SSRG International Journal of Economics and Management Studies Volume 8 Issue 1, 131-154, January, 2021

ISSN: 2393 – 9125 / https://doi.org/10.14445/23939125/IJEMS-V8I1P114 © 2021 Seventh Sense Research Group®

This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/)

“Mid-income Trap”: A Real Problem in Front of

China Judgment and Understanding of China’s

Current Economic Development Based on Global

Data 1962-2017

JIA Kang

Ph.D. in Economics, Professor & Supervisor, Chinese Academy of Fiscal Science, Ministry of Finance, P.R.C.;

Headmaster, China Academy of New Supply-side Economics.

Abstract - To China, which is in its tough transition and

seeking to rise in a peaceful development, the concept of

“mid-income trap” based on global statistical

phenomena is a real top-level problem related to the

realization of “the Chinese dream.” Faced with the

“mid-income trap,” some important understandings need

to be grasped with analysis and discussion. First, the

mid-income stage is a relative development stage

definitely cannot be confounded with “trap,” but the

correlation between the two words is also nonnegligible.

Second, according to the World Bank’s classification of

the income groups of economies around the world, the

“mid-income trap” can be divided into “lower-middle-

income trap” and “upper-middle-income trap.” Based

on time-sectioned data of 1960 and 2008, the World

Bank research team believes that only 13 economies

have successfully upgraded to the high-income ranks;

however, we notice that although the economic

development of a few economies that have successfully

crossed the “mid-income trap” have their

characteristics, the land area and economic volume of

which are relatively small in general. Third, based on

World Bank’s database, with the average GNI per capita

of the world be the independent variable and the annual

income division standard be the dependent variable, we

use the income division standard from 2000 to 2012 to

obtain the estimated value of the income division

standard from 1962 to 1999, to realize the further

analysis of the development path of the successful

economies. The conclusions are: In terms of incomplete

intervals, the average GDP growth rate of successful

economies crossing the “lower-middle-income trap” is

at least 8.50%, and the average duration of the

successful economies crossing the “upper-middle-income

trap” is 15.9 years, during which the average GDP

growth rate is 5.08%. The duration of China’s crossing

of the “lower-middle-income trap” is 14 years, and the

average GDP growth rate is 9.87%. Since China

upgraded to the upper-middle-income stage in 2010, it

has been facing a severe test of crossing the upper-

middle-income stage. The successful economies have an

average duration of 28.15 years in the “upper-middle-

income trap” with an average GDP growth rate of

3.10%. In the perspective of the range of average GDP

growth rate, the highest point appears at 5.67%

(Malaysia); in the process of crossing “lower-middle-

income trap” and “higher middle-income trap,” there

are many repetitions of “Promotion-Exit-Re-

promotion”; economies that fall into “mid-income trap”

represented by Latin America can give China’s economic

development a very important lesson, which is to try to

avoid the unsustainability brought about by the welfare

catch-up based on populism. At last, facing the real

problem of “mid-income trap,” we must pay special

attention to avoid the distortion of economic catch-up

development path by the welfare catch-up based on

populism; China’s economic upgrading and development

at this stage are still facing the factors of the era and the

JIA Kang / IJEMS, 8(1), 131-154, 2021

132

fundamental realities of the country that cannot be

ignored. The “urgent pressure” of upgrading caused by

the accelerated industrial revolution, the restraint of the

first-mover economies in the global economic

development pattern, the specific energy resources and

ecological environment constraints, the demographic

and educational structure challenges, the cultural and

ideological influences, and especially, the success or

failure of critical institutional reform explorations, are

all major practical issues for China to escape from the

“mid-income trap” in the process of economic catch-up.

Since the “mid-income trap” was put forward by the

World Bank in the report East Asian Visions:

Perspectives on Economic Development in 2006, there

have been many related discussions. It has become a hot

spot and caused a stir in China’s recent divergent

opinions and conflicts of thought. Although this concept's

formulation has some elasticity and ambiguity in the

form and quantitative boundary, it is by no means a

pseudo-problem that some claimed. As a statistical

phenomenon, it is indeed a real problem in the real

world. It should be further emphasized that for China,

which is in its tough transition and seeking to rise in a

peaceful development, “mid-income trap” is a real top-

level problem related to realizing the Chinese dream.

From a historical perspective, an international

perspective, a practical economic development

perspective, or an economic theory perspective, this

challenging and testable problem is inevitable. This

article tries to carry out analysis, investigation, and

discussion.

Keywords - Mid-income Trap；Economic Development

I. “MID-INCOME TRAP” IS A REAL TOP-LEVEL

PROBLEM RELATED TO THE REALIZATION OF

CHINA’S MODERNIZATION DREAM

China’s economic development is in the middle-

income stage under the international comparative frame.

At the same time, it is also in the “tough and difficult”

period to promote comprehensive reform. The discussion

about whether the “mid-income trap” exists, how to

interpret it, and how to deal with it has been extremely

fierce recently. In particular, opinions directly claim that

the concept of a “mid-income trap” is essentially a

pseudo-problem and a cognitive “trap.” We never agree

with this. According to the tracking of related issues such

as the empirical analysis of the development of middle-

income economies in recent years, we believe it must be

emphasized that from the perspective of history and the

economic and social development practices of various

economies in the world, the “mid-income trap” is an

inductive statistical phenomenon reflecting the inevitable

real problem that should be paid attention to.

First, from a historical perspective, an economy's

development trajectory does not always show a gradual

upward trend as expected. Since the 15th century, from

Spain, Portugal, the Netherlands, the United Kingdom,

Germany, Tsarist Russia, to the former Soviet Union,

Japan, and the United States, at each stage of historical

development, individual economies gradually have risen

from the underdevelopment stage into the forests of high-

income economies. Because of the contradiction between

the scarcity of resources and the infinite desire of human

beings in economics, countries have always shown the

competition of multi-strength forces in the context of

historical development, and they have shown rise and fall

in the continuous evolution of their relationships. As the

famous American historian of international relations, Paul

Kennedy, once said: “The triumph of any one Great

Power in this period, or the collapse of another, has

usually been the consequence of lengthy fighting by its

armed forces; but it has also been the consequence of the

more or less efficient utilization of the state’s productive

economic resources in wartime, and, further in the

background, of how that state’s economy had been rising

or falling, relative to the other leading nations, in the

decades preceding the actual conflict.”1

In the historical evolution of the past “non-peaceful

rise” era, for an economy at a specific historical stage,

there is always a distinction between the group of the

1 Kennedy P. The rise and fall of the great power. Vintage, 2010.

JIA Kang / IJEMS, 8(1), 131-154, 2021

133

advanced and the group of followers. The unbalanced

competition is the normal status, but when it comes to

deciding whether to enter the “first-tier” range, there is

always a severe test. In the era of “peace and

development” since the second half of the last century,

this unbalanced competition development is still the

normalized basic reality.

From the perspective of international economic

practice, in the past century, there have been a large

number of economies that have transitioned from the low-

income development stage to the middle-income

development stage, but only a handful of economies have

progressed from the middle-income development stage to

the high-income development stage. After the Industrial

Revolution, over the past two centuries, three industrial

revolutions have followed: On the one hand, labor

productivity has been greatly increased unprecedentedly;

economic development has entered the so-called post-

industrialized information age in advanced economies;

the development of science and technology is changing

rapidly; at the same time, advanced transportation and

communication tools are accelerating the process of

global economic integration. In rapidly increasing the

absolute volume of global economic development, the

investigation and ranking of relative volumes have

logically attracted more attention from all parties. The

typical frame of reference is the World Bank’s grouping

of countries and regions around the world based on

income levels, including Low income (LIC), lower-

middle-income (LMC), upper-middle-income (UMC),

and high income. Relevant research from a number of

institutions worldwide has shown that only a few

countries step into the forests of developed countries after

a long period of development as they have wished, while

most of the countries in the middle-income development

stage stay unchanged.

Many economies have experienced the so-called

“gold growth” stage, but not many of them have entered

the ranks of high-income developed economies through

late-mover development, and few countries have

achieved the target of “rise” in the sense of global

influence. In this regard, Japan can be a typical

representative of the ultimate rise through the catch-up of

gold growth, while the Latin American region is a typical

representative of a still stagnating economy after gold

growth. Japan experienced an economic take-off period

from 1955 to 1973, during which the average annual

growth rate of GDP reached 9.4%. From 1947 to 1955,

the average annual growth rate of Japan’s GDP also

reached 9.0%. From 1947 to 1973, in the 27 years, it

experienced the gold period of rapid economic growth,

and the growth rate gradually declined after 1973 (as

shown in Table 1). Latin America also experienced a 30-

year gold growth period from 1950 to 1980 (as shown in

Table 2), but it did not enter the high-income stage like

Japan and other countries. On the contrary, its economic

and social contradictions grew, with the developing

situation in a state of weakness, and it is still hovering in

the middle-income development stage.

Table 1. Japan’s Average Annual GDP Growth Rate

Unit：％

Year The average annual growth

rate

1947—1955 9.0%

1955—1973 9.4%

1973—1985 3.6%

1985—1990 5.2%

1990—2000 1.5%

Source: Takino Kita, Ino Seihiko, etc. Translated by Peng Xi, etc.,

Japanese Economic History 1600-2000, Nanjing University Press, 2010

edition, pages 241, 243.

Table 2. Latin America’s Per Capita GDP Change

Unit：US dollar in 1975

Country 1950 1980 Growth Rate

Argentina 1877 3209 71.0

Brazil 637 2152 237.8

Paraguay 885 1753 98.1

JIA Kang / IJEMS, 8(1), 131-154, 2021

134

Panama 928 2157 132.4

Peru 953 1746 83.2

Bolivia 762 1114 46.2

Dominican

Republic

719 1564 117.5

Ecuador 638 1556 143.9

Colombia 949 1882 98.3

Costa Rica 819 2170 165.0

Honduras 680 1031 51.6

Mexico 1055 2547 141.4

Nicaragua 683 1324 93.9

El Salvador 612 899 46.9

Guatemala 842 1422 71.3

Venezuela 1811 3647 101.4

Uruguay 2184 3269 49.7

Chile 1416 2372 67.5

Average

growth rate

/ / 101.0

Source：Cardoso and Fishlow（1989）

From the perspective of economic theory, the

development of an economy generally experiences

“Malthusian equilibrium,” “economic catch-up”

(industrial revolution), “economic growth under the

typical facts of Kaldor” (neo-classical growth), “new

economic bifurcation” (endogenous economic growth)

and other different stages, especially in late-mover

countries, the “economic catch-up” stage that must be

experienced is the key period to determining whether the

future can transfer to neoclassical and endogenous

economic growth. The academic circle has long had a

series of discussions and demonstrations on the regularity

of economic catch-up: American economic historian

Alexander Gerschenkron proposed the theory of late-

mover advantage; American sociologist M. Levy

developed the theory of late-mover advantage from the

perspective of modernization; Abramowitz proposed the

forging ahead theory; Belize, Krugman, and Daniel Dong

proposed the leapfrogging model, Robert J. Barrow

proposed a unique technology imitation function, R. Van

Aiken established a general equilibrium model of

technology transfer, imitation and innovation, and so on.

Development economics generally believes that the

economic catch-up stage may succeed or fail. The

successful ones are among the forests of developed

economies, while the losers fall into a wait-and-see status,

similar to the “mid-income trap,” and tend to stagnate and

struggle, hovering in pain for many years.

To sum up, the path of the rise of developed economies

from a historical perspective tells us that all economies

can't become developed in a specific stage of historical

development. There are always those who are advanced

and those who follow after. From an international

perspective, since 1950, only about 20 countries and

regions have successfully entered the high-income stage

(of which there are fewer truly global influences). For a

long time, the economies that have been in the middle-

income stage have experienced the so-called gold growth.

For example, Latin America experienced 30 years of

high-speed economic growth from 1950 to 1980 but then

stagnated like in a quagmire trap, while Japan stepped

into the high-income stage and joined the forest of

advanced economies after 27 years of rapid economic

growth. With these investigations and knowledge

combined with the relevant theories of development

economics, it is not difficult to conclude that the basic

statistical phenomenon can be summarized as follows: A

few economies that completed the economic catch-up

stage have entered the high-income stage, but most have

failed and are stuck in the middle-income stage for a

relatively long period. Because of this, the World Bank

first introduced the term “mid-income trap” in East Asian

Visions: Perspectives on Economic Development in 2006

and stated descriptively: “Strategies that enable

JIA Kang / IJEMS, 8(1), 131-154, 2021

135

economies to grow from low-income economies to

middle-income economies cannot be reused for their

ascent to high-income economies.

The original growth mechanism locks further

economic growth, and national income per capita is

difficult to exceed the $ 10,000 limit. A country can

easily enter a period of stagnation in economic growth.”

In short, no matter from the perspective of history,

international economic practice, or economic theory, the

concept of “mid-income trap” is by no means sensational

or fabricated out of air. It is a real economic development

phenomenon summarized based on statistical data

inspection in a wide range of consensus worldwide and is

consistent with the understanding of the economic growth

path in the academic circle. For China, which has

experienced the “gold development period” and

encountered the “period of prominent contradictions” in

recent years, and whose economic development situation

has entered a “new normal,” the practical significance of

discussing how the “mid-income trap” can be avoided is

obvious: The idea that with the nearly double digits

average annual GDP growth and the total amount the

second largest in the world, as long as China continues to

develop, it can enter the high-income stage and achieve

“Chinese dream of modernization and great national

revival” is wrong. If we cannot effectively resolve the

contradictions, overcome the difficulties, and upgrade

development, the “mid-income trap” is waiting for us to

see if it repeats itself! To achieve “long-term vision” and

“advanced strategy” and maintain the level of strategic

thinking, at least at this stage in particular, “be vigilant in

a peaceful time,” quick response, clear warning, full

discussion, and necessary deployment of preventive

measures are in need.

II. GLOBAL PATTERN OF THE ECONOMIC

DEVELOPMENT STAGE

The middle-income stage is a relative development

stage. In terms of expression, while the “stage” and

“trap” of development must not be confused, the

correlation between the two should be highly noticed.

The World Bank grouped countries and regions' income

levels as low-income (LIC), lower-middle-income

(LMC), upper-middle-income (UMC), and high-income.

The grouping criteria are generated as data changes for

each fiscal year. The fluctuations of the grouping criteria

each year also reflect the development direction and

degree of the global economic level. For a country or

region, its group and ranking always change dynamically

from a global economy's comparative perspective. The

investigation shows the relative development level of a

country or region in the global economy. At present,

there are also people in the academic community who

believe that every country has to go through the middle-

income stage, so there is no trap. We believe that this

judgment is logically chaotic. In a specific “stage” of

development, the situation of “crossing” varies. It is

obviously of practical significance to distinguish the two

situations of falling into the trap and crossing the trap.

Unlike the welfare trap, the Tarxis trap, and the transition

trap, the “mid-income trap” refers to the stagnation

period of relative development of an economy in the

perspective of international comparison in the particular

historical stage of middle-income, but it is particularly

noteworthy. The reason that causes the economy to avoid

falling into this stagnation period or eventually

successfully escaping from this stagnation period is

widely related to the internal and external factors in the

economy's development. Before understanding the

middle-income stage, we must understand the current

economic development pattern on a global scale.

Many institutions around the world have conducted in-

depth discussions on the “mid-income trap.” In addition

to the World Bank, the 2012 report of the Asian

Development Bank shows that based on the continuous

data of economies that can be traced from 1950 to 2010,

52 of the world's 124 countries are in the middle-income

stage. Among them, 35 economies have been in this

stage during the 60 years and will continue to be in the

middle-income development in the future. Namely, they

have fallen into the “mid-income trap.” The “mid-income

trap” can be divided into “lower-middle-income trap”

and “upper-middle-income trap” according to the World

JIA Kang / IJEMS, 8(1), 131-154, 2021

136

Bank’s classification of income groups in various

economies around the world. In the 35 economies that

fall into the “mid-income trap,” 13 are in Latin America,

among which 11 are in the “lower-middle-income trap”

(including Bolivia, Brazil, Colombia, Dominican

Republic, Ecuador, El Salvador, Guatemala, Jamaica,

Panama, Paraguay, and Peru), and 2 are in “upper-

middle-income trap” (including Uruguay and

Venezuela). Whether viewed in absolute numbers or

from the map, Latin America is a concentrated area that

falls into the “mid-income trap,” so some people in the

academic community have also used the “mid-income

trap” as an image of the “Latinization” issue. Nine are in

sub-Saharan Africa, all of which are in the “lower-

middle-income trap” (including Algeria, Egypt, Iran,

Jordan, Lebanon, Libya, Morocco, Tunisia, and the

Republic of Yemen). Three are in Asia, 2 of them are in

the “lower-middle-income trap” (including the

Philippines and Sri Lanka), one in the “upper-middle-

income trap” (Malaysia). There are two in Europe in the

“lower-middle-income trap” (including Albania and

Romania). At the same time, 23 economies have entered

the high-income stage (as shown in Annex 1). The

economic growth conditions that an economy needs to

escape from the lower-middle-income trap and the upper-

middle-income trap are very different: The average age

required to escape from the lower-middle-income trap is

28 years, and the average annual economic growth rate

cannot be less than 4.7%; the average length of time

required to escape the high mid-income trap is 14 years,

and the average annual growth rate cannot be less than

3.5%. While we believe that although ADB’s related

research has some enlightening significance, due to

problems such as data sources, the gap with the current

state of economic development is too large, which has

greatly reduced the reference value.

Based on World Bank data, using 1960 and 2008 as

time nodes, and observing the data performance of

various global economies on the time cross-section, the

results shown in Figure 1 can be formed: Using the 1960

and 2008 GNI data as the quadrants of the horizontal axis

and the vertical axis, longitudinally cut by the two

dividing lines of low income and middle income, middle

income and high income in 1960, and the same two

dividing lines are cut horizontally in 2008. The original

quadrants can be divided into nine areas (Figure 1). The

“middle-income to high-income” area indicates

economies in the middle-income development stage in

1960 and is already in the high-income development

stage in 2008. There are only 13 of these economies:

Israel, Japan, Ireland, Spain, Hong Kong, Singapore,

Portugal, Taiwan, Mauritius, Equatorial Guinea, South

Korea, Greece, and Puerto Rico. At the same time, it is

not difficult to see from the area numbered 5 (centered)

in Figure 1 that China, which was at the junction of the

low-income stage and the middle-income stage in 1960,

is transferring from lower-middle-income after 48 years

of development to upper-middle-income stage, but more

economies in the fifth region are stagnant, always

struggling in the middle-income stage.

Fig.1 Scatter diagram of global economic development stages from

1960 to 2008

The Chinese economy was at the junction of the low-

income stage and the middle-income stage in 1960. It

entered the middle-income development stage in 2008

and completed the transition from the lower-middle-

income stage to the upper-middle-income stage in recent

years. However, after more than 30 years of gold growth,

China’s economic growth is entering a “new normal,” It

JIA Kang / IJEMS, 8(1), 131-154, 2021

137

is urgent to consider the challenge of the “mid-income

trap” forward-looking and find a way to overcome the

trap. The middle-income development stage to the high-

income development stage is quite similar to the “carp

jumping dragon gate” in Chinese history and culture.

We believe that in understanding the causes of the mid-

income trap and the issues to be avoided, we must first

grasp two basic acknowledgments: First, the economies

that successfully cross the mid-income trap have their

specialties, and the economies that fall into the mid-

income trap have quite similarities. Second, take the

successful economies' strengths and avoid the failed

ones' failures, but the final choice may be a distinctive

personality.

Although the World Bank’s analysis of 1960 and 2008

as a data panel identified 13 economies that successfully

crossed the mid-income trap, through our tracking

observations based on the 2014 data, Mauritius has not

entered high income, but still in the upper-middle-

income stage; in addition, according to the latest per

capita GNI data released by the World Bank, Equatorial

Guinea’s per capita GNI change trend can be described

as big fluctuations (see Figure 2 for details). As one of

the least developed economies globally, mainly planting

industry, Equatorial Guinea experienced rapid economic

growth due to the discovery of many oil resources in the

territorial sea in 1996 and quickly became the third-

largest oil producer sub-Saharan Africa. In 1997, it broke

the upper limit of low income, and then it broke the

lower limit of middle income in 2005, and then formally

entered the ranks of high income in 2007. Next, it fell

back to the upper-middle-income stage in 2008, again in

2010 went back to the high-income level, and again fell

into an upper-middle-income stage in 2012. The path can

be said to be completely uncopiable for China, with no

reference value. Therefore, in this papers' follow-up

research on successful economies, Equatorial Guinea is

no longer one of the objects. The other 11 economies can

be considered as high-income ranks (see Table 3 for

details).

Table 3. 13 economies that successfully crossed the mid-income trap

summarized by the World Bank

Country

Contine

nt

Area

（

Square

Kilomet

er）

Popul

ation

（

Ten

Thou

sand

Peopl

e）

GDP

Per

Capita

（US

Dollar

）

Israel Asia 22145 775 36051

Japan Asia 377972 1269

1 38634

Singapore Asia 704 507 55182

South

Korea

Asia 99600 5040 25977

Hong

Kong,

China

Asia

1104 726 38124

Taiwan,

China

Asia 36192 2344 22597

Spain Europe 505992 4612 29882

Portugal Europe 91982 1063 21738

Greece Europe 131957 1078 21966

Ireland Europe 70273 458 50478

Equatoria

l Guinea

Africa 28051 67.6 20582

Puerto

Rico

North

America 8875 366 28529

Mauritius Africa 2040 128 9478

Notes: 1. “area”: Israel’s land area includes the Golan

Heights; Japan’s land area includes the Ryukyu Islands

(Southwestern Islands), the Great East Islands, the

Ogasawara Islands, the South Bird Island (Marcus

Island), Okinawa Reefs and Iwo Jima, excluding the four

northern islands; Singapore’s land area includes

reclamation for land; Spain’s land area includes the

Balearic Islands and the Canary Islands, also includes

Western sovereignty (Ceuta, Melili Asia, La Gomera, Al

Hoceima, and Shepherd Islands) and Alvoran Island

between Morocco and Spain; Mauritius includes

Rodrigues, Agalega, and St Brandon (Also known as the

JIA Kang / IJEMS, 8(1), 131-154, 2021

138

Cagados-Karajos Islands); Portugal includes the Azores

and Madeira; Puerto Rico’s federal autonomous territory

of the United States. 2. “Population”: Japanese data as of

March 2015 from the National Bureau of Statistics of

Japan; Korean data as of 2011 from the National Bureau

of Statistics of Korea; Spain data as of July 2011 from the

National Bureau of Statistics of Spain; data for Taiwan as

of March 2015 from the Statistics and Information

Network of the Republic of China; data for Greece as of

June 2011 from the official 2011 census estimates for

Greece; data for Portugal as of January 2011, from the

official website of the EU statistical agency; data for

Israel as of June 2011, from the official website of the

Israeli Central Bureau of Statistics; data for Hong Kong,

China, as of the end of 2014, from the official website of

the Hong Kong Census and Statistics Department; data

for Singapore as of June 2010, from the official website

of the Singapore Bureau of Statistics; Irish data as of

April 2011, from the official website of the Central

Statistical Office of Ireland; Puerto Rico data as of July

2012, from the US Census Bureau official website;

Mauritius data as of July 2010, from Mauritius Official

population estimation website. 3. “GDP Per Capita”:

Uniformly uses data released by the World Bank in 2013.

Since the World Bank does not release data from Taiwan,

China, Taiwan uses data released by the World Monetary

Fund in 2014.

Overall, the 11 economies that successfully crossed the

mid-income trap are 6 in Asia, 4 in Europe, and 1 in

North America. Except for Japan, these economies have

very small land areas, and their populations are among

the countries with small or very small populations

worldwide. For a typical large economy like China, it is

difficult for us to find directly from most successful

economies the space to continue to explore the

development path that can be imitated.

Fig. 2 Equatorial Guinea’s GNI per capita trend from 1989 to 2017

III. SUCCESSFUL ECONOMIES’ PATH IN THE

LONG-TERM VISION

The World Bank’s criteria for classifying the income

stages of the global economy are dynamic. Based on the

GNI per capita indicator, the World Bank divides the

global economies into four stages of development: low-

income stage, lower-middle-income stage, upper-middle-

income stage, and high-income stage. It is particularly

noteworthy that the World Bank’s classification criteria

for the four groups are based on global economic

development changes, and the standards for each stage of

development have been increasing year by year (see

Figure 3 for details). It is worth noting that there are as

many as six types of GNI data per capita based on which

the World Bank alone classifies income stages, including

constant 2005 US$; constant LCU; current LCU; Atlas

method, current US$; constant 2011 international $; and

current international $.

0

2000

4000

6000

8000

10000

12000

14000Lower Limit of

High-income

Boundary

between Upper

and Lower

Middle-income

Cap of Low-

income

Fig. 3 Trend of standard value of economic groups by GNI per

capita from 2000 to 2017

JIA Kang / IJEMS, 8(1), 131-154, 2021

139

The World Bank’s correlation analysis based on cross-

sectional data from 1960 and 2008 provides us with

observable time interval information. Earlier ADB

related studies used other data sources mainly because of

the discontinuity of the World Bank's observable data

and the wide range of data in the relevant division

criteria and the short coverage time range, which makes

it difficult to make long-term comparisons. We have also

observed that the understanding of ADB research teams'

results using other data sources is significantly affected.

Therefore, we believe that we should still focus on the

use of World Bank’s data. The general idea is to

supplement the missing data through subsequent

supplementation and estimation and then conduct related

research in an observable long-term interval. The World

Bank research team has concluded that from 1960 to

2008, only 13 economies successfully crossed the “mid-

income trap.” We can conclude and update the time

range from 2008 to 2017 to implement the following

research steps.

A. Estimation of the annual income division criteria

from 1962 to 2017

Based on the queryable World Bank income

classification standards for 2000-2017 (see Table 4 for

details), we first need to extend this time interval to

1960-2017. For the GNI per capita data in the world’s

economies from 1962 to 2017 are available, so our idea

is to establish a relationship between income division

standards and the annual changes in per capita GNI.

Table 4. Division criteria for global economic development stages

from 2000 to 2017

Unit：US dollar

Year

group

LIC

Middle-income economies High-

income LMC UMC

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

[0,755]

[0,745]

[0,735]

[0,765]

[0,825]

[0,875]

[0,905]

[0,935]

[0,975]

[0,995]

[0,1005]

[0,1025]

[0,1035]

[0,1045]

[0,1045]

[0,1025]

[0,1005]

[0,995]

[756,2995]

[746,2975]

[736,2935]

[766,3035]

[826,3255]

[876,3465]

[906,3595]

[936,3705]

[976,3855]

[996,3945]

[1006,3975]

[1026,4035]

[1036,4085]

[1046,4125]

[1046,4125]

[1026,4035]

[1006,3955]

[996,3895]

[2996,9265]

[2976,9206]

[2936,9075]

[3036,9385]

[3256,10065]

[3466,10725]

[3596,11115]

[3706,11455]

[3856,11905]

[3946,12195]

[3976,12275]

[4036,12475]

[4086,12615]

[4126,12745]

[4126,12735]

[4036,12475]

[3956,12235]

[3896,12055]

[9266,+∞]

[9206,+∞]

[9076,+∞]

[9386,+∞]

[10066,+∞]

[10726,+∞]

[11116,+∞]

[11466,+∞]

[11906,+∞]

[12196, +∞]

[12276, +∞]

[12476, +∞]

[12616，

+∞]

[12746,+∞]

[12736, +∞]

[12476, +∞]

[12236, +∞]

[12056, +∞]

Source: World Bank, World Development Indicators 2002-2017, China Finance

and Economic Press, 2002-2014 edition.

JIA Kang / IJEMS, 8(1), 131-154, 2021

140

Considering that the annual income division

standard should be based on the change in the average per

capita GNI of the world, it can be observed by setting the

average world per capita GNI as the independent variable

and the annual income division dependent variable. Table

5 shows the estimated value of the income division

standard from 1962 to 1999 (see the estimation process

chart1 and corresponding results in Annex 2 for details).

Table 5. Estimated income division criteria from 1962 to 1999

Unit：US dollar

Year Global GNI

per capita

The

estimated

cap of low-

income

The estimated

boundary

between upper

and lower-

middle-income

The

estimated

lower limit

of high-

income

1962 482.13 430 1747 5422

1963 507.75 432 1753 5441

1964 543.23 434 1761 5467

1965 584.32 436 1771 5496

1966 626.38 439 1781 5527

1967 653.79 441 1787 5547

1968 701.87 443 1799 5581

1969 756.45 447 1811 5621

1970 803.72 450 1822 5655

1971 865.60 453 1837 5700

1972 971.97 460 1862 5777

1 Note: Because the R value of the trend curve corresponding to

the XY scatter plot is greater than 0.99, that is, the relationship

is not a perfect fit with the linear relationship, so no further

regression analysis is carried out. But the R values are above

0.96, which proves that there is still a clear linear relationship

between them, so the data are estimated using the available

linear equations.

1973 1,174.18 472 1910 5924

1974 1,376.36 484 1957 6070

1975 1,546.06 495 1997 6193

1976 1,628.55 500 2017 6253

1977 1,723.79 506 2039 6322

1978 1,934.36 518 2089 6475

1979 2,287.13 540 2172 6730

1980 2,614.94 560 2249 6968

1981 2,714.84 566 2272 7040

1982 2,568.87 557 2238 6934

1983 2,446.75 550 2209 6846

1984 2,490.20 552 2219 6877

1985 2,572.85 557 2239 6937

1986 2,839.90 573 2302 7131

1987 3,302.49 602 2411 7466

1988 3,893.70 637 2550 7894

1989 4,063.85 648 2590 8018

1990 4,208.75 657 2624 8123

1991 4,337.78 664 2654 8216

1992 4,650.74 684 2728 8443

1993 4,742.95 689. 2750 8510

1994 4,939.77 701 2796 8652

1995 5,228.61 719 2864 8862

1996 5,461.25 733 2919 9030

1997 5,498.93 735 2928 9057

JIA Kang / IJEMS, 8(1), 131-154, 2021

141

1998 5,246.48 720 2868 8875

1999 5,254.65 720 2870 8880

B. Specific year, duration, and GDP growth rate of

crossing the “mid-income trap.”

Except for Mauritius and Equatorial Guinea, data of

Taiwan, China is not available in the World Bank

database. Therefore, in the long-term analysis, we can

only analyze the income level of 10 successful economies

since 1960 (see Annex 3 for specific data), whose

geographical distribution is: five in Asia, four in Europe,

and one in North America. Based on the conclusions of

the study on the change in the income level of the

successful economies since 1962, we can first summarize

the timetable for the successful economies to cross the

“mid-income trap,” and then compare and compare the

growth rate of the GDP of the successful economies

under this timetable and draw related conclusions.

1. Timeline of successful economies crossing the

“mid-income trap.”

The duration and corresponding time interval for the

successful economies to cross the “lower-middle-income

trap” and “upper-middle-income trap” can be summarized

in Table 6, according to Annex 3.

Table 6. Timeline of Successful Economies Crossing the “Mid-

Income Trap”

Country

Year of

becoming

high-

income

Crossing

“lower-middle-

income trap.”

Crossing “upper-

middle-income

trap.”

Japan 1978 1962—1971

and before

8 years，1971—

1978

Israel 1988 1962—1971

and before

18 years，1971—

1988

Korea 1993 11 years，

1974—1984

10 years，1984—

1993

Singapo

re

1984 13 years，

1962—1974

11 years，1974—

1984

Hong

Kong,

China

1986 13 years，1974—

1986

Spain 1988 12 years，

1962—1973

16 years，1973—

1988

Portuga

l 1992

11 years，

1964—1974

19 years，1974—

1992

Ireland 1988 17 years，1972—

1988

Greece 1989 1962—1972

and before

18 years，1972—

1989

Puerto

Rico 1999

1962—1971

and before

29 years，1971—

1999

average ／ ／ 15.9 years

2. Successful economies’ GDP growth rate was

crossing the “mid-income trap.”

Based on the time intervals shown in Table 6, using the

GDP growth data of countries around the world released

by the World Bank since 1961, it is possible to obtain the

specific growth rate data by country of the successful

economies who have crossed the “upper-middle-income

trap” and “lower-middle-income trap” for each year (see

Annex 4 for details), as is summarized in Table 7.

Table 7. GDP growth rate of successful economies crossing the

“mid-income trap.”1 Unit：%

Country

The average annual

growth rate of GDP

crossing the “upper-

middle-income trap.”

The average annual growth

rate of GDP crossing the

“lower-middle-income

trap” (approximately)

Japan 4.58 9.30

1 Note: Since the time interval for successful economies to cross

the “upper middle-income trap” is determined based on

estimates, the corresponding GDP growth rate is also

determined, while the time interval for some successful

economies to cross the “lower middle-income trap” is uncertain

during 1962-2017. But it is certain that these successful

economies were in the lower middle-income stage from the

beginning of 1962, so they have been in the middle-income

level since 1962. The GDP growth rate in the interval can also

largely reflect its GDP growth rate that has crossed the “lower

middle-income trap”, but this value is approximate.

JIA Kang / IJEMS, 8(1), 131-154, 2021

142

Israel 4.81 8.91

Korea 9.14 8.78

Singapore 8.12 10.02

Hong Kong,

China

7.75

Spain 2.79 7.42

Portugal 3.20 7.88

Ireland 3.90

Greece 2.57 7.95

Puerto Rico 3.96 7.70

average 5.08 8.50

C. Judgement on China’s current development level

Based on the World Bank’s GNI per capita data and

our estimated income classification criteria, China (as

shown in Figure 4) should be promoted to the middle-

income group in 1997, and the year of promotion to the

upper-middle-income stage is 2010, so the time

span of it crossing the “lower-middle-income trap” is 14

years.

0

2000

4000

6000

8000

10000

12000

14000

196

2

196

6

197

0

197

4

197

8

198

2

198

6

199

0

199

4

199

8

200

2

200

6

201

0

201

4

China

Boundary

between Upper

and Lower

Middle-income

Lower Limit of

High-income

Cap of Low-

income

Fig. 4 Changes in China’s income level

As China crosses the “lower-middle-income trap,”

the annual growth rate of GDP is shown in Table 8. It is

not difficult to see that China’s GDP growth rate (9.87%)

in the period of crossing the “lower-middle-income trap”

is higher than the average (8.50%), which is second only

to Singapore (10.02%) compared with the successful

economies.

Table 8. GDP growth rate of China crossing the “lower-middle-

income trap.”

Year GDP growth rate (%)

1997 9.30

1998 7.83

1999 7.62

2000 8.43

2001 8.30

2002 9.08

2003 10.03

2004 10.09

2005 11.31

2006 12.68

2007 14.16

2008 9.63

2009 9.21

2010 10.45

average 9.87

Source：World Bank Official Website

Based on the average of 15.9 years and an annual

increase of 5.08%, with China’s GNI per capita in 2013

($ 6,560) as the base, it will take 13 years to reach the

current lower limit of high income ($ 12,814). But

JIA Kang / IJEMS, 8(1), 131-154, 2021

143

considering the lower limit is still increasing year by year,

not showing a slow downward trend until 2013, it is not

difficult to conclude from the total volume perspective

that China’s road of crossing the “upper-middle-income

trap” will be very hard. On the one hand, the economic

growth rate should be at least 5.08% on average in the

next 15 years; on the other hand, even if the growth rate

of GDP is not lower than the average, given the rise in the

lower limit of high income, China may have difficulty

successfully upgrading after the average time span of

15.9 years, but may face a longer period of test (such as

for Puerto Rico, this phase lasted 29 years).

IV. LESSONS FROM THE PRECEDENTS: A CASE

STUDY OF LATIN AMERICA AND THE

CARIBBEAN

According to the World Bank’s 2017 data (see

Annex 5 for details), 53 economies in the upper-middle-

income stage and 50 economies1 in the lower-middle-

income stage. As mentioned above, China has been

promoted to the upper-middle-income stage in 2010, so

this section mainly judges and analyzes the upper-middle-

income stage economies.

A. Judgement on facts of the mid-income trap: Latin

America and the Caribbean are typical

According to the analysis method of the high-

income group successful economies above, we can carry

out relevant analysis of the upper middle-income

economies' economies to obtain an empirical judgment on

the mid-income trap. Based on the World Bank’s GNI per

capita data and our estimated annual income

classification criteria since 1962, an analysis of 52

1 In 2017, countries in the upper middle-income group were

divided by continent. Asia: Turkey, Malaysia, Kazakhstan,

Lebanon, Iran, Azerbaijan, Iraq, China, Maldives,

Turkmenistan, Thailand, Jordan, Armenia; Europe: Romania,

Bulgaria, Montenegro, Belarus, Serbia, Macedonia, Bosnia and

Herzegovina, Albania, Russia; Africa: Gabon, Mauritius,

Botswana, South Africa, Namibia, Algeria, Equatorial Guinea,

Libya; North America: Mexico, Costa Rica, Grenada, Saint

Lucia, Dominica, Saint Vincent and the Grenadines, Dominica,

Jamaica, Belize, Marshall Islands, Guatemala; South America:

Brazil, Suriname, Colombia, Peru, Ecuador, Guyana, Paraguay;

Oceania: Tuvalu, Tonga, Nauru, Fiji, American Samoa.

economies currently in the upper-middle-income stage

excluding China, can be summarized in Table 9. It can be

concluded that 20 of the economies currently in the

upper-middle-income stage have been in this income

stage for more than 16 years and can generally be

regarded as falling into the “upper-middle-income trap.”

These countries and their corresponding durations are

Russia (at least 27 years), Libya (at least 16 years), Brazil

(29 years), Turkey (26 years), Saint Vincent and the

Grenadines (18 years), Gabon (43 years), Malaysia (26

years), Mexico (38 years), Lebanon (24 years), Belize (18

years), Mauritius (26 years), Suriname (38 years), Costa

Rica (25 years), Botswana (27 years), South Africa (38

years), Grenadines (20 years), Bulgaria (at least 36

years), Saint Lucia (28 years), Dominica (25 years),

Jamaica (19 years). Among the above countries, if

Mexico is also counted as the Caribbean coast, the

number of economies in Latin America and the Caribbean

coast is as many as 10, accounting for half of the total

economies that fall into the upper-middle-income trap.

Table 9. Income level of economies in the upper-middle-income

group in 2017

Country

Year promoted to

upper-middle-income

group

Duration

Russia (Europe) 1991(the data start

time)

At least 27 years

(once promoted to

the high-income

group)

Equatorial Guinea

(Africa) 2005

13 years (once

promoted to the

high-income group)

Brazil (Latin America) 1989 29

Turkey (Asia) 1992 26

Libya (Africa) 2002(the data start

time)

At least 16(once

promoted to the

high-income group)

Gabon (Africa) 1975 43

Malaysia (Asia) 1992 26

Kazakhstan (Asia) 2006 12

Mexico（north 1980 38

JIA Kang / IJEMS, 8(1), 131-154, 2021

144

America）

Lebanon (Asia) 1994 24

Nauru (Oceania) 2009(the data start

time)

9 years (once

promoted to the

high-income group)

Mauritius (Africa) 1992 26

Suriname (Latin

America) 1980 38

Costa Rica (North

America) 1993 25

Romania (Europe) 2005 13

Botswana (Africa) 1991 27

South Africa (Africa) 1980 38

Grenada (North

America) 1998 20

Bulgaria (Europe) 1982(the data start

time) At least 36

Colombia (Latin

America) 2007 11

Montenegro (Europe) 2005 13

Saint Lucia (North

America) 1990 28

Dominica (North

America) 1993 25

Iran (Asia) 2008 10

Belarus (Europe) 2007 11

Saint Vincent and the

Grenadines (North

America)

2000 18

Azerbaijan (Asia) 2008 10

Iraq (Asia) 2009 9

Serbia (Europe) 2005 13

Peru (Latin America) 2010 8

Tuvalu (Oceania) 2004 14

Namibia (Asia) 2006 12

Dominica (North

America) 2007 11

Maldives (Asia) 2006 12

Turkmenistan (Asia) 2010 8

Ecuador (Latin America) 2008 10

Thailand (Asia) 2010 8

Jamaica (North

America) 1999 19

Algeria (Africa) 2008 10

Macedonia (Europe) 2008 10

Jordan (Asia) 2010 8

Bosnia and Herzegovina

(Europe) 2007 11

Armenia (Asia) 2014

4 (Repeatedly in

and out of the

upper-middle-

income group)

Belize (North America) 2000 18

Albania (Europe) 2008 10

Tonga (Oceania) 2012 6

Marshall Islands (North

America) 2002

16 (Repeatedly in

and out of the

upper-middle-

income group)

Guatemala (North

America) 2017 1

Guyana (Latin America) 2015 3

Paraguay (Latin

America) 2010 8

Fiji (Oceania) 2005

13 (Repeatedly in

and out of the

upper-middle-

income group)

American Samoa

(Oceania) 2015 3

Source: See Annex 5 for details

B. Evolutionary characteristics of economies that fall

into the “upper-middle-income trap.”

We can observe the economies that fall into the

“upper-middle-income trap” through the two aggregate

characteristics of income stage trends and GDP growth

rate.

As shown in Figure 5, Russia has entered the upper-

middle-income stage in 1991 (this is the data start time).

In the process of moving from the lower-middle-income

stage to the upper-middle-income stage, it has

JIA Kang / IJEMS, 8(1), 131-154, 2021

145

experienced the situation of “Exit-Re-Promotion”

(specifically: withdrawal in 1994, promotion in 2004). It

was promoted to the high-income group in 2012 and

exited the high-income group in 2015. Since 1991 (the

initial stage of data), Russia's GDP's average annual

growth rate has been 0.86% based on World Bank's data.

Fig. 5 Changes in Russia’s income level

Since the data show, Belize has gradually experienced

the lower-middle-income development stage and the

upper-middle-income development stage. Based on

World Bank data, Belize’s average annual GDP growth

rate has been 3.69% since it was promoted to the middle-

income stage in 2000.

0

2000

4000

6000

8000

10000

12000

14000

196

21

96

61

97

01

97

41

97

81

98

21

98

61

99

01

99

41

99

82

00

22

00

62

01

02

01

4

Belize

Lower Limit of

High-income

Boundary between

Upper and Lower

Middle-income

Cap of Low-income

Fig. 6 Changes in Belize’s income level

As shown in Figure 7, Brazil has gradually

experienced a lower-middle-income development stage

and an upper-middle-income development stage since

1962. Similar to Russia, in the process of moving from

the lower-middle-income stage to the middle-income

stage, it has experienced “Promotion-Exit-Re-promotion-

Re-exit” repeatedly (specifically: 1989 promotion, 1993

withdrawal, 1994 promotion, 2003 withdrawal, 2004

promotion). Based on the World Bank data, Brazil’s

average annual GDP growth has been 2.69% since it was

first upgraded to the middle-income stage in 1989.

0

2000

4000

6000

8000

10000

12000

14000

196

2

196

6

197

0

197

4

197

8

198

2

198

6

199

0

199

4

199

8

200

2

200

6

201

0

201

4

Brazil

Lower Limit of

High-income

Boundary

between Upper

and Lower

Middle-incomeCap of Low-

income

Fig. 7 Changes in Brazil’s income level

As shown in Figure 8, Turkey has gradually

experienced the lower-middle-income stage and upper-

middle-income stage since 1962, and in the process of

moving from the lower-middle-income to the middle-

income stage, it has experienced “Promotion-Exit-Re-

promotion” (Specifically: promotion in 1992, withdrawal

in 1994, promotion in 1996). Based on World Bank data,

since the first promotion to the middle-income stage in

1992, Turkey’s average annual GDP growth rate has been

4.17%.

Fig. 8 Changes in Turkey’s income level

JIA Kang / IJEMS, 8(1), 131-154, 2021

146

As shown in Figure 9, Malaysia has gradually

experienced a low-income stage, a lower-middle-income

development stage, and an upper-middle-income

development stage since 1962. Judging from the GNI per

capita curve, although there was a large fluctuation, there

was no exit in the process. The country has a long

duration in the lower-middle-income and upper-middle-

income stages. Based on the World Bank data, Malaysia’s

average annual GDP growth has been 5.67% since it was

promoted to the middle-income stage in 1992.

Fig. 9 Changes in Malaysia’s Income Level

As shown in Figure 10, Mexico has gradually

experienced lower-income, middle-income, and upper-

middle-income development stages since 1962. In the

process of moving from the lower-middle-income stage

to the middle-income stage, it has experienced

“Promotion-Exit-Re-promotion” repeatedly (specifically:

promotion in 1980, withdrawal in 1983, re-promotion in

1990). Based on the World Bank data, Mexico’s average

annual GDP growth has been 2.70% since it first

upgraded to the middle-income stage in 1980.

Fig. 10 Changes of Mexico’s Income Level

There are other similar descriptions of dozens of

countries, including Lebanon, Jamaica, and others,

similar to the analysis of the six countries mentioned

above. To save space in the text, they are included in

Annex 6.

Based on the above sample analysis, it is not

difficult to obtain the total characteristics of the

economies that fall into the upper-middle-income trap

(see Table 10 for details). The average observable

duration of these economies in the upper-middle-income

trap is 27.35 years, and the average GDP growth rate is

3.05%. We think there are two more valuable

conclusions: First, from the range of average GDP growth

rate, the highest point appears at 5.67% (Malaysia),

which at least warns us in terms of total volume, even if

the average GDP growth rate is at this high level, it has

not been spared from falling into the “upper-middle-

income trap.” Second, the trend of the income stages of

economies that have fallen into the “upper-middle-

income trap” tells us that it is not always possible to

upgrade once and for all. In these economies, in the

process of getting rid of the “lower-middle-income trap”

and “upper-middle-income trap,” there are many

repetitions of “Promotion-Exit-Re-promotion,” and some

economies have experienced more than once. Seychelles

was once lucky to be promoted to the high-income group

and then retreated to the upper-middle-income stage.

These phenomena tell us that while facing the real

problem of the middle-income development trap, we

should also pay attention to getting rid of its “high

standards and strict requirements” on the economy's

JIA Kang / IJEMS, 8(1), 131-154, 2021

147

development situation.

Table 10. Characteristics of economies falling into the “upper-

middle-income trap.”

country

Duration

(year)

Average

GDP

growth

rate

（%）

others

Brazil (Latin

America) 29 2.69

Repeatedly in and out of

the upper-middle-income

group

Turkey (Asia) 26 4.17

Repeatedly in and out of

the upper-middle-income

group

Gabon (Africa) 43 2.53

Malaysia (Asia) 26 5.67

Mexico (North

America) 38 2.70

Repeatedly in and out of

the upper-middle-income

group

Lebanon (Asia) 24 4.31

Mauritius

(Africa) 26 4.41

Suriname (Latin

America) 38 1.60

Repeatedly in and out of

the upper-middle-income

group

Costa Rica

(North America) 25 4.67

Botswana

(Africa) 27 4.57

Repeatedly in and out of

the upper-middle-income

group

South Africa

(Africa) 38 2.44

Repeatedly in and out of

the upper-middle-income

group

Grenada (North

America) 20 2.50

Bulgaria

(Europe)

At least

36 1.78

Repeatedly in and out of

the upper-middle-income

group

Saint Lucia

(North America) 28 3.21

Dominica

(North America) 25 1.94

Jamaica (North

America) 19 0.18

Russia (Europe) At least

27 0.86

Repeatedly in and out of

the upper-middle-income

group; once promoted to

the high-income group

Libya (Africa) At least

16 4.92

once promoted to the

high-income group

Saint Vincent

and the

Grenadines

(North America)

18 2.19

Belize (North

America) 18 3.71

average 27.35 3.05

C. Lessons from economic development in Latin

America and the Caribbean

As a typical example of falling into the middle-income

trap worldwide, Latin American countries' economic

development has not been caused by a single factor. From

the perspective of basic profile, Latin America has

experienced a period of colonial rule of up to 300 years,

leading to the gradual formation of a single product

system in each country, which seriously distorts the entire

economic development. Besides, the entire Latin

American region's population has a very complex ethnic

JIA Kang / IJEMS, 8(1), 131-154, 2021

148

and racial composition, plus complex languages as the

barriers to communication and the gap of customs and

culture have led to natural estrangement in the economic

development of Latin America. Simultaneously, political

instability is a common feature of Latin American

economies, mainly due to the continuous replacement

between democratic and authoritarian regimes, coupled

with the replacement between populist policies and

orthodox macro policies. The victory of populism

fundamentally affected the strategic choices and

development paths of Latin America’s macroeconomics.

As a result, the Latin American region generally failed to

implement the economic catch-up to the end but pulled

down the macro-economy after turning to welfare catch-

up, which is the most important reason for entering the

middle-income trap, in our opinion.

The direct cause of welfare catch-up is to alleviate the

social instability caused by the widening social income

gap. It is too early and hasty to copy the social welfare

system in developed countries. After a period of

development and after a certain period of development,

they have not been able to continue to achieve sustainable

and stable development. In short, not reasonably choosing

to continue the development path, failing to successfully

resolve social contradictions, and not considering the

long-term sustainable development of the macroeconomy,

instead, the economies choose a simple and mechanical

way to copy the welfare system of developed countries to

try to solve the growing domestic income gap and various

social problems. This becomes a huge drag on the

macroeconomy and eventually leads it to fall into the

mid-income trap. Latin America’s welfare catch-up

choice are not created in a single factor: First, after

experiencing a period of rapid economic growth, the gap

in social income continues to widen, leading to an

increase in the willingness of lower classes to demand

welfare, which affects the stability of social and

economic life; Secondly, all citizens have a mentality of

“welfare catching up.” The most direct, most concerned,

and most anticipated thing for the public is to increase

allowances, bonuses, actual income and improve

purchasing power and living standards. “Political

propositions” fall into the so-called “populism,”

especially political decisions that cater to long-term

development. Third, although from the perspective of the

overall economic situation, especially the development

and accumulation of the country’s economic development

level, national financial resources, and national income,

the citizens’ desire for unlimited benefits cannot be

catered blindly. But the political instability of Latin

American coupled with the election mechanism, and

political leaders who advocate populist policies to meet

voters' wishes, take advantage of the situation, lead to this

irrational willingness of voters to be constantly and

recklessly satisfied. For a period, the strong will for

welfare based on populism and the strong will for

political leaders' power irritated each other, strengthened

each other, and jointly created an improper welfare catch-

up in Latin America, which is the so-called “populism

based catch up.” But when the welfare catch-up is

difficult to keep the high welfare from falling from the

cloud, it is also the stamina of national economy

development; various social contradictions and popular

dissatisfaction are intensified. The situation is becoming

more and more embarrassing and uncontrollable, and they

became helpless to be in the “mid-income trap.”

In the process of economic catch-up, trying to avoid

the catch-up of welfare based on populism is a very

important lesson from Latin America for China’s

economic and social development.

V. A BRIEF INTRODUCTION TO THE PATH OF

SUCCESSFUL ECONOMIES

Looking at the 12 economies that have successfully

crossed the mid-income trap, the path to success is

different. As the only developed country in the Middle

East, Israel stands out as a technological leader in

economic advantages. It has world-advanced technology

in military technology, electronics, communications,

computer software, medical equipment, biotechnology

engineering, agriculture, and aviation. It mainly became

one of the developed countries with the help of science

and technology. Unlike Israel, 1955-1956 was Japan’s

starting point for its high-speed growth period. Under the

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guidance of the “investment-driven investment” policy, it

transformed into a private-equipment-investment-led

economy. First, Japan experienced the investment growth

of the heavy chemical industry sector centered on the

chemical, metal, and machinery industries to drive

economic growth, and after being constrained by

resources, it shifts to the processing and assembly

industry to drive economic growth. The process uses

latecomer advantages to carry out technical imitation and

realized technological progress, and finally, achieve

technological transcendence. Besides, under the

promotion of the “Showa Sendan Envoy” project from

1955 to 1975, overseas inspection missions composed of

Japanese entrepreneurs and labor union staff continued to

send out modernized enterprise management to form a

“Japanese-style” operation. The combination of

technological transcendence and institutional innovation

eventually led to successful leapfrogging from the mi-

income trap. South Korea has implemented an “export-

led” open economic strategy since the 1960s, which has

used exports as a driving force to promote the rapid

development of macroeconomics. It has developed in a

typical “Hanjiang miracle” style. After experiencing

academic tide, industrial tide, anti-corruption tide, and

other social tests, it also faced the test of the Asian

financial crisis and the world financial crisis, and finally

became one of the developed countries in the world.

Greece, Spain, and Portugal in Europe are known for

their service industries. The Spanish industry's pillar

industry is automobile manufacturing, while Ireland is

known for its chemical, electronic, and computer

software industries. Through typical export-oriented

economies, Ireland has become the “Celtic Tiger.” As a

free state of the United States, Puerto Rico has an export-

oriented economy. It mainly relies on the export trade of

chemical products to promote economic development.

Simultaneously, although Japan cannot compare with

China in terms of land area and total population, it faces

greater population pressure from the perspective of

population density indicators. Its economic development

path is a typical industrialized economy catch-up, and it

rises successfully, so its economic take-off path is the

worthiest for our in-depth comparison among the

economies mentioned above.

VI. CHINA: NONNEGLIGIBLE FACTORS OF THE

ERA AND FUNDAMENTAL REALITIES OF THE

COUNTRY

Facing the real problem of the “mid-income trap.” On

the one hand, the Chinese need to recognize that most

successful economies' experience cannot be copied

because large countries have a precedent success. On the

other hand, we must avoid harming economic catch-up

development caused by welfare catch-up based on

populism. However, these are far from enough. China’s

development is also facing nonnegligible factors of the

era and fundamental realities of the country. The “urgent

pressure” brought about by the accelerated change of the

industrial revolution, the restraint of the global economic

development pattern, the constraints of energy resources

and the ecological environment, the population base and

education structural challenges, the impact of culture and

ideology, and the success or failure of exploration of

institutional reforms are all serious challenges and

practical issues that China must face in the process of

economic catch-up, falling into the “mid-income trap.”

A. “Urgent pressure” brought by the acceleration of the

industrial revolution

After each industrial revolution, the world

economic structure undergoes important changes. The

first industrial revolution (i.e., the industrial revolution)

that broke out in the middle of the 18th century until the

end of the mid-19th century, starting from the textile

industry and related to the industrial chain driven by

large-scale mechanized production, the metallurgical

industry, the coal industry, and the transportation industry

(mainly the development of railways and shipping) and

manufacturing has made Britain a “world factory.” Then

in the 1960s and 1970s, with the United States as the

center, the second industrial revolution (i.e., the electrical

revolution) broke out worldwide. Around the core of the

heavy chemical industry, real estate, automobile

manufacturing, steel industry, chemical industry, and

power industries were rapidly expanded. To the

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beginning of the 20th century, the United States entered

the “gold age” of economic development, taking

advantage of the momentum to further dominate the third

industrial revolution (i.e., the information technology

revolution) after the 1950s, with the most advanced

atomic energy technology and electronics computer

technology has steadily achieved the supremacy of the

global economy. Germany, Japan, France, and other

countries have also risen one after another in the process.

The improvement of technology has continuously

improved the total factor productivity, thereby helping

these economies achieve long-term economic growth.

Therefore, the industrial revolution is a major opportunity

for the economic take-off of an economy. From the

perspective of the catch-up economy, the time interval for

the industrial revolution to change is also the time

interval that can be surpassed by the later surpassers. If

failed to achieve the rise from the latecomer advantage in

the last industrial revolution, after passively entering the

next industrial revolution stage, it is necessary to initiate

and realize a new round of catch-up to achieve the rise

goal. However, from the rise of the three industrial

revolutions (see Table 11 for details), it is not difficult to

find that the changes are accelerating. Considering the

development trend of our current information technology

era, the arrival of new technological revolutions such as

artificial intelligence has been vaguely visible. The

accelerated change of industrial revolutions has made the

development timeline of the late catch-ups more urgent.

This kind of pressure is the first real problem indirectly

facing the “mid-income trap.” The more urgent it is, the

harder it is to catch up, and the easier China will fall into

the mid-income trap.

Table 11. Timetable of industrial revolutions

Revolution Birthplace Rise time

Industrial

Revolution

The United

Kingdom The 1860s

Electrical

revolution The United States The 1870s

Information

technology

revolution

The United States The 1940s to

1950s

B. Restraint of the global economic development pattern

Comparatively speaking, the leading developed

economies generally have more space for development.

Taking 19th century Britain as an example, after

pioneering the realization of large-scale mechanized

production, Britain, as the largest supplier of industrial

products and importer of raw cotton at the time, on the

one hand, enjoyed the continuous supply of high-quality

raw materials from all over the world; on the other hand,

enjoyed the comparative advantage of the continuous

export of industrially manufactured products to all parts

of the world, as well as the United States who took its

place later. Those who have taken the lead in advance are

often the leaders of the global economic development

pattern, and they are more capable of developing the

economy according to their wishes. For latecomers, the

environment for economic development is often more

precarious. The suppression of advanced economies and

“hegemons” in trade frictions, and the need to develop in

accordance with the “rules of the game” formulated by

the advanced players, will make latecomers bound to be

under the pressure and exclusion of the pioneers in the

global economic development pattern. Although China’s

current economic aggregate cannot be compared with that

of the United States in absolute volume, it has already

jumped to the “second largest in the world” in the

ranking. As a “second in the world” in the middle-income

development stage, the clampdown from the global

economic development pattern is no longer what it used

to be, and frictions and constraints have followed. As

international competition enters a new stage, in addition

to the suppression of the largest one, those below the

third level have more grievances and trouble-making

behaviors, and the previous “poor brothers” also easily

get centrifugal. If the specific situations are not handled

well, it is easy to fall into the mid-income trap under

multiple blows.

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C. Restrictions on resources and ecological environment

The scarcity of resources and the ecology

constraints emphasized by economics also have special

meaning at this stage. Take Japan, which successfully

crossed the mid-income trap and stepped into the high-

income stage, as an example. In the process of economic

catch-up, there has been a shift from its proud heavy

chemical industry to a processing and assembly industry,

the main reason for which is it had to face serious

resource constraints brought by the “oil crisis.” From the

perspective of China's fundamental realities, and in terms

of energy endowment, it has objectively formed a pattern

that takes the coal with the greatest environmental

pressure as the absolute main force, and an extensive

development stage mainly based on extension, which has

synthesized the unusual “three overlaps” of resources and

environmental pressure (See JIA Kang, SU Jingchun’s

“Hu Huanyong Line”: “Half-Wall” Type Environmental

Pressure and Targeted Energy and Environmental

Strategies—Major Issues in Supply Management from

the Perspective of China’s fundamental realities, Public

Finance Research, No. 4, 2015). In addition, the national

economic development layout along the central axis of

the “Hu Huanyong Line” presents a prominent imbalance

in spatial development, forming a “half-wall” type of

energy consumption and environmental pressure. As a

superpower with the third-largest land area, the largest

population, and the second-largest economy in the world,

this fundamental reality makes China’s negative factors

in economic development cannot be ignored: If we

quickly enter the “upgraded version” of intensive growth

without experiencing the external and extensive

compressed-intensive development pattern mainly based

on heavy chemistry industry, energy resources and

ecological environment constraints are bound to become

the puppet of China’s economic development, resulting in

stagnation; If actively change the development model, we

must experience a very difficult and painful transition

period. Based on the success of technological

transcendence and institutional change, on the one hand,

while the marginal benefit of capital is diminishing, the

improvement of total factor productivity is guaranteed

through the improvement of the technological level and

the effectiveness of the institutional supply, thereby

hedging the downside factors and alleviating constraints

for a longer period of time to achieve relatively rapid

economic growth. On the other hand, while stimulating

management innovation through institutional changes,

reducing economic operating costs outside the labor force

and improving overall economic efficiency, thereby

achieving faster and more capital accumulation and

ensuring long-term development. Faced with the

fundamental reality of “three overlapping pressures” on

the “half-wall” pressure type of energy resources and the

ecology, we have to focus on more complex supply

management and solve special situations through special

measures. China’s economy is expected to achieve great

progress and development. Once it is not handled

properly, it will “run into the wall” (could the hard

constraints of development caused by energy resources,

ecology, or unsuccessful transformation), it is very likely

to fall into the mid-income trap.

D. Challenges from the base and structure of the

population

In addition to the fundamental reality of resources

and environment, another reality of China is that the large

population and aging have formed the trend of “getting

old before rich.” In terms of population, in summary,

there are the following prominent issues: First of all,

China has the world’s largest population (the population

density ranks the eleventh in the world without

considering the “Hu Huanyong Line,” and the actual

ranking is about fifth in the world after considering the

“Hu Huanyong Line”). Considering the economic

development level is divided by the per capita indicators,

China’s entry into the high-income stage is bound to be a

“long road and a long way to go.” According to data from

the World Bank in 2018, China’s per capita GDP was

only $ 9,770.8, a difference of $ 1,157.5 from the global

average per capita GDP of $ 11,528.3, a difference of $

34,943.9 from the per capita GDP of $ 44,714.7 of high-

income countries, and a difference of $ 52,870.2 from the

average GDP of the United States of $ 62,641. In terms of

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total volume, China’s GDP, which ranks second in the

world, has reached 13,608,152 US dollars, which means:

If China's per capita GDP is to reach the average level of

global per capita GDP, China’s total GDP needs to reach

US $ 15,735,557 million, a distance of $ 4,475,743

million from US’s $ 20,494,100 million. If China's per

capita GDP reaches the average level of high-income

countries, China’s total GDP needs to reach $ 62,275,805

million. If China’s per capita GDP reaches the current US

per capita GDP, China’s total GDP needs to reach

87,241,421 million US dollars, which is much higher than

the total US GDP. If per capita indicators fail to meet the

high-income standard, the Chinese economy will stay in

the middle-income development stage; that is, it will fall

into the mid-income trap. Secondly, China’s population

structure has shown a significant aging trend. Scholars

have estimated that the peak of public expenditure

pressure on the entire old-age system in China caused by

the aging of the population occurred between 2030 and

2033, and it is less than 20 years from now. After the

peak period, this slow decline in pressure will take

decades. To see that within this very long historical

period, all the inputs from the hardware to services in the

Chinese pension system will inevitably result in a series

of stressful requirements, which will inevitably bring a

great burden and drag on economic development.

Thirdly, the problem of labor supply structure caused by

the irrational education structure is also an unfavorable

factor that we must consider when confronting the “mid-

income trap.” Looking at the experience of economies

that have successfully crossed the mid-income trap, Israel

and Japan have the highest average years of education

throughout Asia. Israel’s targeted, high-quality higher

education has laid a good labor foundation for its

technological advancement and ranks third among the

world’s industrial countries, behind the United States and

the Netherlands. In addition to the popularity of education

and advanced higher education, Japan also attaches great

importance to the role of social education and attaches

great importance to the cultivation of talents in its

corporate system. It has continuously promoted and

maintained high-level scientific research and

development capabilities. In general, there is a clear

mismatch between the labor force cultivated by China’s

current education model and the human capital required

for economic development. Passive friction affects

employment and consumption levels and is likely to

restrict China’s future economic and social development.

E. Impact of the insufficient culture and “soft power.”

How China’s profound cultural accumulation can

turn into an advantage factor in international competition

has always been a problem that plagues Chinese people.

In practice, many negative Chinese cultural factors have

limited China’s innovation ability, and people often dare

not first in the world, which is not good for thinking and

adventurous creation. Society is permeated with the

“official rank standard” ideology. People are good at

following the strict hierarchy but are afraid to express

their insights. These cultural and traditional

consciousness characteristics form the lack of “soft

power” and appeal power, restricting China’s economic

and social development in the rapidly changing

information technology revolution. Only by transforming

cultural accumulation, consciousness, and beliefs into

positive factors that are conducive to economic

development, rather than restricting factors, can China’s

mass entrepreneurship, innovation, and other policies be

effectively implemented and function; the rise of “hard

power” in “comprehensive national strength” may go

hand in hand with the creation of “soft power,” so that the

Chinese dream of modernization will not fail.

F. Success or failure of the system reform exploration

Institutional and new institutional economics has

already told us that the “institutional” factor is

indispensable in the micro-economy. From the macro

perspective of economic development, institutional

supply is one of the most important factors. Take Britain

in the 18th century as an example. Watt, who invented the

steam engine in 1776, left his hometown when he was 19

years old. From Greenock, Scotland, to London, he

sought training as an instrument maker. He entered the

University of Glasgow two years later and became a

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153

“mathematics instrument maker,” who eventually made

the invention of the steam engine and triggered the arrival

of the first industrial revolution. Such cases show that the

invention and creation of technology is by no means a

“black swan” event but is closely related to the

foundation of specialization and economic organizations'

institutional structure. In other words, under the level of

professionalism and economic organization at the time of

the British economy, it is an inevitable event for Britain

to lead the world technology trend sooner or later. The

institution is the core element for creating talents and

promoting the generation of new technologies. In the

economic catch-up phase, the institution is the key to the

effectiveness of the economy. Japan’s “Showa Sending

Tang Envoy” policy to the “New Public Management

Movement” in the Western world reflects the important

role of institutional changes in economic development.

Take Japan, which successfully crossed the mid-income

trap as an example. In addition to technical imitation,

Japan also pays special attention to the basic institutional

arrangements of the market economy under the rule of

law and then continues to improve corporate management

and management by studying systems such as cost

management, business plan surveys, and job analysis.

They continuously increase the degree of modernization

of economic operations, thereby effectively reducing

operating costs and stimulating technological innovation

in technological imitation, which greatly improves the

production capacity and becomes a great driving force for

economic development. Among them, it is very typical to

use statistical quality management targeted at production

processes, combined with the characteristics of Japanese

companies, to expand to company-wide comprehensive

quality control (TQC), that is, to promote all workers in

the company to identify problems and improve work for

product quality. These have promoted the technology

introduced overseas to develop more fully in Japan and

promoted the realization of technology from imitation to

beyond. China is currently in a difficult period of

“comprehensive deepening of reforms.” The substantial

advancement of institutional innovation has generally

become the key to further opening up space for

administerial and technological innovation. In the period

after the 18th National Congress and the Third and Fourth

Plenary Sessions, when is concerning the country’s future

and the nation’s fate, whether we can break through the

barriers of solidified interests and overcome the strong

resistance of vested interests; whether we can smash

down the hard bones to obtain liberate productive forces

in the exploration of institutional change; whether we can

enter the new normal, and build an upgraded version of

success, directly determines if China can relatively

smoothly cross the mid-income trap and become one

among the forest of advanced economies.

If according to the deployment guidance of China’s

top decision-making level on the 14th Five-Year Plan and

2035 Long-Range Objectives, China will achieve

medium-to-high-speed development with an average

annual growth rate of higher than 5% during the period of

the 14th Five-Year Plan， that means, five years later, at

the end of the 14th Five-Year Plan, China is expected to

reach the entry-level of a high-income economy, and

successfully cross the middle-income trap.

ACKNOWLEDGMENT

I would like to show my gratitude to Dr. Su

Jingchun for her important contributions to the paper.

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