Tracking the Middle-Income Trap: What is It, Who is in It, and Why? Part 2

This paper proposes and analyzes one possible reason why some countries get stuck in the middle-income trap: the role played by the changing structure of the economy (from low-productivity activities into high-productivity activities), the types of products exported (not all products have the same consequences for growth and development) and the diversification of the economy. We compare the exports of countries in the middle-income trap with those of countries that graduated, across eight dimensions that capture different aspects of a country’s capabilities to undergo structural transformation, and test whether they are different. Results indicate that, in general, they are different. We also compare the Republic of Korea, Malaysia, and the Philippines according to the number of products that each exports with revealed comparative advantage. We find that while the Republic of Korea was able to gain comparative advantage in a significant number of sophisticated products and well connected, Malaysia and the Philippines were able to gain comparative advantage in electronics only.