Theoretical Controversies about the Middle-Income Trap Concept
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Publication date: 2016-12-31
GNPJE 2016;286(6):5-22
This review article attempts to assess to what extent the middle income trap (MIT) concept sheds a genuinely new light on complex determinants of economic growth and to what extent it merely offers a new, more attractive form of presenting fairly well-known ways of analyzing processes of growth and development. The discussion of different interpretations of the concept’s essence as well as its links with important strands of research into economic growth and development leads to three main conclusions: a) despite its intriguing name, the MIT concept can hardly be regarded as a separate subject of analysis that significantly extends beyond a traditional framework of research on growth. In particular, the present world crisis has significantly increased the concept’s universal character, reducing its applicability to specific dilemmas faced by middle-income countries; b) by strongly emphasizing a necessary shift from a growth model based on low labor costs to a model based on a process of generating domestic innovations, the MIT concept attaches less importance to other groups of factors (quality of institutions, optimal role of the state and of the economy’s openness, degree of the politicization of the economy, macroeconomic and macrofinancial stability) the interaction of which determines the rate at which enterprises build their competitive advantages; c) perception of risk that a country will enter the MIT situation is strongly linked to changes in the income position of various social groups. A growing polarization of incomes means that some social groups are subject to protracted stagnation in their real wages, which may lead them to confuse their own individual income traps with a trap concerning the whole economy.
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