Avoiding the Middle-Income Trap: Insights, Experiences, and Policies

This chapter provides an overview of the literature on middle-income traps, and draws policy lessons for African countries that have successfully crossed to middle-income status in recent years. The first part examines the descriptive and statistical evidence on these traps. The second discusses the various arguments that have been put forward to explain their existence and persistence. These arguments include diminishing returns to physical capital, exhaustion of cheap labor and imitation gains, insufficient quality of human capital, inadequate contract enforcement and intellectual property protection, distorted incentives and misallocation of talent, lack of access to advanced infrastructure, and lack of access to finance, especially in the form of venture capital. The third and fourth parts draw together the lessons that can be learnt from countries that have successfully transitioned from middle-to high-income status, and discuss how these lessons can help to prevent today’s middle-income countries in Africa from falling into a trap.