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Avoiding Middle-Income Growth Traps

Author

Listed:
  • Pierre-Richard Agénor
  • Otaviano Canuto

    () (World Bank)

  • Michael Jelenic

    () (World Bank)

Abstract

Since the 1950s, rapid growth has allowed a significant number of countries to reach middle-income status; yet, very few have made the additional leap needed to become high-income economies. Rather, many developing countries have become caught in what has been called a middle-income trap, characterized by a sharp deceleration in growth and in the pace of productivity increases. Drawing on the findings of a recently released working paper (Agénor and Canuto 2012), as well as a growing body of research on growth slowdowns, this note provides an analytical characterization of “middleincome traps” as stable, low-growth economic equilibria where talent is misallocated and innovation stagnates. To counteract middle-income traps, there are a number of public policies that governments can pursue, such as improving access to advanced infrastructure, enhancing the protection of property rights, and reforming labor markets to reduce rigidities—all implemented within a context where technological learning and research and development (R&D) are central to enhancing innovation. Such policies not only explain why some economies—particularly in East Asia—were able to avoid the middle-income trap, but are also instructive for other developing countries seeking to move up the income ladder and reach high-income status.

Suggested Citation

  • Pierre-Richard Agénor & Otaviano Canuto & Michael Jelenic, 2012. "Avoiding Middle-Income Growth Traps," World Bank - Economic Premise, The World Bank, issue 98, pages 1-7, November.
  • Handle: RePEc:wbk:prmecp:ep98
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    References listed on IDEAS

    as
    1. Commission on Growth and Development, 2008. "The Growth Report : Strategies for Sustained Growth and Inclusive Development," World Bank Publications, The World Bank, number 6507.
    2. Eeckhout, Jan & Jovanovic, Boyan, 2012. "Occupational choice and development," Journal of Economic Theory, Elsevier, vol. 147(2), pages 657-683.
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    8. Canuto, Otaviano & Dutz, Mark & Reis, José Guilherme, 2010. "Technological Learning and Innovation: Climbing a Tall Ladder," World Bank - Economic Premise, The World Bank, issue 21, pages 1-8, July.
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    Citations

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    Cited by:

    1. Han, Xuehui & Wei, Shang-Jin, 2017. "Re-examining the middle-income trap hypothesis (MITH): What to reject and what to revive?," Journal of International Money and Finance, Elsevier, vol. 73(PA), pages 41-61.
    2. repec:sgh:gosnar:y:2016:i:6:p:5-22 is not listed on IDEAS
    3. Rahmanov, Ramiz & Qasimov, Asif & Tahirova, Gulzar, 2016. "The Labor Market in Azerbaijan," EconStor Preprints 142694, ZBW - German National Library of Economics.
    4. Bhorat, Haroon & Cassim, Aalia & Hirsch, Alan, 2014. "Policy co-ordination and growth traps in a middle-income country setting: The case of South Africa," WIDER Working Paper Series 155, World Institute for Development Economic Research (UNU-WIDER).
    5. Agénor, Pierre-Richard & Neanidis, Kyriakos C., 2015. "Innovation, public capital, and growth," Journal of Macroeconomics, Elsevier, vol. 44(C), pages 252-275.
    6. Laëtitia Guilhot, 2015. "Le nouveau modèle de croissance de l’économie chinoise, un moyen pour relever le défi de la trappe à revenu intermédiaire ?," Post-Print halshs-01165405, HAL.
    7. Marco Vivarelli, 2015. "Structural Change and Innovation in Developing Economies: A Way Out of the Middle Income Trap ?," LEM Papers Series 2015/09, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    8. Shahrokhi, Manuchehr & Cheng, Huifang & Dandapani, Krishnan & Figueiredo, Antonio & Parhizgari, Ali M. & Shachmurove, Yochanan, 2017. "The evolution and future of the BRICS: Unbundling politics from economics," Global Finance Journal, Elsevier, vol. 32(C), pages 1-15.
    9. Agénor, Pierre-Richard & Dinh, Hinh T., 2015. "Social capital, product imitation and growth with learning externalities," Journal of Development Economics, Elsevier, vol. 114(C), pages 41-54.
    10. Karim El Mokri, 2016. "Morocco’s 2014- 2020 Industrial Strategy and its potential implications for the structural transformation process," Policy notes & Policy briefs 1628, OCP Policy Center.
    11. World Bank, 2015. "Peru Building on Success," World Bank Other Operational Studies 22984, The World Bank.
    12. Agenor, Pierre-Richard & Dinh, Hinh, 2013. "From Imitation to Innovation: Public Policy for Industrial Transformation," World Bank - Economic Premise, The World Bank, issue 115, pages 1-8, May.
    13. Pierre-Richard Agénor & Karim El Aynaoui, 2014. "Politiques Publiques, Transformation Industrielle, Croissance et Emploi au Maroc : Une Analyse Quantitative [Public Policy, Industrial Transformation, Growth and Employment in Morocco: A Quantitative ," Research papers & Policy papers 1403, OCP Policy Center.
    14. Agénor, Pierre-Richard & Canuto, Otaviano & Jelenic, Michael, 2014. "Access to Finance, Product Innovation, and Middle-Income Growth Traps," World Bank - Economic Premise, The World Bank, issue 137, pages 1-7, March.
    15. repec:wsi:serxxx:v:62:y:2017:i:03:n:s0217590818400052 is not listed on IDEAS
    16. Wei Sun & Xiaona Lin & Yutian Liang & Lu Li, 2016. "Regional Inequality in Underdeveloped Areas: A Case Study of Guizhou Province in China," Sustainability, MDPI, Open Access Journal, vol. 8(11), pages 1-18, November.
    17. John M. Luiz, 2016. "The Political Economy of Middle-Income Traps: Is South Africa in a Long-Run Growth Trap? The Path to “Bounded Populism”," South African Journal of Economics, Economic Society of South Africa, vol. 84(1), pages 3-19, March.
    18. Linda Glawe & Helmut Wagner, 2016. "The Middle-Income Trap: Definitions, Theories and Countries Concerned—A Literature Survey," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 58(4), pages 507-538, December.

    More about this item

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • G2 - Financial Economics - - Financial Institutions and Services
    • H0 - Public Economics - - General
    • H1 - Public Economics - - Structure and Scope of Government
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H4 - Public Economics - - Publicly Provided Goods
    • J0 - Labor and Demographic Economics - - General
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • J5 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining

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