2013-01-16 The Middle Income Trap: A Global Perspective
    2013-01-15 17:38:54     CRIENGLISH.com         Web Editor: Chen Cong





 

To reach a middle income level is something that developing nations have been working hard to achieve. But once they get there, they need to work much harder to make it to the next level.

That is what economists refer to as the middle income trap. The key reason why the middle income trap is so difficult to break is that most developing nations have been exploiting cheap labor and using foreign investment to drive growth. Once they reach middle income levels, the labor costs go up and cheap-labor-led growth gradually runs out of steam.

To find new strength for growth often requires a middle income country to effect a shift in its growth model, that is to say to move up the value chain by encouraging innovation and producing more value-added products.

This can't happen overnight, but requires sustained and painstaking efforts from the government to make it happen. Based on World Bank's estimation, of the 101 middle-income economies in 1960, only 13 became high-income by 2008.

So what are the experiences of middle-income-turned high-income countries in overcoming the middle income trap? And what are the unique difficulties for emerging countries, such as Brazil, to become high-income countries?

Ni hao, you're listening to   People In the Know, bringing you insights into the headline news in China and around the world, I'm Zheng Chenguang in Beijing. Starting from today, we will have a series of programs to discuss about the middle income trap.

We speak to Otaviano Canuto, vice president for Poverty Reduction and Economic Management at the World Bank, and Sean Burges, a lecturer in International Relations at Australian National University and a senior research fellow at the Council on Hemispheric Affairs in Washington, DC.

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