Matias Vernengo — Middle Income Trap or the Return of US Hegemony

Short essay in Spanish for the special (40 year anniversary of the journal Coyuntura y Desarrollo, published by the Fundación de Investigaciones para el Desarrollo, FIDE). It is essentially a critique of the concept of middle-income trap and the idea of how the demographic transitions (discussed herebefore) affect the process of development. It suggests that the deindustrialization of the Latin American periphery results as much from the decisions in the hegemonic country to open up China, as from the decisions of the local elites to adopt neoliberal policies to punish its labor class. It is also noted that the deindustrialization of the central countries (particularly the US) should be taken with a certain degree of skepticism (see this old post), since manufacturing output went up (even if manufacturing employment has gone down, at least since the entry of China in the WTO), and the US maintains a significant leadership in key industrial sectors (let alone the military; see also this more recent post).

Naked Keynesianism
Middle Income Trap or the Return of US Hegemony
Matias Vernengo | Associate Professor of Economics, Bucknell University

Timothy Taylor — China Flexes Toward Consumption?

Rebalancing away from an export-led model of growth as China seeks to avoid the middle income trap.  

China has done much better than most other emerging nations in lifting people out of poverty. Now it seeks to join Japan and South Korea in joining the high income countries. 

To do this seamlessly,  China needs to innovate and streamline, increasing productivity and expanding the middle class. This is a task set in the current 5-year plan.

Convertible Economist
China Flexes Toward Consumption?
Timothy Taylor | Managing editor of the Journal of Economic Perspectives, based at Macalester College in St. Paul, Minnesota

Peter Drysdale — The problems for Asia’s growth

The middle income trap.

… there’s a whole literature out there that warns that middle income countries like China and a number of other emerging Asian economies, such as Malaysia and Thailand, face a number of major hurdles in the transition from middle to higher incomes, and others, like India and Indonesia, have still to break through to upper middle income. Over the past half century or so, many countries have committed to promoting economic development and catching up to the income and productivity levels achieved in advanced industrial economies. These emerging economies were the great hope for global growth. But the remarkable fact is that only 13 of 101 countries across the world which have made it to middle income status have been able to complete the transition from lower or middle income levels to high income levels since 1960, and catch up to the technological frontier. This is the so-called ‘middle income trap’.

David Dollar points to the strong empirical relationship between the quality of institutions (as measured by the World Governance Indicators’ Rule of Law index) and economic growth. Yet institutional quality does not change very much from year to year or sometimes even from decade to decade, so it is hard to explain why countries have periods of high growth followed by low growth (or vice versa).

The resolution of the puzzle, says Dollar, maybe that institutions which are well-suited to one phase of economic development may be ill-suited to another.…

East Asia Forum
The problems for Asia’s growth
Peter Drysdale