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

Abstract

<jats:p> 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. </jats:p>

A Study on the Relationship between Developing Countries and the Middle-Income Trap: A Nar-rative in the Zambian Perspective

“…Kapotwe DOI: 10.4236/me.2021.122019 377 Modern Economy pirically tested this procedure using one high-income country and 12 middle-income countries. According to Furuoka and Pui et al (2019) and in line with existing literature (Bernard and Durlauf, 1996;Oxley and Greasley, 1997), income convergence between high-income country i (US) and middle-income country j (Zambia) would take place if the long-term forecasted per capita income in high-income country i and middle-income country j are equal, that is:…”

“…This is important to establish Zambia's standing in the sub-region when all sampled countries are compared to the US. This approach is based on the unit root model by Furuoka and Pui et al (2019).…”

Convergence among themselves and Middle-income trap of South-East Asian Nations: Findings from a New approach

“…Also, the SUR-ADF and SUR-FADF (for panel models) produce fantastic results in the presence of dependence of cross-sections. This is unlike the majority of past studies that did not account for these, thus making them discover only a few countries with a middle-income trap (Furuoka et al 2020).…”

“…Note that, among Southeast Asian countries, Singapore is a member of a high-income economy, as classified by the World Bank, and the per capita income of this country is higher than that of Malaysia or any other upper-middle-income countries. Also, with the fact that this country is likely to escape the middle-income trap according to Furuoka et al (2020), we have excluded it in the sample. 2 The countries considered are Indonesia, Laos, Malaysia, Myanmar, Philippines, Thailand, and Vietnam.…”

“…This technique, referred to as the Seemingly Unrelated Regression Fourier ADF (SUR-FADF) test, has a very low-frequency Fourier function. Such feature makes it suitable to handle nonlinearity and multiple breaks in the deterministic component of the model as well as to consider cross-sectional dependence in the panel series (see Furuoka et al 2020). In short, our contributions are in two folds: (i) Evaluation of the possibility of the upper-middle-income country like Malaysia to converge with the remaining six lower-income countries; (ii) Investigates the possibility of those six lower-middle-income countries to converge among themselves (iii) Engagement of powerful techniques that can account for nonlinearities and structural breaks in the model.…”