By Richard F. Doner, Professor Emeritus, Department of Political Science, Emory University1
Scholars, advisors and policymakers alike have paid extensive attention to the middle-income trap. Despite some differences in definition, most agree that the “trap” refers to various conditions that have discouraged many middle-income countries from ascending to high-income status. Cross-national economic convergence has been nowhere near what was expected given middle-income countries’ access to advanced technologies and market opportunities.
By Otaviano Canuto, Senior Fellow at the Policy Centre for the New South, Non-Resident Senior Fellow at Brookings Institution, and Former Vice President at the World Bank; Matheus Cavallari, Senior Advisor and Tiago Ribeiro dos Santos, Advisor at the Board of Executive Directors of the World Bank Group. Opinions here are their own.The authors wrote chapter 12 of the recent book: Alonso, J.A. & Ocampo, J.A. (eds.), Trapped in the Middle? Developmental Challenges for Middle-Income Countries, Oxford University Press, 2020
By Rolph van der Hoeven1 International Institute of Social Studies at Erasmus University, The Hague & Member of the Committee for Development Policy of the United Nations
It is almost as if the lyrics of the world’s best rated song ‘Hotel California’ were written for the large category of middle-income countries (MICs) as since the classification was introduced in 1992 only four2 MICs outside Eastern and Western Europe (The Republic of Korea, Chile, Uruguay, and Argentina) have so far managed to ‘graduate’ to the high-income category. Are all other countries unable ‘to leave’?
It is assumed that, as countries progress, they require better institutions to manage the societal issues that emerge with more extensive and sophisticated markets and respond to the needs of a more demanding society. In other words, the development process requires a path of institutional change. However, economic and institutional processes do not necessarily evolve at the same pace, as institutions are subject to greater inertia. As a consequence, inertial institutions can fall behind social demands, or else changes in institutions may not be properly rooted in social behaviour.
These issues are particularly relevant to middle-income countries which tend to experience episodes of intense economic growth that put their institutional frameworks under pressure. Transforming expansive episodes into sustained economic convergence with high-income countries requires a continuous and successful process of institutional improvement. However, these two processes are difficult to synchronise.