Wednesday, July 17, 2013

What kind of countries avoid the Middle Income Trap.

Danny Quah has an interesting post on his blog on the Middle Income Trap. The graph above, originally published in China 2030: Building a Modern, Harmonious, and Creative Society, is taken from that post. The countries shown in blue are the very few that have grown their per capita GDP faster than did the United States for an extended period of time.

Quah states that "only 13 economies had managed to break out of the Middle Income Trap, from the 101 already middle-income in 1960.' These can be divided into three groups:

  • Five East Asian, Confucian tradition economies: Hong Kong China, Japan, Korea, Singapore, and Taiwan China;
  • Four PIGS economies: Portugal, Ireland, Greece, and Spain;
  • Four quite varied economies: Equatorial Guinea, Israel, Mauritius, Puerto Rico
I suspect that patronage is an important factor. The PIGS did well be entering the EU and getting catch-up assistance as well as preferential access to a huge common market. Israel and Puerto Rico similarly benefited from their special relationships with the United States. So too, Hong Kong, South Korea, Singapore and Taiwan benefited from market access to large markets and special relationships with major powers. Equatorial Guinea had lots of oil recently discovered and not many people. Mauritius is a member of the Commonwealth and the Francophonie, and has benefited from a favorable location to develop its tourism industry. All of these countries are relatively small.

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