Growth Slowdowns and Middle-Income Trap: Evidence from New Unit Root Framework

Furuoka, Fumitaka and Pui, Kiew Ling and Ezeoke, Chinyere Mary Rose and Jacob, Ray Ikechukwu and Yaya, OlaOluwa S (2019): Growth Slowdowns and Middle-Income Trap: Evidence from New Unit Root Framework. Published in: The Singapore Economic Review No. https://doi.org/10.1142/S0217590820500083

Abstract

This paper suggests a new testing procedure to systematically examine the middle-income trap (MIT). To empirically demonstrate this procedure, one high income and 14 middle-income countries are examined using newly developed unit root tests - Fourier ADF with structural break (FADF-SB) and Seemingly Unrelated Regressions Fourier ADF (SUR-FADF). The FADF-SB test incorporates unknown nonlinearity and smooth break in the time-series, while the SUR-FADF test accounts for cross-sectional dependency. The empirical findings produced mixed results: 10 countries have a relatively high possibility of facing the MIT problem, while only one country has a relatively low possibility of facing the problem. For the remaining three countries, it is uncertain whether they will face the problem of MIT. These empirical findings have significant policy implications.

• Item Type: MPRA Paper
• Language: English
• Keywords: Cross-sectional dependency; Fourier approximation; Income convergence; Middle-income trap; Structural break; Unit root JEL Classification: C19, C22, N17 1. Introduction
• Subjects: C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C19 - Other; C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes; N - Economic History > N1 - Macroeconomics and Monetary Economics ; Industrial Structure ; Growth ; Fluctuations > N17 - Africa ; Oceania

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