Why do countries fall into Middle Income Trap i Inability to shift growth strategies ii Sk...........

Economic and social issues(Phase-I/II) Nature of Indian economy

Recently, a member of PM Economic Advisory Council (PMEAC) warned that India may be nearing a structuralslowdown and may soon get caught in the ‘middle income trap’ like Brazil and South Africa.The term middle-income trap (MIT) usually refers to countries that have experienced rapid growth and thus quickly reached middle- income status (with Gross National Product per capita between ($1,000 & $12,000), but then failed to overcome that income range to further catch up to the developed countries and achieve high- income status. MIT is a relatively new phenomenon and was first mentioned in 2007 in the World Bank report.The countries caught in the Middle Income Trap are unable to compete with low-income, low-wage economies in manufactured exports and unable to compete with advanced economies in high- skill innovations.According to the idea, a country in the middle income trap has lost its competitive edge in the export of manufactured goods because of rising wages. However, it is unable to keep up with more developed economies in the high-value-added market.

Why do countries fall into Middle Income Trap?

i Inability to shift growth strategies

ii Skewed income distribution & stagnation in middle class population

iii Recurring boom-bust cycles & procyclical lending

Select the correctanswer using the code given below

i and ii only

i and iii only

ii and iii only

all of the above

none of these

छोटे Courses बड़े Results

Master Nature of Indian economy

Prepare through Micro-courses

Try Now

Explanation:

Countries Fall into the Middle Income Trap because

•Inability to shift growth strategies: If a country cannot make a timely transition from resource-driven growth, with low-cost labor and capital, to productivity-driven growth, it might find itself trapped in the middle income zone.

•Skewed income distribution & stagnation in middle class population: Wealth inequality and the hierarchical distribution of income in developing countries is a downward drag on domestic demand, which results in stagnation. It slows down the upward mobility of families that are at lower levels, into middle class that is prepared to pay more for quality and differentiated products.

•Recurring boom-bust cycles & procyclical lending: Many middle- income countries in Latin America have been through cycles of growth based on credit extended during commodity booms, followed by crisis, and then recovery. This stop–go cycle has prevented them from becoming advanced economies despite enjoying many periods of fast growth. This is in sharp contrast with successful countries in East Asia—Japan, Hong Kong, Taiwan, Singapore, and South Korea that have been able to sustain high growth over some 50 years.