Multiple Equilibrium Of Economic Growth,National Competition Space And The "Middle-Income Trap"

After World War ?,the problem of differences in economic growth and income inequality between countries and domestic regions has been becoming increasingly severe.Among the 101 middle-income countries listed by the World Bank in the 1960s,only one dozen has successfully entered into the high-income stage.Most middle-income countries following the comparative advantage strategy participating in the global economy are facing with many obstacles,for instance,large fluctuations or stagnation of its economic growth,after transiting to the middle-income stage,whose economic growth path is contrary to theoretical expectations.The theory of comparative advantage shows an obvious limitation when used to guide the middle-income countries,economic development.To better explain the economic and social problems faced by middle-income countries,the World Bank(2007)proposed the concept of“The Middle-Income Trap”,which has quickly become one of hottest economic topics.As China entered the middle-income stage in 2010,scholars have differed opinions on whether China could break through the "curse of the middle-income trap".Basically,there is no systematic theoretical framework in the academic community to explain the causes and internal mechanism of the"middle-income trap" and the comparative advantage strategy and the development paradox of middle-income countries lack convincing theoretical explanations,neither.This dissertation focuses on the issue of economic growth of middle-income countries in order to provide a new theoretical analysis framwork and explore pathes for middle-income countries to upgrade their industrial structure to avoid the"middle-income trap" from both the macro and micro perspectives.On the macro level,basing on the existing studies of the "middle-income trap",it establishes a unified theoretical framework with the different stages of economic development,which aims to set up a systematic analysis framework for the“middle-income trap”.Then,it verifies the scientific nature of the proposition as well as the occurrence mechanism and internal mechanism of the "middle-income trap" to propose a“trap”risk prediction standard.Theoretical analysis shows there is a dynamic impact on a country's uncertain economic growth by the structural changes of two sectors participating in the international trade in an open economy-the traditional production sector(product labor-intensive goods)and the modern production sector(product capital-intensive goods).The result confirms the existence of a stable growth equilibrium in the low-income and high-income stages,as well as an unstable equilibrium in the middle-income stage,which provides theoretical support for the"middle-income trap" mechanism.Then we use empirical methods,for instance,the cox proportional hazards model,to verify the relationship of multiple equilibriums of economic growth and the“middle-income trap”,study the risks that middle-income economies face with during the evolution of high-income stage by probabilistic methods so that dynamically examining the evolution of economic development of middle-income countries.The dissertation takes the country's risk function in the middle-income stage as a dependent variable to dynamically study the influencing factors of a country's successful leap over the middle-income stage by the cox proportional hazards model.The results confirm the scientific nature of the "lower middle-income trap" proposition and estimate the threshold for the "trap”during the middle-income phases,which exists at the first 56 years when a country becomes a low-middle income economy.Moreover,the factors of human capital,foreign trade dependence,household consumption,total factor productivity based on welfare,official language,financial geography has different effects on the success of each group entering into the next income phase.Moreover,this study also finds that the lower-middle income countries need to maintain at least 2.48%of average annual growth rate while higher-middle income ones has to keep a bottom rate of 5.26%can complete their transitions to the next income group,respectively.Finally,this research reviews all the sample countries by the empirical findings of this chapter to re-determine the countries that fall into and escape the“trap”as the national sample for the later empirical studies.However,we still could not confirm the exsistance of the“upper middle-income trap”by the result of cox proportional hazards model and have to do more research in chapter 5 with the panel fixed and radom effects models to analyze the relationship between the comparative advantage trap and the "upper middle-income trap"From the micro perspective,this doctoral dissertation provides a new perspective for analyzing the path of industrial upgrading in middle-income countries by expanding the product space theory,then study the mechanism of the "comparative advantage trap" in the global value chain and its effect on the " middle-income trap"to propose suggestions for middle-income countries by empirical research.After combing the product space theory proposed by Hausmann et al.(2007),this dissertation relaxes the assumptions of government policies,financial freedom,and product permanent life cycle,then takes government actions,institutional constraints and the product life cycle into analysis.The final framework composes a national competition space theory that covers the product life cycle and dynamic comparative advantage in the international market,which provides a new theoretical analysis perspective for a country to reasonably avoid the“middle income trap”in order to explore the path of upgrading their industrial structure for middle-income countries.Theoretical results show that,first of all,the upgrading path of a country's products is affected by the price mechanism and the cost mechanism;secondly,there is a competitive relationship between the comparative advantages among the countries;thirdly,there is a strong influence by the existing production capacity in the process of upgrading the domestic product structure,if it is unable to pay the cost of distance or failing to find suitable target products under the exsiting ability,the government will not be able to exert the influence of the trend,neither,the whole domestic product upgrading will stagnate as well as the industrial structure of the economy.This is a microscopic reason of the "middle-ncome trap".Then,this dissertation uses empirical methods to explore the relationship between the structural evolution of the national competitive space and the "middle income trap" by the social network and the panel fixed and radom effects models.In the first place,the half part of chapter 5 adopts the method of the overall network with the data from 1995 to 2014 by using the social network analysis software of UCINET and Netdraw to study the evolution of countries who have been taking the comparative advantage strategy participating in the international trade in the global competition space.This method complements "co-occurrence method" proposed by Hausmann et al.(2007)who used the conditional probability method to analyze the industry's closeness between two countries.Then uses Netdraw social network analysis software to visualize the evolution path of the national competitive spatial structure every five years from 1995 to 2014 so that the results are more convincing.In order to further determine which countries participating in the international trade in accordance with the comparative advantages strategy have obtained greater trade benefits and distinguish the relationship between the gains and losses of a country as a core actor or marginalized actor and facing with“the middle-income trap”,this dissertation uses UCINET to conduct a core-edge analysis with“national-product”2-mode data.The study shows that,the evolutionary trend of the national competitive spatial structure coincides with the path of a country's economic development;the evolution of the national competitive spatial structure coincides with the path of a country's economic development,that is,high-income and emerging economies that produce high-value-added products are mostly or close to the marginal groups that specialize in production,which means they are in an advantageous position in the international trade.However,many low-and middle-income countries have long been in the core group of highly competitive mid or low-end products.As the comparative advantage development strategy has solidified their existing extensive production modes so that their upgrading of industrial structure has stagnated resulting in falling into“the middle-income trap”.Even if some middle-income countries are in relative favorable positions in marginal areas,their processing trade with low added value in a timely manner leading them to face with“the middle-income trap”due to their monotonous industrial structure and lack of core technologies.Then,based on the national competition space theory,this dissertation sets up the panel fixed effects and random effects models combing with primary products,labor-intensive products,capital-and technology-intensive products as well as institutional environmental factors,then takes institutional factors,for instance,government integrity,taxation,government expenditures,the fredom of trade and finance as institusional indicators into consideration to measure the quality of a country's institutions and empirically test their correlations with economic growth.In addition,this chapter also builds a cross-terms dummy variable of capital and technology-intensive products and whether they falling the "trap," of each stage or not to study the impact mechanism of the“comparative advantage trap”on“the middle-income trap",which will provide targeted recommendations for the rational avoidance of“the middle-income trap”from the institutional level.The result shows that,there is a "comparative advantage trap”that is not conducive to upgrading the industrial structure in the high-middle income stage,which actually is "the upper middle-income trap".A clean government and a sound rule of law,low tax burdens,trade liberalization,and timely financial opening are conducive to stimulating entrepreneurship and playing a leading role in the allocation of resources by the price mechanism,which help reduce rent-seeking and corruption,resluting in realizing the transformation of economic drivers from factor-driven to innovation-driven and finally avoid "the middle-income trap." Then,this dissertation conducts a statistical study on the government's macro-regulations in typical Latin American countries to analyzes important roles of middle-income countries' governments and regulations in facing with " the middle-income trap",which provides a realistic basis for the national competition space theory.Finally,based on the aboved theoretical and empirical research,we provide some suggestions for middle-income countries to avoid the"middle-income trap".