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Growth Slowdowns and Middle-Income Trap: Evidence from New Unit Root Framework

Fumitaka Furuoka (), Kiew Ling Pui, Chinyere Mary Rose Ezeoke, Ray Jacob () and Olaoluwa Yaya ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper suggests a new testing procedure to systematically examine the middle-income trap (MIT). To empirically demonstrate this procedure, one high income and 14 middle-income countries are examined using newly developed unit root tests - Fourier ADF with structural break (FADF-SB) and Seemingly Unrelated Regressions Fourier ADF (SUR-FADF). The FADF-SB test incorporates unknown nonlinearity and smooth break in the time-series, while the SUR-FADF test accounts for cross-sectional dependency. The empirical findings produced mixed results: 10 countries have a relatively high possibility of facing the MIT problem, while only one country has a relatively low possibility of facing the problem. For the remaining three countries, it is uncertain whether they will face the problem of MIT. These empirical findings have significant policy implications.

Keywords: Cross-sectional dependency; Fourier approximation; Income convergence; Middle-income trap; Structural break; Unit root JEL Classification: C19, C22, N17 1. Introduction (search for similar items in EconPapers)
JEL-codes: C19 C22 N17 (search for similar items in EconPapers)
Date: 2019-12-03
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