Middle-Income Transitions: Trap or Myth?

33 Pages Posted: 3 Feb 2015

See all articles by Jesus Felipe

Jesus Felipe

Asian Development Bank

Utsav Kumar

Asian Development Bank

Reynold Galope

Georgia State University

Date Written: November 2014

Abstract

During the last few years, the newly coined term middle-income trap has been widely used by policymakers to refer to the middle-income economies that seem to be stuck in the middle-income range. However, there is no accepted definition of the term in the literature. In this paper, we study historical transitions across income groups to see whether there is any evidence that supports the claim that economies do not advance. Overall, the data rejects this proposition. Instead, we argue that what distinguishes economies in their transition from middle to high income is fast versus slow transitions. We find that, historically, it has taken a "typical" economy 55 years to graduate from lower-middle income ($2,000 in 1990 purchasing power parity [PPP] $) to upper-middle income ($7,250 in 1990 PPP $). Likewise, we find that, historically, it has taken 15 years for an economy to graduate from upper-middle income to high income (above $11,750 in 1990 PPP $). Our analysis implies that as of 2013, there were 10 (out of 39) lower-middle-income economies and that 4 (out of 15) upper-middle-income economies that were experiencing slow transitions (i.e., above 55 and 15 years, respectively). The historical evidence presented in this paper indicates that economies move up across income groups. Analyzing a large sample of economies over many decades, indicates that experiences are wide, including many economies that today are high income that spent many decades raversing the middle-income segment.

Keywords: middle-income trap, middle-income transition

JEL Classification: O10, O40

Suggested Citation

Felipe, Jesus and Kumar, Utsav and Galope, Reynold, Middle-Income Transitions: Trap or Myth? (November 2014). Asian Development Bank Economics Working Paper Series No. 421. Available at SSRN: https://ssrn.com/abstract=2558905 or http://dx.doi.org/10.2139/ssrn.2558905

Jesus Felipe (Contact Author)

Asian Development Bank ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

Utsav Kumar

Asian Development Bank ( email )

6 ADB Avenue
Central and West Asia Department
Mandaluyong City
Philippines

HOME PAGE: http://works.bepress.com/kumarutsav/

Reynold Galope

Georgia State University ( email )

35 Broad Street
Atlanta, GA 30303-3083
United States

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