The Deep Determinants of the Middle-Income Trap

56 Pages Posted: 13 Dec 2017

See all articles by Linda Glawe

Linda Glawe

FernUniversität in Hagen

Helmut Wagner

University of Hagen (Fernuniversitaet Hagen)

Date Written: December 9, 2017

Abstract

The fundamental, underlying factors of development are often neglected when analyzing the question why countries experience a growth slowdown at the middle-income range. Although these so-called ‘deep determinants’ such as geography and institutions have been found to be decisive for the break out of stagnation and for explaining cross-country income differences by many empirical studies, so far, very little has been done to examine to which extent they are also crucial at more subtle stages of economic development. Our paper aims to contribute to close this gap by focusing on the phenomenon of the middle-income trap (MIT) which has reached increasing attention in the last 15 years. In particular, we are interested in whether the deep determinants have positive or negative impacts on the possibility of a country to experience a prolonged stay within the middle-income range. We focus especially on exogenous variables to avoid endogeneity/reverse causality problems. By using simple statistical hypothesis testing, we show that not all findings of the deep determinants literature can be easily transferred to the MIT phenomenon, especially regarding institutional variables. This may raise the question whether we need new deep determinants of growth for the MIT or at least a modified version taking into account the specific circumstances and characteristics of middle-income countries.

Keywords: deep determinants of growth, economic development, economic growth, middle-income trap, geography, institutions, culture

JEL Classification: O10, O11, O43, O50

Suggested Citation

Glawe, Linda and Wagner, Helmut, The Deep Determinants of the Middle-Income Trap (December 9, 2017). Available at SSRN: https://ssrn.com/abstract=3085293 or http://dx.doi.org/10.2139/ssrn.3085293

Linda Glawe (Contact Author)

FernUniversität in Hagen ( email )

Universitätsstr. 11 (TGZ)
Chair of Macroeconomics
58084 Hagen
Germany

Helmut Wagner

University of Hagen (Fernuniversitaet Hagen) ( email )

Universitätsstrasse 41
Feithstrathe 140
D-58084 Hagen
Germany
011-49-2331-987-2640 (Phone)
011-49-2331-987-391 (Fax)

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