The Middle Income Trap is well understood:
According to the concept, a country in the middle-income trap has lost its competitive edge in the export of manufactured goods due to rising wages, but is unable to keep up with more developed economies in the high-value-added market. As a result, newly industrialized economies such as South Africa and Brazil have not, for decades, left what the World Bank defines as the ‘middle-income range’ since their per capita gross national product has remained between $1,000 to $12,000 at constant (2011) prices.[1] They suffer from low investment, slow growth in the secondary sector of the economy, limited industrial diversification and poor labor market conditions and, increasingly, aging populations.
Sociologist Salvatore Babones and Political scientist Hartmut Elsenhans call the middle-income trap a “political trap” as economic methods to overcome it exist. However, few countries use them because of their political situation. They trace the causes of the trap to the structural problems and the inequalities generated in the early development process. According to them, the wealthy elites then follow their interests by bargaining for a strong currency which shifts the economy’s structure towards the consumption of luxury goods and low-wage labor laws, which prevents the rise of mass consumption and mass income. They argue that countries can escape the middle-income trap by investing in physical and human infrastructure, enforcing social policies like higher minimum wages, and having a weak currency that makes exports competitive and stimulates domestic employment.
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