Middle Income Trap Questions

Topics: Economics, Economy, Economic development Pages: 2 (515 words) Published: February 10, 2014
Middle Income Trap Questions
1. The Middle Income Trap is an economic development situation in which a country that has attained a certain income (due to given advantages such as cheap labour and natural resources) gets stuck at that level without graduating toward high-income status.

2. An economic explanation for countries being caught in this ‘trap’ is that these countries are trapped between benefits existing when you’re at the lowest level of development and at the highest. When an economy is at the lowest level, they often have lots of labour and, albeit low-skilled, low cost. Thus they can utilize this low cost labour to increase growth.

The high-income economies have high levels of education and ratios of people entering further and higher education, thus they can create high quality products because the labour is high skilled. Some times so they can utilize this ability and obtain good levels of growth.

Whereas these so called “middle income economies” have a labour force which isn’t considered to be too cheap in comparison with alternatives such as the BRIC economics, and which isn’t considered to be too skilled in comparison with countries such as America and UK. Thus they’re undercut when it comes to low cost labour, and can’t create innovative products to compete with high-income economies. Thus little growth can be found, as the economies with middle income can’t compete well in any aspect.

3. This implies that the Lewis model is perhaps slightly incorrect as a development model. It doesn’t include the possibility of a “middle income trap”, and it simply suggests that development will continue at a nice rate because as it suggests a developing economy has a surplus of labour in the agricultural sector, and these workers move into the manufacturing sector into factories which gives a higher wage rate, and higher profits for the entrepreneurs who then re-invest that continually to improve the capital and the labour thus resulting in more...
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