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MIDDLE INCOME TRAP (Avoiding the Middle Income Trap (Transitioning from…
MIDDLE INCOME TRAP
Avoiding the Middle Income Trap
Transitioning from diversification to specialization in production
High levels of investment in new technologies and innovation-conducive policies are 2 overarching requirements to ensure specialized production
Developing good social-safety nets and skill-retraining programs can ease the restructuring process that accompanies specialization
Shifting to productivity-led growth
Opportunities for professional talent
Addressing barriers to effective competition
Decentralized economic management
Sustaining macroeconomic stability
Changing orientation of social programmes that targets middle class besides poorer sections
Why India might get caught into middle-income trap?
Backlash against globalization
Thwarted Structural Transformation: ‘pre-mature deindustrialization’ (tendency for manufacturing to peak at lower levels of activity and earlier in the development process) is a major cause of concern
Human Capital Regression:
Climate change-induced Agricultural Stress
Fall in private consumption, muted rise in fixed investment and sluggish exports
What is middle-income trap?
refers to countries that have experienced rapid growth and thus quickly reached middle-income status (with Gross National Product per capita between $1,000 & $12,000), but then failed to overcome that income range
countries caught in the MIT are unable to compete with low-income, low-wage economies in manufactured exports and unable to compete with advanced economies in high-skill innovations
associated with a relatively sustained growth slowdown
many countries, particularly in South East Asia (e.g. Thailand, Vietnam, and Malaysia etc.), Africa (e.g. South Africa) and Latin America (e.g. Brazil) currently face the predicament of MIT
Why Do Countries Fall into the Middle Income Trap?
Inability to shift growth strategies: If a country cannot make a timely transition from resource-driven growth, with low-cost labor and capital, to productivity-driven growth, it might find itself trapped in the middle-income zone
Skewed income distribution & stagnation in middle class population
Recurring boom-bust cycles & procyclical lending