The Nature and Avoidance of the ¡°Middle Income Trap¡±

Xudong Chen () and Guoqiang Tian
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Xudong Chen: School of Economics and Institute for Advanced Research, Shanghai University of Finance and Economics (SUFE), Shanghai 200433, China; Key Laboratory of Mathematical Economics (SUFE), Ministry of Education

Frontiers of Economics in China-Selected Publications from Chinese Universities, 2014, vol. 9, issue 3, 347-369

Abstract: The ¡°middle income trap¡± is a significant theoretical and practical issue closely related to the economic and social transition and sustainable development of a country. This paper explores the essence of the ¡°middle income trap¡± and ways to avoid it. It reveals that the inner nature of the ¡°middle income trap¡± lies in the institutional transition dilemma, which results essentially from a lack of reasonable and clear definitions of governance boundaries between government and market as well as government and society. This lack of boundaries causes coexistent and interrelated government inefficiency, market distortion/failure and social anomie, leading to a stagnant transition from a factor-driven to an efficiency-driven and further innovation-driven economy. Moreover, this paper proposes that the proper way to avoid the ¡°trap¡± can be found in the reconstruction of the state governance mode, that is, to transition from a development-oriented and omnipotent government to a public service-oriented and limited government, from factor-driven to efficiency-driven and further innovation-driven development, and from a traditional society to a modern civil society through defining reasonable and clear boundaries between government and market as well as government and society. Thus, reconstruction can establish a state public governance mode featuring the interactive role of government, market and society, and achieve the modernization of state governance systems and capacity.

Keywords: middle income trap; institutional transition; state governance mode (search for similar items in EconPapers)
JEL-codes: H11 P52 Z18 (search for similar items in EconPapers)
Date: 2014
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