Middle Income Trap

Middle Income Trap

1. reasons

   • Cost advantages of cheap labour that once drove growth start to decline in comparison with other lower-wage countries.
   • Gov Price control of basic necessities result in low growth rates in CPI(consumer price index). Low growth in CPI=low increase in annual wage
   • Prolonged Dependence on Unskilled Workers. Interest to sustain profitability in the short term. Labour workers lower the wages in the country keeping middle income trap. Businesses often in the manufacturing and agriculture industry fail to invest in machines for productivity improvements and the process remains labour intensive.
   • Huge subsidies on petrol and other basic commodities, results in less government income to upgrade infrastructure.
   • Brain drain in the country. Skilled workers leave for countries with higher salaries. Poor quality of human capital results in low investment in R&D. Stagnant technology and no product improvement causes low growth.

2. Solutions

   • Improve quality of education, increasing the number of skilled workers
   • Gov Subsidies in R&D, to increase wages in the innovation sector and reduce investor uncertainty associated with the returns to innovation.
   • Invest in business infrastructures. Infrastructure enhances the efficiency of production, transportation, and communication,it also helps provide economic incentives to public and private sector participants. The accessibility and quality of infrastructure in a region help shape domestic firms' investment decisions and determines the region's attractiveness to foreign investors.