José Antonio Ocampo | November 9 | OECD

The intense growth enjoyed by a group of emerging economies during the last two decades drove some analysts to predict the beginning of a new stage of generalised economic convergence. In their vision, more and more middle-income countries (MICs) were likely to reach high-income status in the near future, taking advantage of the new opportunities provided by access to financial markets, information technology and international trade, including the development of global value chains.

Unfortunately, data have not confirmed these optimist predictions. Actually, up to now, economic convergence has been a selective opportunity for a small group of countries, and rather a generalised tendency for the whole group of MICs. Moreover, there is growing evidence that trespassing the low-income threshold and achieving middle-income status is not enough for countries to converge toward high-income levels. Few MICs have successfully completed that transition in recent decades, with the majority getting stuck in the middle-income group, thus facing what has come to be called the middle-income trap.

It must be admitted that the concept of a middle-income trap does not have a univocal meaning. Basically, it refers to the specific obstacles that MICs face in maintaining a sustained process of convergence to a high-income status. For many authors these obstacles emerge when countries reach a certain level of income per capita (between USD 5000 and USD 15000), as they need then to consolidate a more complex productive structure and change their growth regime, moving from one based on the accumulation of factors to another oriented toward continuous productivity improvements. Other authors, however, consider the middle-income trap to be associated not so much with an absolute level of income, but with a larger set of difficulties that countries located in the intermediate places of the international income ladder face in sustaining a process of convergence toward upper positions.

Originally published by OECD. Read the full article here