The middle income plateau: Trap or springboard?

The mixed growth performance of emerging market economies has revived angst about a "middle-income trap". However, a forensic review of statistical evidence shows that middle-income countries “escape” to higher income levels more often than both poorer and richer countries. At the same time, growth slowdowns are also more frequent in this group. Recent econometric research confirms that the impact of economic policies on GDP growth is greater at middle than at lower and higher income levels. Middle-income countries harvest higher returns from structural reforms, but also meet special political economy obstacles in implementing them. The resulting policy divergences imply differences in performance, reflecting notably the uneven expansion of their high-productivity entrepreneurial firms. The paper highlights the channels through which performance improves when obstacles to policy innovations are overcome and reforms are implemented.