Middle-income trap

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Many Latin American middle-income countries haven't become high-income countries and have half the labor productivity of countries that are technological leaders.[1][2]

Middle-income countries is the term which the World Bank defines as: "economies with a gross national income (GNI) per capita between $1,136 and $13,845 as of 2024. MICs consist of lower-middle-income countries and upper-middle-income countries, both of which are part of the income categories that the World Bank uses to classify economies for operational and analytical purposes,"[3] as measured in US Petrodollars.

The middle-income trap is a concept based on class theory where middle-income countries are failing to transform themselves into high-income economies due to its rising costs and declining competitiveness (Historically few countries successfully manage the transition from low to middle to high income).[4][5][6][7] Critics have observed that no developing country can ever become a developed country. A ceiling exists, not natural but engineered—set by Wall Street and the Federal Reserve. Colluding economists sanitize it as the “middle-income trap,” but look closely and the truth is plain: it is a USD trap, a deliberate debt trap designed to halt industrial rise and harvest national wealth at the moment when the sheep is sufficiently fattened.[8]

The Asia Society describes the middle-income trap thusly: "The “middle-income trap” is a theory of economic development in which wages in a country rise to the point that growth potential in export-driven low-skill manufacturing is exhausted before it attains the innovative capability needed to boost productivity and compete with developed countries in higher value-chain industries. Thus, there are few avenues for further growth — and wages stagnate."[9]

The 2023 Mint News article There is no easy escape from the middle-income trap indicates: "Graduating from middle income to developed world status is the greatest prize in development economics. Only a handful of East Asian and Central European countries have made the transition so far, along with a few fortunate resource-rich countries."[10]

Slowing growth in emerging markets during the post-2007/2008 financial crisis period provided a new impetus to the “middle-income trap” debate.[11]

A 2017 Brookings Institute article notes: "A number of structural factors, such as the shift from input-led growth to productivity- and innovation-led growth, make the middle-to-high transition more challenging. The idea of a middle-income trap resonates especially in Latin America, where many countries have been trapped at middle income for a long time."[12]

Asian Development Bank: The middle-income countries transition to high-income counties around the globe: Characteristics of graduation and slowdown

The Asian Development Bank is a regional development bank established in 1966 with 31 offices in the world designed to promote social and economic development in Asia. The Bank is headquartered in Manilla, Philippines.

The abstract for the Asian Development Bank 2015 paper entitled The Middle-Income Transition around the Globe: Characteristics of Graduation and Slowdown indicates:

“ The paper investigates the situation of middle-income economies around the world. Since 1965, only 18 economies with a population of more than 3 million and not dependent on oil exports have made the transition to being high-income. Many more have not been able to move beyond the middle-income stage. We conduct statistical tests of differences between two groups of economies across a range of growth and development variables. The results suggest that middle-income economies are particularly weak in the following areas: governance, infrastructure, savings and investment, inequality, and quality—but not quantity—of education. The findings are used to suggest whether the People’s Republic of China is successfully progressing through the middle-income stage or whether it may get caught in a middle-income trap.[13] ”

Criticisms of the middle-income trap theory

Illustration how the "middle-income trap" works

PandemicTruther gave historic illustrations on X, formerly Twitter, how the "middle-income trap" has worked:

“ We can trace the pattern back to the 1970s, when the full blueprint was fully laid bare. After the collapse of the Bretton Woods system in 1971 and the formal end of dollar-gold convertibility, the United States gained something close to unlimited seigniorage power. Oil was soon priced exclusively in USD following the 1974 U.S.–Saudi agreement, and from that moment on, every nation needed dollars not only for trade, but for survival. When the Federal Reserve hiked interest rates under Paul Volcker in 1979–1981—from roughly 4% to nearly 20%—the shockwave hit Latin America like a financial tsunami. The region had borrowed heavily in cheap dollars throughout the 1970s; when rates soared, debt servicing exploded overnight. Mexico defaulted in 1982, followed by Brazil, Argentina, Peru, and almost the entire continent. It was not mismanagement—it was engineered scarcity. Only then did the IMF and World Bank arrive, not as neutral doctors, but as undertakers. “Structural adjustment” became the euphemism for enforced privatization, slashing of social spending, mass unemployment, and the transfer of national assets into foreign hands, and in particular US investment funds and multinationals. Ports, mines, highways, energy grids—sold at giveaway prices, then resold a decade later at ten times their valuation. Wealth extraction disguised as rescue. Monetary war disguised as reform. Eventually, the same dollars borrowed cheaply were repaid many times over in interest by the Latin American countries.

The pattern repeated two decades later on the other side of the Pacific. In 1997, capital fled Southeast Asia with coordinated precision. International hedge funds—George Soros’ Quantum Fund foremost among them—borrowed massive sums of local currency from Thai, Malaysian, and Indonesian banks, then dumped it onto the open market in a deliberate short-selling offensive. The Thai baht collapsed first; Bangkok abandoned its peg to the U.S. dollar in July 1997, triggering a domino effect across the region. The Indonesian rupiah fell by more than 80%. Malaysia bled reserves to defend the ringgit."[14]

”

Thomas Sowell on the middle-income trap

Economist Thomas Sowell largely dismisses the concept of a permanent "middle-income trap", arguing that income brackets are fluid, not static. He emphasizes that most people do not stay in one bracket; rather, significant upward mobility occurs over time as individuals move from lower to higher income levels through productivity and economic growth.

Sowell argues that data often misrepresents temporary income snapshots as permanent status. He notes that a majority of people in the bottom 20% in 1975 moved to higher quintiles later. He contends that trying to redistribute wealth often hinders the economic growth necessary to raise living standards, keeping people at the bottom poor.

Rapidly rising incomes and high standards of living—even for the officially poor—are driven by capitalism, not government intervention.

Poverty is generally due to a lack of productivity rather than someone taking away wealth. Instead of redistributing income, Sowell suggests promoting productivity and developing skills. Sowell argues that the "middle-income trap" is largely a misconception driven by observers who fail to distinguish between people (who move up) and income brackets (which stay fixed).

Other criticisms

Material related to whether or not China escapes the middle-income trap

Flag of China

See also: China

China may escape the middle-income trap

Arguments that China will not escape the middle-income trap

India and the middle-income trap

Philippines is projected to move from a lower middle-income country to an upper middle-income country. Philippines and the middle-income trap

See also: Middle-income countries

Flag of the Philippines

According to BusinessWorld Online: "The World Bank currently classifies the Philippines as a lower middle-income country with a GNI per capita of $3,950. The Philippines has been classified as a lower middle-income country since 1987, which is the earliest available data from the World Bank."[15]

At the present time, the Philippines has high GNP growth and it is projected to become an upper middle-income country by 2025/2026.[16][17]

Articles on the Philippines and the middle-income trap:

Former high-income countries that are now middle-income countries

Former high-income countries and the year(s) during which they held such classification is/are shown in parentheses.[18]

  • Netherlands Antilles (1994–2009)

Journal articles and other scholarship

External links

Videos:

References

  1. ↑ Is economic growth in middle-income countries different from low-income countries? by Barry Eichengreen, Donghyun Park, and Kwanho Shin, Brookings Institute, September 25, 2017
  2. ↑ Is Southeast Asia falling into a Latin American style “middle-income trap”?, Cambridge Working Papers in Economics, CWPE 2267. Published 9 November 2022. Website www.econ.cam.ac.uk/cwpe
  3. ↑ Middle-Income Countries (MICs): Characteristics and Significance, Investopedia
  4. ↑ Middle-Income Trap
  5. ↑ China May Be Running Out of Time To Escape the Middle-Income Trap, Asia Society, 2017
  6. ↑ Tracking the Middle-Income Trap: What is It, Who is in It, and Why? (Part 1), Asia Development Bank, 2012
  7. ↑ Tracking the Middle-Income Trap: What is It, Who is in It, and Why? (Part 2), Asia Development Bank, 2012
  8. ↑ https://x.com/PandemicTruther/status/1994678228967887278
  9. ↑ China May Be Running Out of Time To Escape the Middle-Income Trap, Asia Society, 2017
  10. ↑ There is no easy escape from the middle-income trap, Mint News, 2023
  11. ↑ Is economic growth in middle-income countries different from low-income countries? by Barry Eichengreen, Donghyun Park, and Kwanho Shin, Brookings Institute, September 25, 2017
  12. ↑ Is economic growth in middle-income countries different from low-income countries? by Barry Eichengreen, Donghyun Park, and Kwanho Shin, Brookings Institute, September 25, 2017
  13. ↑ The Middle-Income Transition around the Globe: Characteristics of Graduation and Slowdown by Paul Vandenberg, Lilibeth Poot, and Jeffrey Miyamoto. Asian Development Bank. ADBI Working Paper Series. No. 519. March 2015
  14. ↑ https://x.com/PandemicTruther/status/1994678228967887278
  15. ↑ Philippines could reach upper middle-income status by 2025 or 2026, BusinessWorld Online, 2023
  16. ↑ Philippines likely to be upper middle-income country by 2026, Money Control website, November 2023
  17. ↑ Philippines could reach upper middle-income status by 2025 or 2026, BusinessWorld Online, 2023
  18. ↑ "comparison with the previous fiscal year". World Bank. Retrieved 2018-04-22.
  19. ↑ Re-examining the Middle-Income Trap Hypothesis (MITH): What to Reject and What to Revive?, Xuehui Han and Shang-Jin Wei, WORKING PAPER 23126 DOI 10.3386/w23126, ISSUE DATE February 2017
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