Re-Examining the Middle Income Trap Hypothesis: What to Reject and What to Revive?

70 Pages Posted: 16 Dec 2015

See all articles by Xuehui Han

Xuehui Han

Shang-Jin Wei

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); International Monetary Fund (IMF); Tsinghua University - School of Economics & Management

Multiple version iconThere are 2 versions of this paper

Date Written: December 2015

Abstract

Do middle-income countries face difficult challenges producing consistent growth? Using transition matrix analysis, we can easily reject any unconditional notion of a 'middle-income trap' in the data. However, countries have different fundamentals and policies. Using a non-parametric classification technique, we search for variables that separate fast- and slow-growing countries. For middle-income countries, a relatively large working age population, sex ratio imbalance, macroeconomic stability, and financial development appear to be the key discriminatory variables. We do the same exercise for low-income countries. This framework yields conditions under which countries in the low- and middle-income ranges are trapped or even move backward.

Keywords: low-income trap, middle-income trap, regression tree, sex ratio imbalance

JEL Classification: C14, C30, F01, O11, O43

Suggested Citation

Han, Xuehui and Wei, Shang-Jin, Re-Examining the Middle Income Trap Hypothesis: What to Reject and What to Revive? (December 2015). CEPR Discussion Paper No. DP10989, Available at SSRN: https://ssrn.com/abstract=2704483

Shang-Jin Wei

Columbia Business School - Finance and Economics ( email )

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National Bureau of Economic Research (NBER)

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Centre for Economic Policy Research (CEPR)

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International Monetary Fund (IMF)

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Washington, DC 20431
United States

Tsinghua University - School of Economics & Management

Beijing, 100084
China

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