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Middle‐income country trap and total factor productivity growth

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  • Young Hoon Lee
  • Jungsoo Park

Abstract

This study assessed the factors allowing middle‐income countries to achieve higher income levels and thus escape the middle‐income trap (MIT). By deriving a stochastic production function using the Cornwell–Schmidt–Sickles (CSS) estimator and country panel data, we successfully distinguished between growth due to total factor productivity (TFP) and that attributable to various production inputs after controlling for random shocks and cross‐sectional dependence. We found that TFP growth was the main factor distinguishing middle‐income countries that have and have not escaped from the MIT; the former countries had significantly higher TFP growth.

Suggested Citation

  • Young Hoon Lee & Jungsoo Park, 2024. "Middle‐income country trap and total factor productivity growth," Pacific Economic Review, Wiley Blackwell, vol. 29(2), pages 214-229, May.
    • Handle: RePEc:bla:pacecr:v:29:y:2024:i:2:p:214-229
    DOI: 10.1111/1468-0106.12439
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    References listed on IDEAS

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    1. Seung Ahn & Young Lee & Peter Schmidt, 2007. "Stochastic frontier models with multiple time-varying individual effects," Journal of Productivity Analysis, Springer, vol. 27(1), pages 1-12, February.
    2. Aiyar, Shekhar & Duval, Romain & Puy, Damien & Wu, Yiqun & Zhang, Longmei, 2018. "Growth slowdowns and the middle-income trap," Japan and the World Economy, Elsevier, vol. 48(C), pages 22-37.
    3. Fernando Gabriel Im & David Rosenblatt, 2015. "Middle-Income Traps: A Conceptual and Empirical Survey," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 6(03), pages 1-39.
    4. Peter C. B. Phillips & Donggyu Sul, 2003. "Dynamic panel estimation and homogeneity testing under cross section dependence *," Econometrics Journal, Royal Economic Society, vol. 6(1), pages 217-259, June.
    5. Homi Kharas & Indermit Gill, 2007. "An East Asian Renaissance : Ideas for Economic Growth," World Bank Publications - Books, The World Bank Group, number 6798.
    6. Jungsuk Kim & Jungsoo Park, 2018. "The Role of Total Factor Productivity Growth in Middle-Income Countries," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 54(6), pages 1264-1284, May.
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