China in the Middle-Income Trap?

Glawe, Linda and Wagner, Helmut (2016): China in the Middle-Income Trap?

Abstract

Over the last decade, a growing body of literature dealing with the phenomenon of the “middle-income trap” (MIT) has emerged. The term MIT usually refers to countries that have experienced rapid growth and thus reached the status of a middle-income country (MIC) in a considerably short amount of time, but have not been able to further catch up to the group of high-income economies. Especially, since the beginning growth slowdown of the Chinese economy in 2011, there has been rising concern that China is or will also be confronted with such a trap. This paper analyzes the Chinese MIT situation taking into account both the (absolute and relative) empirical MIT definitions and MIT triggering factors identified in the literature. We not only survey the recent literature, but also make our own MIT forecasts and analyze under which conditions China could be caught in an MIT.

• Item Type: MPRA Paper
• Language: English
• Keywords: middle-income trap; China; economic growth; economic development; human capital; export structure; total factor productivity
• Subjects: O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O10 - General; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O40 - General; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O47 - Empirical Studies of Economic Growth ; Aggregate Productivity ; Cross-Country Output Convergence; O - Economic Development, Innovation, Technological Change, and Growth > O5 - Economywide Country Studies > O53 - Asia including Middle East

References

Acemoglu, D. (2009) Introduction to Modern Economic Growth. Princeton University Press. Princeton. New Jersey.

Aiyar, S., R. Duval, D. Puy, Y. Wu, and L. Zhang (2013) Growth Slowdowns and the Middle-Income Trap. IMF Working Paper 13/71. International Monetary Fund. Washington, D. C.

Agénor, P.-R. (2004) The Economics of Adjustment and Growth. Harvard University Press. Cambridge.

Agénor, P.-R. and O. Canuto (2015) Middle-Income Growth Traps. Research in Economics 69(4): 641-60.

Agénor, P.-R. (2016) Caught in the Middle? The Economics of Middle-Income Traps. FERDI Working Paper No. 142, forthcoming, Journal of Economic Surveys.

Aghion, P. and P. Howitt (1992) A Model of Growth Through Creative Destruction. Econometrica 60(2): 323-51.

Aghion, P. and P. Howitt (1998) Endogenous Growth Theory. MIT Press. Cambridge, MA.

Albert, M., Jude, C. and C. Rebillard (2015) The Long Landing Scenario: Rebalancing from Overinvestment and Excessive Credit Growth, and Implications for Potential Growth in China. Banque de France, Working Paper No. 572.

Anand, R., Mishra, S. and N. Spatafora (2012) Structural Transformation and the Sophistication of Production. IMF Working Paper 12/59.

Aoki, M. (2011) The Five-Phases of Economic Development and Institutional Evolution in China and Japan. ADBI Working Paper Series No. 340.

Arias, M. A. and Y. Wen (2016) Relative Income Traps. Federal Reserve Bank of St. Louis Review 98(1): 41-60. Aziz, J. (2006) Rebalancing China’s Economy: What Does Growth Theory Tell Us? IMF Working Paper, 291.

Bailliu, J., Kruger, M., Toktamyssov, A., and W. Welbourn, (2014) What’s Driving Economic Growth in China? Accounting for Overinvestment, Housing and Human Capital. Mimeo, Bank of Canada.

Balassa, B. (1965) Trade Liberalization and Revealed Comparative Advantage. Manchester School of Economics and Social Studies, 33: 99-123.

Barro, R. J. (2016) Economic growth and convergence, applied especially to China. NBER Working Paper No. 21872.

Blanchard, O. and F. Giavazzi (2005) Rebalancing Growth in China: A Three-Handed Approach. CEPR Discussion Paper, 5403.

Borensztein, E. and J. D. Ostry (1996) Accounting for China’s Growth Performance. American Economic Review 86(2): 224-28.

Brunetti, A. (1997) Political Variables in Cross-country Growth Analysis. Journal of Economic Surveys 11(2): 163-190.

Bulman, D., M. Eden and H. Nguyen (2014) Transitioning from Low-Income Growth to High-Income Growth – Is There a Middle Income Trap. Policy Research Working Paper No. 7104, World Bank.

Cai, F. (2012) Is There a ‘Middle-income Trap?’ Theories, Experiences and Relevance to China. China & World Economy 20(1): 49-61.

Cao, J., Ho, M. S., Jorgenson, D. W., Ren, R., Sun, L. and X. Yue (2009) Industrial and aggregate measures of productivity growth in China, 1982-2000. Review of Income and Wealth 55, Special Issue 1.

Caselli, F., Esquivel, G. and F. Lefort (1996) Reopening the Convergence Debate: A New Look at Cross-Country Growth Empirics. Journal of Economic Growth 1(3): 363-89. Cherif, R. and F. Hasanov (2015) The Leap of the Tiger: How Malaysia Can Escape the Middle-Income Trap. IMF Working Paper 15/131, International Monetary Fund, Washington, D. C.

Coe, D. T. and E. Helpman (1995) International R&D spillovers. European Economic Review 39: 859-887.

Comin, D. (2008) Total factor productivity. In: Durlauf, S. N. and Blume, L. E. (Eds.) (2008) The New Palgrave Dictionary of Economics. Palgrave Mcmillan. http://www.dictionaryofeconomics.com/article?id=pde2008_T000081> doi:10.1057/9780230226203.1719

Conference Board (2010) Global Economic Outlook 2011. Conference Board. New York.

Dabús, C., F. Tohmé and M. A. Carabello (2016) A middle income trap in a small open economy: Modeling the Argentinean case. Economic modeling 53: 436-44.

Daude, C. (2010) Innovation, Productivity and Economic Development in Latin America and the Caribbean. OECD Working Paper No. 288.

Daude, C. and E. Fernández-Arias (2010) On the Role of Productivity and Factor Accumulation in Economic Development in Latin America and the Caribbean. IDB Working Paper No. 155.

Durlauf, S. N. (2009) The Rise and Fall of Cross-Country Growth Regressions. History of Political Economy 41: 315-333.

Easterly W. and R. Levine (2001) It’s Not Factor Accumulation: Stylized Facts and Growth Models. The World Bank Economic Review 15(2): 177-219.

Egawa, A. (2013) Will income inequality cause a middle-income trap in Asia? Bruegel Working paper 2013/06.

Eichengreen, B., D. Park and K. Shin (2012) When Fast-Growing Economies Slow Down: International Evidence and Implications for China. Asian Economic Papers 11(1), 42-87.

Eichengreen, B., D. Park and K. Shin (2014) Growth slowdowns redux. Japan and the World Economy 32, 65-84.

Englander, A. S., Evenson, R. and M. Hanazaki (1988) R&D, Innovation and the Total Factor Productivity Slowdown. OECD Economic Studies 11: 7-42.

Fan, S., Zhang, X. and S. Robinson (1999) Past and Future Sources of Growth for China. EPTD Discussion paper No. 53, International Food Policy Research Institute, Washington, D. C.

Felipe, J., A. Abdon and U. Kumar (2012) Tracking the Middle-income Trap: What Is It, Who Is in It, and Why? Levy Economics Institute of Bard College, Working Paper No. 715.

Felipe, J., Kumar, U. and R. Galope (2014) Middle-Income Transitions: Trap or Myth? ADB Working Paper No. 421.

Flaaen, A., E. Ghani, and S. Mishra, (2013) How to Avoid Middle Income Traps? Evidence from Malaysia. Policy Research Working Paper Series 6427, World Bank.

Gill, I. and H. Kharas (2007) An East Asian Renaissance – Ideas for Economic Growth. World Bank. Washington, DC.

Gill, I. and H. Kharas (2015) The Middle-Income Trap Turns Ten. Policy Research Working Paper No. 7403.

Glawe, L. and H. Wagner (2016) The middle-income trap – definitions, theories and countries concerned: a literature survey. SSRN Working Paper 2777521.

Grossman, G. and E. Helpman (1991) Innovation and Growth in the Global Economy. MIT Press. Cambridge, MA.

Grossman, G. and E. Helpman (1994) Foreign investment with endogenous protection. In: Feenstra, R., Grossman, G.M. and Irwin, D. (Eds.) (1996) The Economy of Trade Policy, The MIT Press. Cambridge.

Hall, R. and C. Jones (1999) Why Do Some Countries Produce So Much More Output per Worker Than Others? Quarterly Journal of Economics 114: 83-116.

Han, X. and S.-J. Wei (2015) Re-examining the middle income trap hypothesis: what to reject and what to revive. CEPR Discussion Paper Series No. 10989.

Hausmann, R., Hwang, J. and D. Rodrik (2007) What you export matters. Journal of Economic Growth 12: 1-25.

Hill, H., Yean, T. S. and R. H. M. Zin (2012) Malaysia: A Success Story Stuck in the Middle? The World Economy 35(12): 1687-1711

Hu, Z. F. and M. S. Khan (1997) Why is China growing so fast? IMF Staff Papers 44(1): 103-131.

Huang, Y. (2016) Can China escape the middle-income trap? China Economic Journal 9(1): 17-33.

Hummels, D. and P. J. Klenow (2005) The variety and quality of a nation’s exports. American Economic Review 72(2): 603-633.

Im, F.G. and D. Rosenblatt (2015) Middle-Income Traps: A Conceptual and Empirical Survey. Journal of International Commerce, Economies and Policy 6(3), 1-39.

International Monetary Fund (IMF) (2011) World Economic Outlook Database: April 2011 Edition.

International Monetary Fund (IMF) (2016): World Economic Outlook Database: April 2016 Edition.

Islam, S. N. (2015) Will Inequality Lead China to the Middle Income Trap? DESA Working Paper N. 142.

Jankowska, A., Nagengast, A. and J. R. Perea (2012a) The product space and the middle-income trap: comparing Asian and Latin American experiences. OECD Working Paper No. 311.

Jankowska, A., Nagengast, A. and J. R. Perea (2012b) The Middle-Income Trap: Comparing Asian and Latin American experiences. OECD Development Centre Policy Insights No. 96.

Jarreau, J. and S. Poncet (2009) Export Sophistication and Economic Performance: Evidence from Chinese Provinces. CEPII Working Paper 2009-34.

Jimenez, E., V. Nguyen and H. A. Patrinos (2012) Stuck in the Middle? Human Capital Development and Economic Growth in Malaysia and Thailand. World Bank Policy Research Working Paper No. 6283.

Jitsuchon, S. (2012) Thailand in a Middle-income Trap. TDRI Quarterly Review 27(2): 13–20.

Kawai, M. and J.-W. Lee (Eds.) (2015) Rebalancing for Sustainable Growth – Asia’s Postcrisis Challenge. Springer: Tokyo.

Klenow, P., and A. Rodriguez-Clare (1997a) Economic Growth. A Review Essay. Journal of Monetary Economics 40:597–617.

Krugman, P. (1994) The Myth of Asia’s Miracle. Foreign Affairs 73(6): 62-78.

Lebergott, S. (1966) Labor Force and Employment, 1800-1960. In: Brady, D. S. (Ed.) (1966) Output, Employment, and Productivity in the United States after 1800. NBER Book Series Studies in Income and Wealth.

Lee, K. and S. Li (2014) Possibility of a Middle Income Trap in China: Assessment in Terms of the Literature on Innovation, Big Business and Inequality. Frontiers of Economics in China 9(3): 370-397.

Ma, H., Wang, Z. and K. Zhu (2013) Domestic Value-added in China’s Exports and its Distribution by Firm Ownership. Office of Economic Working Paper No. 2013-05A, U.S. International Trade Commission.

Miller, S. M. and M. P. Upadhyay (2000) The effects of openness, trade orientation and human capital on total factor productivity. Journal of Development Economics 63: 399-423.

National Bureau of Statistics of China (NBS) (2015) Statistical communiqué on the 2015 National Economic and Social Development.

OECD (2008) OECD Reviews of Innovation Policy: China. OECD Publishing. Paris.

OECD (2012) Looking to 2060: Long-term global growth prospects. OECD Economic Policy Papers No. 03.

OECD (2015) OECD Economic Surveys: China. OECD Publishing. Paris. http://dx.doi.org/10.1787/eco_surveys-chn-2015-en.

Paus, E. (2014) Latin America and the middle-income trap. ECLAC – Financing for Development Series No. 250. United Nations. Chile.

Perkins, D. H. and T. G. Rawski (2008) Forecasting China's Economic Growth to 2025. In: Loren Brandt, Thomas G. Rawski (Eds.) China's Great Economic Transformation. Cambridge University Press. Cambridge.

Prasad, E. (2009) Rebalancing growth in Asia. IZA Discussion Papers, 4298.

Robertson, P. E. and L. Ye (2015) On the Existence of a Middle-Income Trap University of Western Australia Working Paper 13/12.

Rodrik, D. (2006) What’s so special about China’s exports? NBER Working Paper 11947.

Romer, P. (1990) Endogenous Technological Change. Journal of Political Economy 98(5) part 2: S71-S102.

Rostow, W. W. (1990) The Stages of Economic Growth: A Non-Communist Manifesto. Cambridge University Press. Cambridge.

Sachs, J. and A. Warner (1995) Natural resource abundance and economic growth. In: Meier, G. and J. Rauch (Eds.) Leading issues in economic development. Oxford University Press. New York.

Schott, P. K. (2004) Across-product versus within-product specialization in international trade. Quarterly Journal of Economics, 119(2): 647-678.

Schott, P. K. (2006) The relative sophistication of Chinese exports. NBER Working Paper 12173.

Sicular, T. and Y. Zhao (2002) Earnings and Labor Mobility in Rural China: Implications for China’s WTO Entry. EPRI Working Paper 2002-8.

Tho, T. V. (2013) The Middle-Income Trap: Issues for Members of the Association of Southeast Asian Nations. ADB Working Paper No. 421.

Vivarelli, M. (2015) The middle income trap: a way out based on technological and structural change. Economic Change and Restructuring, doi. 10.1007/s10644-015-9166-6.

Wagner, H. (2015) Structural Change and Mid-Income Trap – Under which conditions can China succeed in moving towards higher income status. European Journal of Comparative Economics 12(2): 165-88.

Wagner, H. (2017) The Building Up of New Imbalances in China: The Dilemma with ‘Rebalancing’. Forthcoming in: International Economics and Economic Policy.

Wen, G. J. and J. Xiong (2014) The Hukou and Land Tenure Systems as Two Middle Income Traps – the Case of Modern China. Frontiers of Economics in China 9(3): 438-459.

Woo, W. T. (1998) Chinese Economic Growth: Sources and Prospects. In: Fouquin, M. and F. Lemonie (Eds.) The Chinese Economy. Economica Ltd. Paris

Woo, W.T., M. Lu, J. D. Sachs and Z. Chen (2012) A New Economic Growth Engine for China: Escaping the Middle-income Trap by Not Doing More of the Same. World Scientific Publishing Company, Singapore and Imperial College Press, London.

World Bank (2013) China 2030: Building a Modern, Harmonious, and Creative High-Income Society. World Bank. Washington D.C.

World Bank (2016) World Development Indicators (WDI). Washington, DC: World Bank. Available online at http://data.worldbank.org/data-catalog/world-development-indicators, last updated 11/04/2016.

Yao, Y. (2014) Chapter 7 – The Chinese Growth Miracle. In: Aghion, P. and S. N. Durlauf (Eds.) (2014) Handbook of Economic Growth 2: 943-1031.

Yao, Z. (2015) How Can China Avoid the Middle Income Trap? China & World Economy 23(5): 26-42.

Yilmaz, G. (2014) Turkish Middle Income Trap and Less Skilled Human Capital. Working Paper No. 14/30. Research and Monetary Policy Department, Central Bank of the Republic of Turkey, Ankara.

Yiping, H., Qin, G. and W. Xun (2014) Financial liberalization and the middle-income trap. What can China learn from the cross-country experience? China Economic Review31: 426-440.

Young, A. (2003) Gold into Base Metals: Productivity Growth in the People’s Republic of China during the Reform Period. Journal of Political Economy 111: 1221-61.

Zeng, J. and Y. Fang (2014) Between poverty and prosperity: China’s dependent development and the ‘middle-income trap’. Third World Quarterly 35(6): 1014-1031.

Zhang, D. (2014) The Mechanism of the Middle Income Trap and Potential Factors Influencing China’s Economic Growth. Frontiers of Economics in China 9(3): 499-528.

Zhang, L., Yi, H., Luo, R. and C. Liu (2012) The Human Capital Roots of the Middle Income Trap: The Case of China. Paper presented at the 2012 IAA Conference, Brazil, August 18-24.

Zhang, J., Xu, L. and F. Liu (2015) The Future is in the Past: Projecting and Plotting the Potential Rate of Growth and Trajectory of the Structural Change of the Chinese Economy for the Next 20 years. China & World Economy 23(1): 21-46.

Zhang, D., Li, S. and J. Xue (2015) Education Inequality between Rural and Urban Areas of the People’s Republic of China, Migrant’s Children Education, and Some Implications. Asian Development Review 32(1): 196-224.

Zhuang, J., P. Vandenberg and Y. Huang (2012) Growing beyond the Low-Cost Advantage – How the People’s Republic of China can Avoid the Middle-Income Trap. Asian Development Bank. Mandaluyong City, Philippines.