The middle income trap

As the middle or consumer class in countries with developing economies grows, do these countries face newer, higher hurdles? An economic development concept that is increasingly used by economists and international financial institutions considers the possibility of a middle income trap.
 
According to an IMF working paper, the “middle-income trap” is the phenomenon of hitherto rapidly growing economies stagnating at middle-income levels and failing to graduate into the ranks of high-income countries. The chart below maps national economies' progress from 1960 to 2008, from low to high income.

“World Bank (2012) estimates that of 101 middle-income economies in 1960, only 13 became high income by 2008”

Zoning into South East Asia, the region with some of the fastest growing economies in the world, a report by the Heritage Foundation covers the risks facing Indonesia, the Philippines, Thailand and Vietnam, and explains how these countries can avoid, or escape, this trap. At the end of this report, the author shared his view on the middle-income-trap statuses of these four countries.

Applying this analysis to other middle-income countries could be an approach for us to flag out other middle-income countries that are already “trapped” with limited growth potential.

Image source: The Economist

-- Jia Yan Toh

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