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Evidence of the middle-income trap in Pacific Alliance countries using Bayesian inference

Pardo Piñashca, Eduardo Andres (2021): Evidence of the middle-income trap in Pacific Alliance countries using Bayesian inference.

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Abstract

Slowdowns for extended periods after consistent economic expansion for middle-income countries is a well-documented phenomenon in the literature named the middle-income trap. Most of the possible causes share the same background: countries fall into the trap as a consequence of the mismatch between growth strategies and prevailing economic structure. The basis of this paper relies on influential work by Robertson & Ye (2013); however, we take into consideration a different approach when referring to a steady-state economy (or at least close to it). This different direction allows us to analyze specific groups (i.e. continents, trade blocs) if and only requirements are satisfied. We analyze time series corresponding to Pacific Alliance members in a purely Bayesian framework using the Full Bayesian Significance Test (Pereira & Stern, 1999; Diniz et al., 2011) so we unit root test time series corresponding to the subtracted values of each tested country and a reference steady-state economy separately. Peru is the only country that meet the two different criteria to be on the trap.

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