Mission Impossible? Challenges for Countries in Escaping the Middle-Income Trap

Quang-Thanh Tran and Quoc Thai Le ()
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Quoc Thai Le: International University, Vietnam National University Ho Chi Minh City, Ho Chi Minh City, Vietnam

No 200, Working Papers from Development and Policies Research Center (DEPOCEN), Vietnam

Abstract: Why do some economies manage to escape the middle-income trap while others remain trapped? To answer this question, we develop an overlapping-generations model in which economies can choose between a primitive technology subject to diminishing returns and an advanced technology capable of sustaining long-run growth. Adoption becomes viable only when human capital, capital-use efficiency, and demographic conditions are sufficiently favorable; otherwise, the economy may converge to a middle-income steady state from which escape is nearly impossible. We test these predictions using panel data for 185 economies over 1950-2023. The results show that higher human capital and stronger institutional quality are robustly associated with a greater likelihood of escape, whereas aging becomes an obstacle primarily for economies that grow old before achieving high-income status. Additional evidence based on economic complexity and imports of manufactures and machinery supports the model's central technology-adoption mechanism, which determines whether an economy successfully completes the transition out of middle-income status.

Keywords: middle-income trap; endogenous technology choice; overlapping generations; general equilibrium; discrete-time hazard model (search for similar items in EconPapers)
JEL-codes: E13 O11 O33 O41 O47 (search for similar items in EconPapers)
Pages: 54 pages
Date: 2026
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Working Paper: Mission Impossible? Challenges for Countries in Escaping the Middle-Income Trap (2026)
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