Definitions of the median income range (MIR) and MIT are made in absolute or relative terms (Im and Rosenblatt 2015; Glawe and Wagner 2016). 6 Some middle-income countries declined in low-income groups (Bolivia, Ghana, Haiti, Honduras, Nicaragua, Paraguay and Zambia).
Human Capital
Looking instead at growth performance based on the fundamentals shown in Figures 2.7A and 2.7B, average years of tertiary education have little predictive power regarding future growth; by small (not statistically significant) differences, upper-middle-income countries seem to suffer somewhat from having more tertiary education. In terms of patents, both lower-middle-income and upper-middle-income countries with above-median patents are growing more slowly.
Economic Structure
Openness
Macroeconomic Conditions
However, refugees have higher levels of external debt, which may be the result of greater access to foreign markets or more financial development. Instead, looking at growth based on fundamentals, countries with lower inflation rates grow significantly faster (figure 2.10A).
Governance and Politics
Inequality and Demographics
To summarize, the factors that stand out from the descriptive analysis in this section as associated with growth for middle-income countries are (i) economic structure, namely a faster transformation from agriculture to industry; ii) export orientation; (iii) lower inflation and external debt; and (iv) decline in inequality and age dependency ratios. In general, the following factors are significant for growth in middle-income countries: Gini coefficient (at 10% level), fertility rate (at 10% level), decline in agriculture's share of GDP (at 5% level), and trade share of GDP (at the 10% level).
Structural Variables
The regression results can be interpreted as follows: a decrease in the share of agriculture or an increase in the share of industry is positively associated with growth in both low- and middle-income countries. This is probably because services in middle-income countries are still lower productivity than industry; an expansion of services at the expense of manufacturing can actually hurt growth.
Human Capital and Inequality
Openness
This chapter analyzes the reasons behind the middle-income trap in Latin America and draws lessons for Asian countries. An analysis of the middle-income trap in Latin America is of particular interest since countries in the region have long been at the middle-income level. In Section 3.3 I examine the manifestation and reasons for the middle-income trap in Latin America.
However, they differ on the definition of the middle income trap, the reasons for it and the policy recommendations on how to avoid it. The commodity price super cycle of the 2000s and its impact on growth in Latin America is a case in point. But these limited capabilities make it more difficult for the country to catch up in the current global context, as competitive pressures and the speed of technological change are increasing, and the rise of the PRC has changed the global architecture of production (Paus.
The Global Innovation Field
Rise of China' has caused a 'Red Queen effect' where middle-income countries have to accumulate innovation capacity faster just to stay in the same place. The PRC is aiming to become one of the leaders in the new technological revolution, punching well above its weight (as measured by GDP per capita) once again. 5. As a result, in the current globalization context, there is less time to acquire the innovation capabilities needed to catch up with high-income countries.
Policy Implications
I discuss the dilemma of Latin America's middle income trap with a focus on the history and nature of structural transformation in the region and the role of government policies in shaping the accumulation of productive skills and innovation. In the framework of the debt renegotiations, the World Bank, the International Monetary Fund and the US Treasury demanded extensive liberalization of markets, in line with the rise of the neoliberal paradigm in the West, especially in the US and the UK. Trade and foreign capital would become the drivers of growth and development, and the government's role in the economy declined drastically: as a regulator, producer, and instigator of growth-enhancing structural changes.
Labor Productivity Growth and Structural Change
But the weight of manufacturing in the economy has declined (Paus, Reinhardt, and Robinson 2003), and Latin America has become the most extreme example of the widely commented phenomenon of premature deindustrialization (Rodrik 2015). In contrast to countries in Asia, the share of manufacturing value added in GDP in Latin America fell sharply during the 1990s (Figure 3.5). An important question is whether other sectors (e.g. mining and high-tech services) can generate the same dynamism in the future as a dynamic manufacturing sector for today's industrialized countries and successful development latecomers has generated in the past.
Changes in the Structure and Complexity of Exports
The World Trade Organization (WTO) Global Value Chain Participation Index shows changes in the scale and nature of GvC participation in middle-income countries of Latin America and Asia. The authors suggest that ECI reflects the complexity of the exporting country's capabilities and its ability to produce more sophisticated goods in the product space. The graphs in the Appendix show the development of the ECI ranking in the countries of Latin America and Asia over the last 50 years, i.e. the evolution of the complexity of their export in relation to other countries.
Domestic Innovation Capabilities
In math, scores in Latin America range from a low of 328 in the Dominican Republic to a high of 456. In terms of infrastructure, Latin America lags significantly behind middle-income countries in East Asia and elsewhere in terms of quantity as well as quality. As governments tried to limit fiscal deficits in the 1980s, much of the burden of adjustment fell on capital expenditure.
Disillusion with the Market-Led Model
The weighted average of public infrastructure investment for six major Latin American countries fell from 3% of GDP in the first half of the 1980s to less than 1% in the first half of the 2000s (Calderón and Servén 2012). Private investment offset some of the decline in public investment, but significantly failed to offset it, with the exception of Chile. But these same governments have generally not promoted a comprehensive productive transformation to generate more jobs at decent wages, so that the children who receive more education through cash transfers will also have jobs in the future.
Inequality and the Middle-Income Trap
Third, high inequality can make it difficult to raise the tax revenue needed for government investment in promoting necessary social capabilities in education and infrastructure, if this requires higher taxes on the elite. Foxley (2012) argued that a reduction in the highly unequal distribution of income and opportunity in many Latin American countries is critical to maintaining/achieving social and political peace. Rather than correct this critical flaw, most Latin American governments in the 1980s abandoned the model and chose to throw the baby out with the bathwater.
Horizontal Policies
This means that social skills must be developed so that firms have the necessary information about technology and markets, have access to the necessary financing and qualified personnel, as well as opportunities to collaborate with other firms or research entities in the innovation process. Prolonged periods of overvalued exchange rates accelerated the deindustrialization process in a number of Latin American countries in the past. In the World Bank Enterprise Surveys, a much larger proportion of firms reported access to finance as a major constraint in Latin America than in Asia (Table 3.7).
Vertical Policies
Milberg, Jiang and Gereffi (2014) argued that the failure of middle-income countries to move to more sophisticated parts of the value chain and establish brand recognition (in existing or new products) is one of the reasons for the middle-income trap. in such countries. It also means working with the affiliates of transnational corporations that produce in the country to support upgrading with complementary advances in social capabilities. In the context of GvC participation, Milberg, Jiang and Gereffi managed the relationships between.
South–South Connections
Policy Space for Active Government Policies
For example, Brazil had “voluntary” reciprocal agreements with transnational corporations, where the latter were given access to the domestic market in return for meeting local content and R&D requirements (Schneider 2016). For example, Oh (2015) provided a detailed case study of the creation of a domestic wind turbine manufacturing industry in the PRC using industrial policies that strategically disregarded WTO rules. When the US filed a complaint with the WTO and the dispute settlement body ruled against the PRC, the country complied.
Political Coalitions for an Innovation-Based Strategy
The rapid growth of the financial leverage ratio was mainly the result of the continuation of the loose monetary policy. An increase in the share of the private sector in total output by 1 percentage point increases TFP and the rate of economic growth by 0.23 percentage points. Given the possible long-term appreciation of the Chinese yuan, it is likely to be higher.
This is well below the upper limit of the norm for middle-income countries, meaning that the People's Republic of China will fall under the MIT for at least the next fifteen years. Thus, increasing the share of the manufacturing sector in the entire economy can accelerate technological accumulation.
Data
For example, in the relative benchmark sample, the averages of the value added growth rate of the manufacturing and service sectors are 3.98% and 4.29%, respectively, and we observe significant standard deviations in these two variables. When we use the absolute criterion, the means of value added growth of the manufacturing and services sectors are 3.90% and 4.20%, respectively, with only small differences from those in the relative criterion sample. It shows that a higher growth rate of the manufacturing sector is positively associated with a larger ratio of private savings, the speed of technological accumulation and faster growth of all other sectors.
Empirical Methodology
The growth relationship between services and manufacturing is also somewhat greater than the correlations between agriculture and manufacturing and other industrial manufacturing. If the sample covers a relatively long time horizon, one could impose the assumption of constancy of parameters over time but allow them to be variable across economies. 8 In the robustness check, we implement the Granger causality test here under the assumption of constancy over time.
Empirical Findings
In the short run, a 1% increase in the value added growth rate of the manufacturing sector is likely to result in a 0.149% increase. However, in the long run, a 1% increase in the value added growth rate of the services sector is likely to result in a 0.041% decrease in the manufacturing growth rate. Therefore, they find that spillover effects are stronger in the manufacturing sector than in any other sector.
Robustness Check
A small T could lead to an asymptotic bias, the well-known Nickell bias documented in the literature (Nickell 1981). Compared to the empirical results in the basic regression, there is only a marginal difference in the magnitude of the estimated coefficients. In addition to the mean group estimator and its statistical significance, we provide information from the quantiles about the estimated coefficients in the individual economy.
Conceptual Framework
Consequently, we believe that the emergence of the manufacturing sector leads to an increase in the share of private savings. We argue that the manufacturing sector can accelerate the pace of technological accumulation in the middle-income stage for the following reasons. These essential characteristics make the manufacturing sector key to TFP growth in all middle-income economies.
Econometric Methodology
Second, economies of scale, as well as its embodied and unorganized technological progress, can contribute to TFP growth in developing economies. Therefore, here we investigate the relationship between economic structure and some determinants of growth, such as the gross saving rate and the TFP growth rate. Xi,t are a set of control variables, which prove to be the main determinants of the ratio of saving to TFP growth in the literature.
Empirical Results
Studies of the PRC service industry have been limited by lack of and inaccurate information. The rest of the chapter begins with an investigation of the role of services in the PRC economy in section 6.2. Next, the growth of the service sector and its implications for avoiding the PRC middle-income trap are explored in Section 6.5.
