Populist, Export Diversity And The Middle Income Trap-A Cross-Country Empirical Study

In recent year, populist is very popular in Latin America with the lack of export diversity,and the economic growth is slowing down. As China has stepped into the group of middle-income country, the study of "middle-income trap" is become popular. In this article, we have investigated the economic growth from the perspective of populist and export diversity. It provides a new point of view for China and other developing countries to cross the "middle-income trap". Use the previous literature and the cross-national data from1995to2010, we have investigate the effect of populist and export diversity on economic growth. In addition, the "middle-income trap" discussed in this article are those countries whose economic growth has been slow down when they step into the group of middle income country. While the populist is an economic operation mode:the government blindly adopt an expansionary fiscal policy, with high welfare, high social security benefits to meet the voters,but ignore the budget deficit constraints and other external conditions.Theoretical analysis shows:Populist policy requires increased government spending, while not increasing the tax burden, and it will lead to rising fiscal deficit. And then, the Government will take expansionary monetary policy but make the inflation worse. They want to stabilize the exchange rate but make the foreign exchange reserves depleted until a serious imbalance of international payments, which may lead to financial crisis. On the other hand, export diversity can promote economic development through three aspects:eliminate uncertainty risk, promote the production of technical transition and other effect. So that, its absence do damage to economic growth. The impact of these two aspects makes country’s economic stagnation, step into the middle-income trap.Empirical studies shows:After controlling for other factors, with the analysis and comparison of fixed-effects regression, random effects regression and mixed regression, we verified the three theoretical hypothesis which presented in this paper that populism does have a significant negative impact on economic growth, and the export diversity have a significant positive impact on economic growth. Also, the populism has significant negative impact on the export diversity.According to our research, we argues, welfare catch and the lack for export diversity have become an important reason for the developing country fall into the middle-income trap in recent year. With the popularity of the democratic point of view, the populist policies will be promoted in developing countries. Along with a serious budget deficit and the loss of export diversity, it cause serious harm to the economy of developing countries. use appropriate welfare institution match with the stage of economic, and encourage exports, increasing a country’s export diversity. Both may be a key for a country to cross the middle income trap.