In economic theory, we can divide the growth trap into three categories: low-income trap; Middle income trap and high income trap. The low-income trap, also known as the "poverty trap", refers to a poor country that constantly reproduces poverty because of poverty and is in a vicious circle of poverty for a long time. Typical low-income trap countries include Laos and Ethiopia. These countries have no natural resources, no geographical advantages (not near the sea) and no FDI (international direct investment). The typical countries of middle-income trap are Thailand and Malaysia. These countries have FDI and geographical advantages (near the sea), but these factors are not enough for them to get high income. The typical countries of high-income trap are Brunei, Kuwait and Saudi Arabia, which have advantages in natural resources. Economists generally believe that the key to breaking these three traps is to get rid of excessive dependence on external factors and economic growth needs to be internalized.
According to historical statistics, a country's economic development can be divided into four stages: the first stage is to attract foreign investment. This stage is to actively attract foreign investment, but it is in the primary stage of utilizing foreign investment, and the manufacturing industry is under the absolute control of foreign investors. Now Vietnam is at this stage. The second stage is the stage of industrial agglomeration. At this stage, although the manufacturing industry is also under the control of foreign capital, a pillar industry has emerged. Now Thailand and Malaysia are at this stage. The third stage is the technology absorption stage. At this stage, the country has mastered the management ability and certain technology, and can independently produce high-quality products. At present, South Korea and Taiwan Province Province of China are at this stage. The fourth stage is the creative stage. Countries at this stage can implement comprehensive innovation and product design, and walk in the forefront of the world. Now Japan, the United States and the European Union are all at this stage.
If the transition from the second stage to the third stage is unsuccessful, it will fall into the middle income trap. Thailand, Malaysia, Vietnam and other countries are typical, because they have not digested foreign technology and management, and their industrialization is based on external factors rather than internal value creation. For these countries, opening to the outside world and attracting foreign investment can make them reach middle income, but higher income requires them to adopt active policies to stimulate private creativity. If the growth is only caused by external factors (geographical advantages, abundant natural resources, foreign direct investment and official development assistance (ODA)), then the trap will appear sooner or later.
Not all middle-income countries will fall into this trap. The "middle income trap" is just an example, not a general theory, not a curse. So far, the internationally recognized countries or regions that have successfully broken through the trap of middle-income countries are Japan and the Asian Four Little Dragons. Latin American economies (typically Brazil) have entered the middle-income trap. East Asia, Southeast Asia and ASEAN countries and regions (such as Malaysia) are facing the challenge of middle income trap. Resource-based countries such as the Middle East and Russia may also fall into the middle-income trap.
Several basic characteristics of countries caught in the "middle income trap"
Up to now, there are many literatures about how developing countries get rid of the poverty trap in economic development theory, but there are few systematic theories about how a country breaks through the middle-income development stage and jumps to the high-school income stage or even the high-income stage. From the existing literature, we find that the countries that fall into the "middle income trap" are mainly due to the following reasons: the income gap is too large; The accumulation of human capital is slow, and the transformation of growth mode is unsuccessful; The financial system is fragile; Difficulties in labor transfer; Slow democratic process and corruption.
The income gap has widened. When the income gap widens to a certain extent, there will be a serious shortage of demand due to insufficient private consumption, and economic growth will completely lose momentum. This factor is particularly common in Latin American countries (Chile, Brazil, Argentina and Peru, etc.). ).
The accumulation of human capital is slow, and the transformation of growth mode is unsuccessful. Modern economic growth theory points out that when material capital grows to a certain extent, economic growth will inevitably slow down due to the diminishing marginal product effect of capital. At this time, technological progress (or the accumulation of human capital) has become the main driving force to maintain rapid economic growth. If we can achieve technological progress at the policy level, we can maintain a high economic growth rate. On the contrary, if economic policies cannot guarantee this, growth will stagnate. This phenomenon is more prominent in East Asian countries.
The financial system is fragile. The financial crisis in Southeast Asia provides a very appropriate case for this. Since 1997, Southeast Asian countries have established a large amount of foreign exchange reserves as a buffer to prevent the crisis, but this may have adverse side effects, namely overheating of the economy and asset price bubbles. Even Japan in the last century experienced a "ten-year" recession for this reason.
Labor transfer is difficult. Due to special political needs, some developing countries have implemented some policies to restrict the transfer of labor force, which are economically inefficient. China's household registration system is a typical example in this respect. A similar system will seriously hinder the process of urbanization and drag down economic development.
Slow democratic process and corruption. In countries that adopt gradual reform from planned economy to market economy, the reform of political system generally lags behind the needs of economic development. If this happens, the backwardness of administrative management and the breeding of corruption will become the main constraints to economic growth. Countries with planned economy often create many administrative monopolies, and some industries that should compete will lose their vitality because of administrative monopolies, thus dragging down the whole national economy. This factor is gradually emerging in China.