Does Middle Income Trap Exist?: Evidence From Emerging Economies: E7 Countries for 1969-2015

Abstract

The E7 countries (China, India, Brazil, Russia, Mexico, Indonesia and Turkey)that have been growing fast since 1990s have been under the middle income countrycategory according to the income category classification of the World Bank for a longperiod of time. Researchers have been interested especially in emerging economies thathave not been able to move up from the middle income category to the high incomecategory and this has led to the initiation of what’s called the ‘middle income trap’ (MIT)discussions in literature. The MIT is generally defined as the countries under the middleincome category failing to move up to the high income category. Therefore, the purpose ofthis study is to identify the presence of MIT in E7 countries that hold an importantposition in global economy. The unit root tests were used in the empirical phase of thestudy. This study’s difference from other studies is the fact that both the time series andthe panel data unit root tests were used both in linear and nonlinear forms, thuspreventing the misleading results created by choosing the wrong model specification.The USA was taken as the reference country in the study and the GNI per capitaaccording to the Atlas method (current US$) data of the World Bank was used for the E7countries for the period 1969-2015. To achieve consistency in the analysis results, Russiawas not included in the model as there were no data available for the same period forRussia given the fact that the same timeframe should be taken as the basis for allcountries. The empirical analysis showed that the E7 countries do not fall into the MIT.

Do Developing Countries Face the “Middle Income Trap”? Evidence From a Novel Unit Root Test

“…[5] investigated the existence of MIT for middle income countries using Augmented Dickey-Fuller (ADF), [7] (ZA) and [8] (LP) unit root tests and they found out that seven countries (Cuba, El Salvador Lebanon, Peru, Syria, Turkey and Thailand) were candidates to be in the MIT. [9] explored the existence of MIT for Emerging-7 (E7) countries using linear and nonlinear unit root tests and their empirical findings support that the E7 countries do not fall into the MIT.…”

“…where ˆt v is the estimated nonlinear least squares residuals in the first step. [10] recommends an application of a first order Taylor approximation for equation (9) and obtains the auxiliary regression shown at equation (10).…”

Evidence of the Middle-Income Trap in Latin American Countries: Factor Analysis Approach Using Regression and the ARDL Model

“…The concept of the "middle-income trap" (MIT) has gradually become familiar to development agencies and policymakers. MIT refers to a state in which the per capita income level of a country (region) cannot change smoothly after reaching the middle-income level, resulting in economic stagnation (Yavuz Tiftikçigil et al, 2018). Middle-income countries caught in the trap lose their competitive edge with lowincome countries in industries that require a lot of cheap labor, can't compete with high-income countries in R&D-intensive industries, and lose their economic growth momentum (Dui, 2020).…”