ABSTRACT:This paper reviews 6 typical models and methods, and also solutions, and lessons learnt about applying these models to avoid the middle income trap. The paper’s findings show that it is necessary to have a good economic structure, effective governance, innovation with high productivity, knowledge economy, low debt, green economy, good infrastructure and supported education system.
Keywords: middle income trap, model, method, economic structure.
1. Introduction about the middle income trap
Few authors question the existence of the middle income trap but scholars only use the definition of the Middle-income Trap of the World Bank. This definition has been used by many different researchers and policymakers. Middle Income Countries (MICs), which are defined as having a per capita gross national income of US $1,026 to US $12,475 (World Bank, 2021)
The Communist Party of Vietnam has set the objective for economic development that Vietnam will escape the middle income Trap in 2040. This is a very important target for Vietnam. With the current GNI per capita is US $2660 (World Bank, 2021), then Vietnam needs to increase the GNI by 8.5 percent per year to reach the target.
2. Some models for escaping the middle income trap
2.1. Model 1: Eight things you need to know about the middle income transition
The first model, which was developed by Sergei Guriew, Chief Economist of the European Bank for Reconstruction and Development, and his team, was published in 2018. This model emphasizes the importance of knowledge economy, and a knowledge service can be export as much value as a manufacturer do. Green economics has become more and more important for sustainable growth. Based on this research, eight things are mentioned to avoid the middle income trap.
- The middle income trap is about rethinking a country’s economic development model rather than overcoming a particular level of income.
Increased productivity is the key to escaping the middle-income trap. The middle-income nations should shift from imitation to innovation. Innovation lower barrier to entry and make to economic become competitive in the global market.
- Successful middle-income transitions, such as South Korea’s, are relatively rare, but they are far more geographically diverse than commonly thought.
Having resources is not necessarily become key to escaping.
- The factors behind “growth miracles” change over time, but not always in the way they conform to stereotypes.
Investment remains the key ingredient. Productive investment requires good governance, strong skills, and quality infrastructure. Fundamentals such as investment, domestic savings, and improvements in economic institutions have mattered more, not less, to sustained strong growth over the past decade. In contrast, debt finance has been negatively associated with sustained strong growth performance. Domestic saving has become crucial for long-term growth.
Development model changes with technologies. Manufacturing accounts small share of the developed economy. There are opportunities for investment in the green economy, knowledge-intensive services, or tourism. Higher-quality economic and political institutions have been associated with greater likelihood and length of sustained growth out-performance, as well as softer landings. High-quality economic and political institutions will be measure by Worldwide Governance Indicators (WGIs).
- Solutions for incoming job market demand.
In developed countries, higher demand for high skill jobs and low skill jobs, lower demand for the middle-skill job. Educational systems need to focus more on helping students to learn how to keep learning throughout their careers, in addition to providing school and university graduates with specific skills.
To support innovation jobs, there is a need for policies for innovator pensions. Policies should “include the full portability of pensions between employers and self-employment,”
Middle-income nations can become old before becoming rich. There is a need for policies to support greater labor-force participation among older workers. The new schemes also need to prioritize reskilling and upskilling – helping individuals to upgrade and extend their skillsets mid-career.
- Beyond boosting growth, investment in infrastructure helps to improve equality of opportunity.
Base on a study in Turkey, investment in infrastructure decrease travel time, decreases annual fatalities per kilometer, increases trade between provinces, increases regional employment rate.
- In middle-income economies, large enterprises are more competitive on a global scale than compare small enterprises. These large enterprises still lack innovation. As growth becomes more innovation intensive, the healthy ecosystem of small and medium-sized enterprises (SMEs) plays an increasingly important role. Priority policy should be given to creating a level playing field, making market entry straightforward for new firms, permitting young and innovative firms to grow fast improve productivity. This allows the most productive SMEs to become successful, large and integrated into the global economy.
- Middle income economies are high polluters
Green investment pays off in the long run, as it spurs innovation, promotes efficient solutions, and helps countries complete their middle-income transitions.
- Finance matters to middle income transitions - particularly the way, in which it is structured.
The depth of equity markets, in contrast, is positively correlated with strong economic growth. This is in part due to banks’ propensity to support older, market-tested technologies. On the other hand, private equity venture capital, seed capital, and other equity instruments are better suited to be deployed to back innovative, forward-looking ideas. The emergence and growth of banking sectors and stock markets - has a causal and positive impact on long-term growth in low-income economies, mainly by fostering total factor productivity (the efficiency with which various factors of production are combined) (Sergei et al., 2018).
2.2. Model 2: Lessons learned from South Korea (Kasenda, 2017)
South Korea escaping the trap with high efficient government system and leadership, modern and productivity enhanced industrialization. If a big company doesn’t work efficiently, the government lets them collapse.
Efficient government can be measured by government indicator (World bank), Productivity (Udino database), International competitiveness (Nguyen Van Tho, United Nation), control of corruption (Worldwide governance indicator, world Bank). The educated workforce and high R&D that should be promoted by the government would enable entrepreneurs and the private sector to adopt the technologies needed to add productivity and go up the value-chain. (Kasenda, 2017).
Figure 1. South Korea’s International Competitiveness Index
Source: Calculated from United Nations by Tran Van Tho (2013)
Figure 2. Avoiding the Middle-Income Trap:
Renovating Industrial Policy Formulation in Vietnam (2009)
2.3. Model 3: Tourism (Zoryana Makohin, et al, 2020)
In 2018, the revenue from tourism activities in Turkey is US $29.5 billion. Tourism help Turkey escaped the trap, but the debt hole drags Turkey back to the middle income trap.
Results of an empirical analysis indicate (equation) that the tourism industry in Turkey is highly effective, since it contributes to the GDP growth even more than the manufacturing and investment sectors. 1% increase in the tourism revenue contributes to a 0.54 % increase in the GDP and a 0.49 % increase with 1-year lag when it comes to the manufacturing sector.
2.4. Model 4: Innovation policies (Pierre-Richard Agénor and Otaviano Canuto, 2017)
The middle-income country can move away from the trap by promoting the production of ideas, improving incentives to invest in skills, and have a great policy aimed at alleviating constraints on access to finance by the innovators.
2.5. Model 5: Innovation or perish (Eva Paus , 2017)
Equity does not have a clear relationship with escaping the middle-income trap, but innovation is.
GNI= 6-5*Research (innovation)+0.3878
Governments need to leverage macro policies, tax incentives, and protection of
intellectual-property as well as selectively targeted support to shape an incentive
a structure that is conducive to firm-level innovation (Eva, 2017).
China and Latin America governments welcomed foreign direct investment expecting that technology transfer, jobs, capital infusions. But the experience of the last three decades has demonstrated that technology spillovers will only occur if domestic absorptive capacity exists; linkages will only develop if domestic producers are already competitive; and foreign companies will only invest in R&D in the host country, if the country already has enough of an eco-system conducive to innovation (Eva, 2017).
They may demand that a foreign firm transfer technology, conduct a certain amount of R&D locally, or employ domestic workers to enhance their skills (Eva, 2017).
In Singapore, in the early 1970s, national wages were increased for pushing company increase productivity (Eva, 2017).
2.6. Model 6: Changing innovation policy in China
Innovation models change from focused technologies and programs into supported innovation programs and let the market decide which one will be staying in the market. The first innovation model is to help China catch up with technology with a developed country, facilitate learning capability. The second innovation model is supported to help and support disruptive innovation and become a competitive economy.
3. Conclusion
The article reviewed 6 typical models which including solutions, lessons. Those factors are good economic structure; governance; investment; innovation, productivities and knowledge economy, low dept, green economics, infrastructure, supported education.
REFERENCES:
- Eva Paus. (2017). Escaping the Middle Income Trap: Innovate or Perish. ADBI Working Paper
Tokyo: Asian Development Bank Institute. Retrieved from: https://www.adb.org/publications/escaping-middle-income-trap-innovate-or-perish - Sergei Guriev et al. (2018). Eight things you should know about middle-income transitions. UK: European Bank for Reconstruction and Development.
- The Communist Party of (2021). Retrieved from: http://hdll.vn/vi/nghien-cuu---trao-doi/nhung-muc-tieu-phat-trien-dat-nuoc-do-dai-hoi-dai-bieu-lan-thu-xiii-cua-dang-dua-ra-co-day-du-co-so-ly-luan-va-thuc-tien--%E2%80%8B.html
- Tran Van Tho. (2013). The Middle-Income Trap: Issues for Members of the Association of Southeast Asian Nations. Japan: Asian Development Bank Institute.
- World Bank. (2021). Retrieved from: https://www.worldbank.org/en/country/mic
- World Bank (2021). GNI Vietnam,
https://data.worldbank.org/indicator/NY.GNP.PCAP.CD?locations=VN
- Xielin Liu, Sylvia Schwaag Serger, Ulrike Tagscherer and
Amber Y. Chang. (2017). Beyond catch-up-can a new innovation policy help China overcome the middle income trap? Science and Public Policy, 44(5), 656-669,
doi: 10.1093/scipol/scw092. - Zoryana Makohin1, Zarina Atamanchuk2, Khrystyna Mitiushkina. (2020). The role of tourism in escaping “the Middle-income trap”. Management Theory and Studies for Rural Business and Infrastructure Development, 42 (3), 295-302.
PHÂN TÍCH MỘT SỐ MÔ HÌNH
NHẰM THOÁT KHỎI BẪY THU NHẬP TRUNG BÌNH
TS. NGUYỄN THỊ HỒNG HANH
Khoa Quốc tế, Đại học Quốc gia Hà Nội
TÓM TẮT:Bài viết này nghiên cứu một số mô hình, cách làm để thoát khỏi bẫy thu nhập trung bình. Có 6 mô hình tiêu biểu được tổng kết bao gồm các phương pháp và bài học kinh nghiệm để thực thi. Nghiên cứu cho thấy để thoát khỏi bẫy thu nhập trung bình, cần có: cơ cấu nền kinh tế tốt, chính phủ điều hành tốt, đổi mới sáng tạo, cùng với nâng cao năng suất và kinh tế tri thức, mức nợ thấp, nền kinh tế xanh, cơ sở hạ tầng tốt, và nền giáo dục tốt.
Từ khóa: bẫy thu nhập trung bình, mô hình, phương pháp, cơ cấu nền kinh tế.
[Tạp chí Công Thương - Các kết quả nghiên cứu khoa học và ứng dụng công nghệ,
Số 20, tháng 8 năm 2021]
