product of rapid growth, can play a role in triggering the trap. Our analysis shows that income inequalityis a significant factor in reducing the economic growth rate and potentially leading to a middle-incometrap.
What is a middle-income trap?
A middle-income trap refers to a situation in which an MIC falls into economic stagnation andbecomes unable to advance its economy to a high-income level for certain reasons specific to MICs.The first comprehensive discussion about the problem of a middle-income trap appeared in Gill
regard some Latin American countries as having fallen into the trap, reasoning thatthey realised fast growth to become MICs by extracting and exporting their natural resources, but fellinto a long-term stagnation thereafter. Gill
apply this observation to four countries in Asia(Indonesia, Malaysia, the Philippines and Thailand), and suggest that they should upgrade theireconomic structures.A middle-income trap in Asia is usually discussed as a future risk, whereas in Latin America it isseen as a past event and is considered solely as a delay or failure to change economic structures in atimely way. Asian MICs do not have abundant natural resources, but, as Gill
(2007) and ADB(2011) discuss, their cheap and abundant labour forces are regarded as a resource. However, even inthe ADB’s middle-income trap scenario, Asia’s economy would grow a little faster than the worldaverage. So, it has become difficult to judge if the country concerned falls into a trap or not because weno longer have a common understanding of the numerical criterion of the trap. This sometimes makesthe discussion complicated. For example, some argue that the recent decline in economic growth ratesin Asian upper-middle income countries has to be regarded as a symptom of falling into the trap, whileothers think that it marks a soft landing of the economy from a bubble-like situation.A middle-income trap is recognised as the risk of (1) long-term economic stagnation, which (2)MICs suffer from as a consequence of their economic and social structures that are unique to MICs. It isgenerally agreed that a delay or failure to change the economic structure from an input-driven growthmodel into a productivity-driven growth model is a factor in triggering the risk of a middle-income trap.However, as a “middle-income trap in Asia” has not yet been seen, a wider range of economic and socialphenomena tend to be regarded as risk factors. ADB (2011) and Eichengreen
(2011) identify thefactors of “economic slowdown”. These include inequity within a country, competition for naturalresources, carbon emission limitations, migration, global warming, bad governance and corruption,ageing populations combined with declining birthrates, absence of trade openness, and over-depreciation of currencies. Of these, the main causes of a middle-income trap should be the factors