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Industrial policies for avoiding the middle-income trap: a new structural economics perspective

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  • Justin Yifu Lin

Abstract

Economic development is a process of structural transformation with continuous technological innovation and industrial upgrading, which increases labor productivity, and accompanied improvements in infrastructure and institution, which reduces transaction costs. The middle-income trap is a result of a middle-income country’s failure to have a faster labor productivity growth through technological innovation and industrial upgrading than high-income countries. Industrial policy is essential for the government of a middle-income country to prioritize the use of its limited resources to facilitate technological innovation and industrial upgrading by overcoming inherent externality and coordination issues in structural transformation. The industries in a middle-income country may be classified into five different types, depending on their distance to the global technology frontier: catching-up industries, leading-edge industries, comparative advantage-losing industries, short innovation cycle industries, and comparative advantage-defying strategic industries. Industrial policy should be designed accordingly.

Suggested Citation

  • Justin Yifu Lin, 2017. "Industrial policies for avoiding the middle-income trap: a new structural economics perspective," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 15(1), pages 5-18, January.
    • Handle: RePEc:taf:jocebs:v:15:y:2017:i:1:p:5-18
    DOI: 10.1080/14765284.2017.1287539
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    2. Mariana Mazzucato, 2015. "The Green Entrepreneurial State," SPRU Working Paper Series 2015-28, SPRU - Science Policy Research Unit, University of Sussex Business School.
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    Cited by:

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    2. Popov, Vladimir, 2023. "Can China maintain high growth rates under the “dual-circulation” decoupling?," MPRA Paper 117953, University Library of Munich, Germany.
    3. Juhász, Péter & Boda, György & Stocker, Miklós & Matyusz, Zsolt, 2021. "A fenntartható gazdasági növekedés és a tudástőke [Sustainable economic growth and knowledge capital]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(S11), pages 2-35.
    4. Hal Hill, 2021. "Philippine economic development, looking backwards and forward: An interpretative essay," Departmental Working Papers 2021-24, The Australian National University, Arndt-Corden Department of Economics.
    5. Bingqiang Li & Lei Huang, 2019. "The Effect of Incremental Innovation and Disruptive Innovation on the Sustainable Development of Manufacturing in China," SAGE Open, , vol. 9(1), pages 21582440198, February.
    6. Di Tommaso, Marco R. & Prodi, Elena & Di Matteo, Dante & Mariotti, Ilaria, 2022. "Local public spending, electoral consensus, and sustainable structural change," Structural Change and Economic Dynamics, Elsevier, vol. 63(C), pages 435-453.
    7. Zhou, Haiwen, 2017. "Will China Avoid the Middle-Income Trap?," MPRA Paper 82688, University Library of Munich, Germany.
    8. Ferrannini, Andrea & Barbieri, Elisa & Biggeri, Mario & Di Tommaso, Marco R., 2021. "Industrial policy for sustainable human development in the post-Covid19 era," World Development, Elsevier, vol. 137(C).
    9. Andreoni, Antonio & Tregenna, Fiona, 2020. "Escaping the middle-income technology trap: A comparative analysis of industrial policies in China, Brazil and South Africa," Structural Change and Economic Dynamics, Elsevier, vol. 54(C), pages 324-340.
    10. Kiki Verico, 2021. "Global Pandemic 2020: Indonesia’s Output Gap and Middle-Income Trap Scenario," LPEM FEBUI Working Papers 202157, LPEM, Faculty of Economics and Business, University of Indonesia, revised 2021.
    11. Kiki Verico, 2021. "What has been happening to Indonesia’s Manufacturing Industry?," LPEM FEBUI Working Papers 202158, LPEM, Faculty of Economics and Business, University of Indonesia, revised 2021.
    12. Weimin Zhang & Wangrong Ma & Qiwei Chen, 2022. "Does Regional Development Policy Promote Industrial Structure Upgrading? Evidence from the Yangtze River Delta in China," Sustainability, MDPI, vol. 14(13), pages 1-21, July.
    13. Lin Justin Yifu & Wang Xiaobing, 2017. "The Facilitating State and Economic Development: The Role of the State in New Structural Economics," Man and the Economy, De Gruyter, vol. 4(2), pages 1-19, December.
    14. Justin Yifu Lin & Xiaobing Wang, 2019. "The Facilitating State and Economic Development: The Role of the State in New Structural Economics," Book, University of Warsaw, Faculty of Management, edition 1, volume 1, number y:2019:v:1:ch:6:p:123-141 edited by Justin Yifu Lin & Alojzy Z. Nowak, June.

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