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The Human Capital Roots of the Middle Income Trap: The Case of China


  • Zhang, Linxiu
  • Yi, Hongmei
  • Luo, Renfu
  • Liu, Changfang
  • Rozelle, Scott


China, like other middle income countries, is facing the challenges of the next stage of development as its leaders seek to guide the nation into becoming a high income country. At this same point of development, however, other countries have faltered, raising the possibility of stagnation or collapse. The stagnation of growth after reaching a level of income high enough to be call “middle income” is a phenomenon which some observers call the Middle Income Trap. In this paper we explore one of the major challenges that nations, including China, must face in the transition from middle to high income: the management of inequality. In particular, we explore the possible roots of future inequality that is associated with a nation’s underinvestment in the human capital of broad segments of its population. To meet this goal we first look at several benchmarks of successful transitions from middle to high income (e.g., the case of South Korea) and not-so-successful transitions (Mexico). We then exam more systematically the characteristics of countries that have successfully transitioned (or graduated) from middle to high income (Graduates) and those that are attempting to do so now (Aspirees). With this background, we describe the challenges that China faces in the light of rising wage rates and highly unequal income distribution today. We also document the high levels of human capital inequality in China today, a harbinger of high future inequality. In discussing the sources of the human capital inequality, in addition to the structural and institutional barriers that are discouraging many students (and their parents) from staying in school to achieve the levels of learning that we believe are necessary for preparing individuals for employment in the coming decades, we also identify severe nutritional and health problems. We believe that these nutrition and health problems, unless addressed, are creating serious China’s human capital deficiencies in poor areas of rural China and locking in decades of hard-to-address inequality. The paper ends with a call for leaders in China (and countries at the same level of income of China) to launch immediately a war on poor education, health and nutrition as one step in helping such nations avoid the Middle Income Trap in the future.

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  • Zhang, Linxiu & Yi, Hongmei & Luo, Renfu & Liu, Changfang & Rozelle, Scott, 2012. "The Human Capital Roots of the Middle Income Trap: The Case of China," 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil 131119, International Association of Agricultural Economists.
  • Handle: RePEc:ags:iaae12:131119

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    References listed on IDEAS

    1. Yusuf , Shahid & Nabeshima, Kaoru, 2009. "Can Malaysia escape the middle-income Trap ? a strategy for Penang," Policy Research Working Paper Series 4971, The World Bank.
    2. Gustavo J. Bobonis & Edward Miguel & Charu Puri-Sharma, 2006. "Anemia and School Participation," Journal of Human Resources, University of Wisconsin Press, vol. 41(4).
    3. David G. Blanchflower & Andrew J. Oswald, 1995. "The Wage Curve," MIT Press Books, The MIT Press, edition 1, volume 1, number 026202375x, July.
    4. Robert J. Barro, 1991. "Economic Growth in a Cross Section of Countries," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 407-443.
    5. Xiaobing Wang & Chengfang Liu & Linxiu Zhang & Renfu Luo & Thomas Glauben & Yaojiang Shi & Scott Rozelle & Brian Sharbono, 2011. "What is keeping the poor out of college?: Enrollment rates, educational barriers and college matriculation in China," China Agricultural Economic Review, Emerald Group Publishing, vol. 3(2), pages 131-149, May.
    6. Liu, Chengfang & Zhang, Linxiu & Luo, Renfu & Wang, Xiaobing & Rozelle, Scott & Sharbono, Brian & Adams, Jennifer & Shi, Yaojiang & Yue, Ai & Li, Hongbin & Glauben, Thomas, 2011. "Early commitment on financial aid and college decision making of poor students: Evidence from a randomized evaluation in rural China," Economics of Education Review, Elsevier, vol. 30(4), pages 627-640, August.
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    9. Xinxin Chen & Yaojiang Shi & Di Mo & James Chu & Prashant Loyalka & Scott Rozelle, 2013. "Impact of a Senior High School Tuition Relief Program on Poor Junior High School Students in Rural China," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 21(3), pages 80-97, May.
    10. Gordon H. Hanson & Ann Harrison, 1999. "Trade Liberalization and Wage Inequality in Mexico," ILR Review, Cornell University, ILR School, vol. 52(2), pages 271-288, January.
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    Cited by:

    1. Tyers, Rod, 2014. "Looking inward for transformative growth," China Economic Review, Elsevier, vol. 29(C), pages 166-184.
    2. Song, Yang, 2014. "What should economists know about the current Chinese hukou system?," China Economic Review, Elsevier, vol. 29(C), pages 200-212.
    3. repec:eee:chieco:v:46:y:2017:i:s:p:s3-s16 is not listed on IDEAS
    4. Bai, Yunli & Zhang, Linxiu & Yi, Hongmei & Zheng, Liming & Rozelle, Scott, 2017. "The Impact of an Academic High School Tuition Relief Program on Students’ Matriculation into High Schools in Rural China," China Economic Review, Elsevier, vol. 43(C), pages 16-28.
    5. Gill,Indermit S. & Kharas,Homi, 2015. "The middle-income trap turns ten," Policy Research Working Paper Series 7403, The World Bank.
    6. Shenggen Fan & Ravi Kanbur & Shang-Jin Wei & Xiaobo Zhang, 2013. "The Economics of China: Successes and Challenges," NBER Working Papers 19648, National Bureau of Economic Research, Inc.

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