Re-Examining the Middle-Income Trap Hypothesis (Mith): What to Reject and What to Revive?
43 Pages Posted: 7 Feb 2017 Last revised: 13 Feb 2017
Date Written: February 2017
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 nonparametric 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 move forward or backward, or are trapped.
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