A historical perspective on land and labor”

Gareth Austin's picture
A Ghanaian carpenter shapes wood for a coffin in his workshop. ©Jonathan Ernst/World Bank

The inaugural Annual Bank Conference on Africa examined strategies for converting economic growth into poverty reduction. Taking an economic historian’s perspective, the prospects are complicated by long-term shifts in fundamental patterns, specifically from land abundance to land scarcity and, relatedly, from labor repression to landlessness as the principal source of poverty.

Why Should we Worry about Russia’s Low Growth?

Birgit Hansl's picture

Facade of a housing estate For 2014, we project that Russia’s economy will grow at an estimated 0.3-0.5 percent. This is the lowest growth rate since the global financial crisis but higher than the high-risk case scenario which was expected since the geopolitical tension started and the sanctions of the EU and the US took hold. This means that Russia’s expected economic performance in 2014 will be similar to that of the Euro-zone, even though Russia is much more dependent on the European market than the EU is on Russia.

Media (R)evolutions: Emerging Markets to Lead Sales of Technology Devices in 2015

Roxanne Bauer's picture
New developments and curiosities from a changing global media landscape: People, Spaces, Deliberation brings trends and events to your attention that illustrate that tomorrow's media environment will look very different from today's, and will have little resemblance to yesterday's.

2015 forecasts for sales of technology devices indicate global stability as the market remains at around one trillion USD, where it has hovered for the last three years. However, the forecasts also predict shifts at the country level as the top ten largest growth markets will increase by over $10 billion. Emerging markets, in which both volume and pricing contribute to positive sales, will dominate this growth. 

India will experience the highest growth rate, primarily driven by smartphones sales, followed by China. China's technology device market represents an interesting case study because it is predicted to grow by just $1.8 billion in 2015-- a mere 1% increase over the estimated 2014 total-- but that is still large enough for second place. 
 
Emerging Markets to Lead Tech Sector Growth in 2015
Infographic: Emerging Markets to Lead Tech Sector Growth in 2015 | Statista
You will find more statistics at Statista

Inequality and Africa’s IDA Middle Income Trap

Ravi Kanbur's picture



Inequality is of concern for at least three reasons. First, lower inequality per se is an objective for a decent society. Second, lower inequality improves the efficiency of economic growth in achieving poverty reduction. Third, high inequality impedes growth itself, through its impact on social cohesion and the investment climate.

When Good Is Not Good Enough For 40 Million Tanzanians

Jacques Morisset's picture
When Good Is Not Good Enough For 40 Million Tanzanians  @ Paul Scott


Tanzania has undoubtedly performed well over the past decade, with growth that has averaged approximately 7% per year, thanks to the emergence of a few strategic areas such as communication, finance, construction, and transport. However, this remarkable performance may not be enough to provide a sufficient number of decent or productive jobs to a fast-growing population that will double in the next 15 years. With a current workforce of about 20 million workers and an unemployment rate of only 2%, the challenge for Tanzanians clearly does not lie with securing a job. Rather, it is to secure a job with decent earnings.

Aid is Good for the Poor

Yumeka Hirano's picture

Enhancing the effectiveness of aid has long been the international development community’s core agenda, given the limited resources available for the fight against poverty. With the establishment of the Millennium Development Goals (MDGs) in 2000 and the implementation of the Paris Declaration (PD) on Aid Effectiveness in 2005, the international community has continued to improve the impact of aid on development. However, poverty still persists despite drastic changes in the development landscape.  


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