Convergence Success and the Middle-Income Trap

Abstract

This paper investigates the economic growth experiences of middle-income economies over the period 1960-2014 focusing on two groups of countries. The "convergence success" group includes middle-income economies which have graduated to a high-income status or have achieved rapid convergence progress. When an economy in the "nonsuccess" group experienced growth deceleration and failed to advance to a high-income status, we defined such episodes as the "middle-income trap." We observe no clear pattern that the relative frequency of growth deceleration was higher for upper middle-income economies, thereby refuting the "middle-income trap hypothesis." The probit regressions show that "convergence successes" tend to maintain strong human capital, a high working-age population ratio, effective rule of law, low-priced investment goods, and high levels of high-tech exports and patents. Adding to unfavorable demographic, trade, and technological factors, rapid investment expansion, hasty deregulation, and hurried financial opening could cause the "nonsuccesses" to fall into the middle-income trap.