MIDDLE INCOME TRAP:
In 2006, economists Indermit Gill and Homi Kharas at the World Bank coined the term “middle-income trap”.
Meaning of Middle Income Trap:
- Low-income countries with cheap labour and easy access to ready-made imported technology grow fast and start becoming wealthier.
But
- As these Low income countries attain status of a middle-income country, they tend to slow down as they lose some of their advantages.
- This slowing down of Low income country Economy is referred to as Middle Income Trap.
Why Middle Income Trap :
- As the country moves from Low income to middle income, the labour become costlier
- These countries loose support from foreign countries as they are coming out of the tag of low income group country.
Middle Income Trap is characterised by low productivity and entrenched inequality.
Ex. Mexico and Brazil
are classic examples of such countries. South Korea, has escaped the trap. while China is at the cusp.
