Research Teams

DT 18/20 - La trampa de ingresos medios: nuevas exploraciones sobre sus determinantes

This article provides evidence that the external constraint, measured through export margins, explains the middle income trap (MIT) condition. This refers to the situation of stagnation or slowing down of economic growth that many countries face when they reach middle income levels. This results from an endogenous mechanism that makes these countries unable to follow the growth strategy based on simple products and standardized technologies, because their production costs increased as the country increased its income levels. However, these countries lack the necessary capacities to transform their production, incorporating sophisticated goods and services, to sustain growth and continue to increase the living standards of their population. Using static and dynamic econometric models, we corroborate a positive and significant relationship between export margin and the growth of GDPpc for those countries defined as MIT. On the contrary, this relationship is not found for other countries. Hence, a mechanism is identified that explains the situation of entrapment in middle income, overcoming the mere identification of stagnation and its empirical demarcation, and allowing us to distinguish between countries that are in transit within middle income thresholds and those that are trapped in them.
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