Old trap for a new mule: A study on the role of financial systems in escaping the middle-income trap
Vol 6, Issue 2, 2023
VIEWS - 883 (Abstract) 812 (PDF)
Abstract
The middle-income trap has been in developmental discussions for the better part of the last decade since the inability of most Latin American countries to break out of it. There is renewed interest in the concept since the realisation that one of the biggest economies in the world, i.e., China could be caught in it. While there is abundant literature on the part that social infrastructure and human capital development plays, the effect of financial systems is relatively ignored. This paper seeks to fill this gap by understanding the role of financial system variables in escaping the middle-income trap. By taking a sample of thirteen countries and using two classification techniques—Naive Bayes and random forest, it is concluded that both bank-based measures and market-based measures have an impact on income levels. These results have strong implications on understanding how to break out of the trap for policymakers.
Keywords
Full Text:
PDFReferences
1. Paus E. The rise of China: Implications for Latin American development. Development Policy Review 2009; 27(4): 419–456. doi: 10.1111/j.1467-7679.2009.00454.x
2. Loser C, Sood A. Breaking away from mediocre complacency to a prosperous future. Global Journal of Emerging Market Economies 2011; 3(1): 5–58. doi: 10.1177/097491011000300102
3. Kohli HA, Mukherjee N. Potential costs to Asia of the middle-income trap. Global Journal of Emerging Market Economies 2011; 3(3): 291–311. doi: 10.1177/097491011100300303
4. Kharas H. The Emerging Middle Class in Developing Countries. OECD Publishing; 2010. doi: 10.1787/5kmmp8lncrns-en.
5. Pan JN, Chang ML. Population aging, middle-income trap, and economic growth: an empirical study of Asian economies. The Singapore Economic Review 2021; 66(6): 1577–1594. doi: 10.1142/S0217590818420092
6. Ursavaş U, Sarıbaş H. Middle-income trap and factors affecting the risk of growth slowdown in upper-middle-income countries. Economics and Business Letters 2020; 9(4): 350–360. doi: 10.17811/ebl.9.4.2020.350-360
7. Tignor RL. W. Arthur Lewis and the Birth of Development Economics. Princeton University Press; 2020. 336p.
8. Egawa A. Will Income Inequality Cause a Middle-income Trap in Asia?. Bruegel; 2013.
9. Kharas H, Kohli H. What is the middle-income trap, why do countries fall into it, and how can it be avoided?. Global Journal of Emerging Market Economies 2011; 3(3): 281–289. doi: 10.1177/097491011100300302
10. Aizenman J, Jinjarak Y, Estrada G, Tian S. Flexibility of Adjustment to Shocks: Economic Growth and Volatility of Middle-Income Countries before and after the Global Financial Crisis of 2008 (No. 23467). National Bureau of Economic Research; 2017. doi: 10.3386/w23467
11. Eichengreen B. Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System. Oxford University Press; 2011.
12. Agénor PR, Dinh HT. Public Policy and Industrial Transformation in the Process of Development. World Bank; 2013. doi: 10.1596/1813-9450-6405
13. Agénor PR, El Aynaoui K. Public policies, industrial transformation, growth and employment in Morocco: a quantitative analysis (French). Revue D’économie du Développement 2015; 23: 31–69. doi: 10.3917/edd.292.0031
14. Mittmann N, Seung SJ, Hill MD, et al. Impact of disability status on ischemic stroke costs in Canada in the first year. The Canadian Journal of Neurological Sciences 2012; 39(6): 793–800. doi: 10.1017/s0317167100015638
15. Flaaen A, Ghani SE, Mishra S. How to Avoid Middle Income Traps? Evidence from Malaysia. Evidence from Malaysia. World Bank; 2013. doi: 10.1596/1813-9450-6427
16. Lee YK, Park JH, Chung N, Blakeney A. A unified perspective on the factors influencing usage intention toward mobile financial services. Journal of Business Research 2012; 65(11): 1590–1599. doi: 10.1016/j.jbusres.2011.02.044
17. King RG, Levine R. Finance and growth: Schumpeter might be right. The Quarterly Journal of Economics 1993; 108(3): 717–737. doi: 10.2307/2118406
18. Nyasha S, Odhiambo NM. Bank-based financial development and economic growth: A review of international literature. Journal of Financial Economic Policy 2014; 6(2): 112–132. doi: 10.1108/JFEP-07-2013-0031
19. Levine R, Zervos S. Capital control liberalization and stock market development. World Development 1998; 26(7): 1169–1183. doi: 10.1016/S0305-750X(98)00046-1
20. Naceur SB, Ghazouani S. Stock markets, banks, and economic growth: Empirical evidence from the MENA region. Research in International Business and Finance 2007; 21(2): 297–315. doi: 10.1016/j.ribaf.2006.05.002
21. Agénor PR, Canuto O. Middle-Income Growth Traps. Policy Research Working Paper No. 6210. The World Bank; 2012.
22. Zhuang J, Vandenberg P, Huang Y. Growing Beyond the Low-Cost Advantage: How the People’s Republic of China can Avoid the Middle-Income Trap?. Asian Development Bank; 2012.
23. Li G. Robust regression. In: Hoaglin DC, Mosteller F, Tukey JW (editors). Exploring Data Tables, Trends, and Shapes. Wiley; 1985. 576p.
24. Fox J. Applied Regression Analysis, Linear Models, and Related Methods. Sage Publications; 1997. 624p.
25. Breiman L. Random forests. Machine Learning 2001; 45: 5–32. doi: 10.1023/A:1010933404324
26. Matsuki K, Kuperman V, Van Dyke JA. The random forests statistical technique: An examination of its value for the study of reading. Scientific Studies of Reading 2016; 20(1): 20–33. doi: 10.1080/10888438.2015.1107073
27. Eichengreen B, Park D, Shin K. Growth Slowdowns Redux: New Evidence on the Middle-Income Trap (No. 18673). National Bureau of Economic Research; 2013. doi: 10.3386/w18673
28. Levine R, Renelt D. A sensitivity analysis of cross-country growth regressions. The American Economic Review 1992; 82(4): 942–963.
29. Eichengreen B, Park D, Shin K. The landscape of economic growth: Do middle-income countries differ?. Emerging Markets Finance and Trade 2018; 54(4): 836–858. doi: 10.1080/1540496X.2017.1419427
30. Lee K. Schumpeterian Analysis of Economic Catch-up: Knowledge, Path-Creation, and the Middle-Income Trap. Cambridge University Press; 2013. doi: 10.1017/CBO9781107337244
31. Lebdioui A, Lee K, Pietrobelli C. Local-foreign technology interface, resource-based development, and industrial policy: How Chile and Malaysia are escaping the middle-income trap. The Journal of Technology Transfer 2021; 46: 660–685. doi: 10.1007/s10961-020-09808-3
32. Felipe J, Abdon A, Kumar U. Tracking the Middle-Income Trap: What is it, Who is in it, and Why?. Asian Development Bank; 2012.
33. Paus E. The middle-income trap: Lessons from Latin America. In: Huang B, Morgan PJ, Yoshino N (editors). Avoiding the Middle-Income Trap in Asia: The Role of Trade, Manufacturing, and Finance. Asian Development Bank Institute; 2018. pp. 60–105.
34. Rajan R, Zingales L. Financial development and growth. American Economic Review 1998; 88(3): 559–586.
DOI: https://doi.org/10.24294/fsj2301
Refbacks
- There are currently no refbacks.
Copyright (c) 2023 Srijanie Banerjee, Manish Sinha, Mrinalini Kacker
License URL: https://creativecommons.org/licenses/by-nc/4.0
This site is licensed under a Creative Commons Attribution 4.0 International License.