Structural Change and Innovation as Exit Strategies from the Middle Income Trap

42 Pages Posted: 3 May 2014

See all articles by Marco Vivarelli

Marco Vivarelli

Universita Cattolica del Sacro Cuore, Milano; IZA Institute of Labor Economics


This paper is intended to provide an updated discussion on a series of issues that the relevant literature suggests to be crucial in dealing with the challenges a middle income country may encounter in its attempts to further catch-up a higher income status. In particular, the conventional economic wisdom – ranging from the Lewis-Kuznets model to the endogenous growth approach – will be contrasted with the Schumpeterian and evolutionary views pointing to the role of capabilities and knowledge, considered as key inputs to foster economic growth.Then, attention will be turned to structural change and innovation, trying to map – using the taxonomies put forward by the innovation literature – the concrete ways through which a middle income country can engage a technological catching-up, having in mind that developing countries are deeply involved into globalized markets where domestic innovation has to be complemented by the role played by international technological transfer.Among the ways how a middle income country can foster domestic innovation and structural change in terms of sectoral diversification and product differentiation, a recent stream of literature underscores the potentials of local innovative entrepreneurship, that will also be discussed bridging entrepreneurial studies with the development literature.Finally, the possible consequences of catching-up in terms of jobs and skills will be discussed.

Keywords: catching-up, structural change, globalization, capabilities, innovation, entrepreneurship

JEL Classification: O14, O33

Suggested Citation

Vivarelli, Marco, Structural Change and Innovation as Exit Strategies from the Middle Income Trap. IZA Discussion Paper No. 8148. Available at SSRN:

Marco Vivarelli (Contact Author)

Universita Cattolica del Sacro Cuore, Milano ( email )

Largo Gemelli 1
Milano, 20123

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072

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