Middle income trap

Middle income trap defined by World Bank

The middle income trap refers to a situation where a country's GDP per capita reaches a middle level but does not progress to high income status. Introduced by the World Bank in 2007, it describes countries with gross national product per capita between $1,000 to $12,000 at constant (2011) prices. This phenomenon highlights the challenges faced by countries in transitioning from middle to high income status.

Example

South Korea experienced the middle income trap as its GDP per capita grew but struggled to maintain high income status.

Understanding the middle income trap is crucial for policymakers to devise strategies that help countries escape this stagnation and achieve sustainable economic growth.

Related concepts

Paradox of thrift

Paradox of thrift: individual saving decreases aggregate demand and gross output

Liquidity trap

Interest rates near zero lower bound

Permanent income hypothesis

Permanent income hypothesis (PIH) focuses on permanent income for consumption decisions

Dual mandate (disambiguation)

Federal Reserve's dual mandate focuses on maximum employment and price stability

Laffer curve

Laffer curve shows tax revenue peaks at an intermediate tax rate

the 50/30/20 budget rule suggests

The 50/30/20 budget rule suggests allocating 50% of income to needs, 30% to wants, and 20% to savings

Educational content, not financial advice.

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