Middle-Income Growth Traps

40 Pages Posted: 20 Apr 2016

See all articles by Pierre-Richard Agenor

Pierre-Richard Agenor

University of Manchester - School of Social Sciences

Otaviano Canuto

World Bank

Date Written: September 1, 2012

Abstract

This paper studies the existence of middle-income growth traps in a two-period overlapping generations model of economic growth with two types of labor and endogenous occupational choices. It also distinguishes between "basic" and "advanced" infrastructure, with the latter promoting design activities, and accounts for a knowledge network externality associated with product diversification. Multiple steady-state equilibria may emerge, one of them taking the form of a low-growth trap characterized by low productivity growth and a misallocation of talent -- defined as a relatively low share of high-ability workers in design activities. Improved access to advanced infrastructure may help escape from that trap. The implications of other public policies, including the protection of property rights and labor market reforms, are also discussed.

Keywords: Economic Theory & Research, Political Economy, Labor Policies, Economic Growth, Debt Markets

Suggested Citation

Agenor, Pierre-Richard and Canuto, Otaviano, Middle-Income Growth Traps (September 1, 2012). World Bank Policy Research Working Paper No. 6210. Available at SSRN: https://ssrn.com/abstract=2152800

Pierre-Richard Agenor (Contact Author)

University of Manchester - School of Social Sciences ( email )

Oxford Road
Manchester, M13 9PL
United Kingdom

Otaviano Canuto

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

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