Middle Income Trap Questions

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 development and growth, but this as said earlier doesn’t include the idea of the “middle income trap” which is greatly gratified from economists all across the world.

4.
In 1005, the reign of the “Song Dynasty Emperors” was a key turning point in the development of China as an economy……Jokes, I sincerely hope that was a typo and that we aren’t expected to have a knowledge of Mid-Imperial China….RIGHT from 1995-2012, there was a high level of growth in China due to a variety of factors, one different factor to the one suggested is that China didn’t have to spend valuable time and money on the “innovation step”, as they could simply copy and import all the technology from those already highly developed countries such as UK and USA saving them time and allowing them to get on with developing and obtain a high level of growth. Another factor is the simply huge quantity of labour available, thus meaning they could pursue any market and have enough labour to do that, which China did, allowing them to once again obtain high levels of growth.