Making sense of the Middle Income Trap

WHILE it is a wide-ranging concept, the Middle Income Trap (MIT) usually refers to countries that have reached a certain level of per capita income on the basis of labour-intensive tasks and are struggling to transition towards more skill-intensive and sophisticated activities. Unable to compete with lower-cost locations in mature sectors, yet not possessing sufficient skill or technological capabilities to perform high value-added and well-remunerated tasks, they are likely to stagnate economically.

The pertinence of this question is best exemplified by one statistic produced by the World Bank - since 1960, only 13 out of 103 countries classified as middle income have been able to attain high income status. In East Asia, this group is limited to Japan, South Korea, Taiwan, Hong Kong, and Singapore.

At its core, the MIT debate is about the appropriate institutional and policy settings for middle income countries to enable them to continue to grow past the "easy" phase of economic growth. This will be the topic of a public forum co-organised by the Institute of Southeast Asian Studies and the Pacific Trade and Development Conference (PAFTAD) on June 3. Experts will examine the concept's underpinnings; specific challenges facing China as well as countries such as Malaysia, Thailand, and Indonesia; and the importance of human capital.