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Middle-Income Transitions: Trap or Myth?

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  • Felipe, Jesus

    (Asian Development Bank)

  • Kumar, Utsav

    (Asian Development Bank)

  • Galope, Reynold

    (Georgia State University)

Abstract

During the last few years, the newly coined term middle-income trap has been widely used by policymakers to refer to the middle-income economies that seem to be stuck in the middle-income range. However, there is no accepted definition of the term in the literature. In this paper, we study historical transitions across income groups to see whether there is any evidence that supports the claim that economies do not advance. Overall, the data rejects this proposition. Instead, we argue that what distinguishes economies in their transition from middle to high income is fast versus slow transitions. We find that, historically, it has taken a “typical” economy 55 years to graduate from lower-middle income ($2,000 in 1990 purchasing power parity [PPP] $) to upper-middle income ($7,250 in 1990 PPP $). Likewise, we find that, historically, it has taken 15 years for an economy to graduate from upper-middle income to high income (above $11,750 in 1990 PPP $). Our analysis implies that as of 2013, there were 10 (out of 39) lower-middle-income economies and that 4 (out of 15) upper-middle-income economies that were experiencing slow transitions (i.e., above 55 and 15 years, respectively). The historical evidence presented in this paper indicates that economies move up across income groups. Analyzing a large sample of economies over many decades, indicates that experiences are wide, including many economies that today are high income that spent many decades traversing the middle-income segment.

Suggested Citation

  • Felipe, Jesus & Kumar, Utsav & Galope, Reynold, 2014. "Middle-Income Transitions: Trap or Myth?," ADB Economics Working Paper Series 421, Asian Development Bank.
  • Handle: RePEc:ris:adbewp:0421
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    References listed on IDEAS

    as
    1. Barry Eichengreen & Donghyun Park & Kwanho Shin, 2012. "When Fast-Growing Economies Slow Down: International Evidence and Implications for China," Asian Economic Papers, MIT Press, vol. 11(1), pages 42-87, Winter/Sp.
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    3. Barry Eichengreen & Donghyun Park & Kwanho Shin, 2013. "Growth Slowdowns Redux: New Evidence on the Middle-Income Trap," NBER Working Papers 18673, National Bureau of Economic Research, Inc.
    4. Jesus Felipe & Arnelyn Abdon & Utsav Kumar, 2012. "Tracking the Middle-income Trap: What Is It, Who Is in It, and Why?," Economics Working Paper Archive wp_715, Levy Economics Institute.
    5. Ulf Olsson, 1979. "Maximum likelihood estimation of the polychoric correlation coefficient," Psychometrika, Springer;The Psychometric Society, vol. 44(4), pages 443-460, December.
    6. Homi Kharas & Harinder Kohli, 2011. "What Is the Middle Income Trap, Why do Countries Fall into It, and How Can It Be Avoided?," Global Journal of Emerging Market Economies, Emerging Markets Forum, vol. 3(3), pages 281-289, September.
    7. Homi Kharas & Harinder Kohli, 2011. "What Is the Middle Income Trap, Why do Countries Fall into It, and How Can It Be Avoided?," Global Journal of Emerging Market Economies, Emerging Markets Forum, vol. 3(3), pages 281-289, September.
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    More about this item

    Keywords

    middle-income trap; middle-income transition;

    JEL classification:

    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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