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The Political Economy of the Middle-Income Trap: Implications for Potential Growth

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  • Yikai Wang

    (Assistant Professor, University of Oslo, Department of Economics, Oslo, Norway)

Abstract

Why do some middle-income economies implement policies to achieve sustainable growth driven by innovation, while others fail to do so? In this paper, I propose a politico-economic explanation: innovation leads to the creative destruction of existing technology that can harm the interests of the pivotal policy maker. Therefore, the pivotal policy maker may implement policies that prevent innovation and harm potential growth in order to protect its own interests. Political institutions, which are endogenously determined by fundamentals of the economy such as state capacity, shape policy maker decisions. This paper studies the relationship between growth, policies, institutions, and fundamentals. Understanding the relationship allows for the design of more efficient aid programs to help the growth of middle-income economies, especially in the long run.

Suggested Citation

  • Yikai Wang, 2016. "The Political Economy of the Middle-Income Trap: Implications for Potential Growth," Asian Development Review, MIT Press, vol. 33(2), pages 167-181, September.
    • Handle: RePEc:tpr:adbadr:v:33:y:2016:i:2:p:167-181
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    File URL: http://www.mitpressjournals.org/doi/pdf/10.1162/ADEV_a_00077
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    References listed on IDEAS

    as
    1. David Bulman & Maya Eden & Ha Nguyen, 2017. "Transitioning from low-income growth to high-income growth: is there a middle-income trap?," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 22(1), pages 5-28, January.
    2. Timothy Besley & Torsten Persson, 2009. "The Origins of State Capacity: Property Rights, Taxation, and Politics," American Economic Review, American Economic Association, vol. 99(4), pages 1218-1244, September.
    3. Han , Xuehui & Wei, Shang-Jin, 2015. "Re-examining the Middle-Income Trap Hypothesis: What to Reject and What to Revive?," ADB Economics Working Paper Series 436, Asian Development Bank.
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    Cited by:

    1. Glawe, Linda & Wagner, Helmut, 2017. "The Deep Determinants of the Middle-Income Trap," CEAMeS Discussion Paper Series 10/2017, University of Hagen, Center for East Asia Macro-economic Studies (CEAMeS), revised 2017.

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    More about this item

    Keywords

    middle-income trap; political institution; potential growth; rule of law; state capacity;
    All these keywords.

    JEL classification:

    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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