Middle Income Trap:Theory, Experience And China’s Development Path

Economic growth is an eternal topic in economics research. In recent years, the "middle-income trap" has become a hot theme in academic research. There are a lot of literatures about the middle-income trap, but these researchs don’t give a clear answer for which economies fall into a trap, which economies across the trap, and other questions. As far as is concerned the reason of falling into the trap and the experience of acrossing the trap, there are a relatively complete summary, which is short of supporting from empirical evidence. This paper answers these questions from an empirical perspective.According to the country classification criteria formulated by World Bank, using the data arranged by Maddison, and through a comparative analysis, we find the country who’s per capita GDP is between2000dollars and11300dollars in1990price is a middle income ecnomies. A country or region that stays in this range more than43years has fallen into the middle-income trap. From1950to2012, there are42countries or regions fallen into the middle-income trap and6countries or regions across the middle-income trap. In middle income stage, the growth rate of per capita GDP, the share of investment, the investment efficiency and the level of human capital in the economies across the trap are significantly higher than in the economies fallen into the trap.Economic slowdown is the direct cause of falling into the middle-income trap. By the methods of identity transformation, growth accounting and stochastic frontier analysis, we decompose the growth rate of per capita GDP into seven parts, the change of employment, the change of the proportion of working-age population, the speed of capital deepening, technical progress, the change of the technical efficiency, economies of scale and allocation efficiency. Throngh comparative analysis these seven aspects between economies fallen into the trap and economies across the trap, we find:First, the demographic dividend has an important role to across the middle-income trap. In those countries or regions across the trap, the contribution of the increasing of the proportion of working-age population to the growth of per capita GDP is greater than in those countries or regions fallen into the trap. In middle income stage, the rising of the employment rate promote the growth of per capita GDP in those economies across the trap, while the decline of the employment rate hindered the growth of per capita GDP in those economies fallen into the trap.Second, the acceleration of the capital deepening is a key factor to cross the middle-income trap. In middle income stage, the speed of capital deepening is significant higher in the economies across the trap than in the economies fallen into the trap. In those countries or regions across the trap, the contribution of capital deepening to the growth of per capita GDP is between2.78and3.33percentage points, which are1.57to1.85percentage points higher than in the economies fallen into the trap.Third, the the change of the technical efficiency and allocation efficiency are other two key factors to cross the middle-income trap. In middle income stage, the growth rate of TFP is notable higher in the economies across the trap than in the economies fallen into the trap. Specifically, the gap of the change of technical efficiency and allocative efficiency is the main cause of the gap of the growth rate of TFP between economies across the trap and economies fallen into the trap, while the difference of technological progress and economy of scale between two kind of economies narrow this gap.Since China entered the middle income stage in1999, the growth rate of per capita GDP, the share of investment and the level of human capital are all higher than those of economies crossed the trap. But the capital-output ratio is even more in China than in those economies fallen into the trap. In lower middle income stage (1999-2010), the ascent of the proportion of working-age population, the accelerative of capital deepening, and allocation efficiency promote the growth of per capita GDP. Particularly, the contribution of the change of the proportion of working-age population in China is almost equal to that in the economies crossed the trap, and the contribution of capital deepening and allocation efficiency are even more than that in the economies crossed the trap. But the drop of employment, technical regress, the decline of the technical efficiency and diseconomy of scale impeded the growth of per capita GDP, increasing the risk of china falling into the middle-income trap.In2011, the proportion of working-age population began to decline, the sources of economic growth reduced to two, capital deepening and allocative efficiency in China. More importantly, the capital-output ratio is too high, the efficiency of investment is low, and the capacity of production is serious excess, all of which blocked the deepening of the capital. So, expanding domestic demand to absorb excess production capacity, improving the efficiency of investment to keep the pace of capital deepening is the ideal way of China to cross the middle-income trap.