Working Paper: NBER ID: w23126
Authors: Xuehui Han; Shangjin Wei
Abstract: Do middle-income countries face difficult challenges producing consistent growth? Using transition matrix analysis, we can easily reject any unconditional notion of a “middle-income trap” in the data. However, countries have different fundamentals and policies. Using a nonparametric classification technique, we search for variables that separate fast- and slow-growing countries. For middle-income countries, a relatively large working age population, sex ratio imbalance, macroeconomic stability, and financial development appear to be the key discriminatory variables. We do the same exercise for low-income countries. This framework yields conditions under which countries in the low- and middle-income ranges move forward or backward, or are trapped.
Keywords: Middle-Income Trap; Economic Growth; Transition Matrix Analysis
JEL Codes: O10; O40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Middle-income countries (O53) | Higher probability of moving to high-income status (J62) |
| Demographics (J11) | Growth outcomes (O40) |
| Growth rate of working-age cohort (J11) | Growth outcomes (O40) |
| Sex ratio imbalance (J79) | Growth outcomes (O40) |
| Macroeconomic stability (E60) | Growth outcomes (O40) |
| Financial development (O16) | Growth outcomes (O40) |
| Different clusters of fundamentals and policy choices (D71) | Varying growth performances (O41) |
| Growth challenges faced by middle-income countries (O11) | Growth challenges faced by low-income countries (F63) |