Convergence and Middle-Income Trap between Asian Country Members: New Findings

Oluleye H. Babatunde *

Department of Mathematics and Computer Science, The University of Virginia’s College at Wise, Virginia, USA.

OlaOluwa S. Yaya

Department of Statistics, University of Ibadan, Ibadan, Oyo State, Nigeria.

Oluwasegun B. Adekoya

Department of Economics, Federal University of Agriculture, Abeokuta, Ogun State, Nigeria.

*Author to whom correspondence should be addressed.


Abstract

This paper investigates the possibility of middle-income convergence among seven members of Southeast Asian nations (Indonesia, Laos, Malaysia, Myanmar, Philippines, Thailand, and Vietnam), with Malaysia being in upper-middle-income rank and other six countries in lower-middle-income rank. We apply unit root testing framework that allows for smooth nonlinearity, abrupt break, and cross-dependence in the income differences. Results show that these lower-middle-income countries are likely to converge among themselves and converge to the income level of Malaysia in the long run. Based on Add Asian cross-country policy recommendations, Economic policies capable of stimulating long-run economic growth of these lower-middle-income countries is therefore recommended, and the countries should be ready to take up the challenge of upper-income country, like Malaysia.

Keywords: Southeast Asia region, cross-sectional dependency, fourier function, income convergence, seemingly unrelated regression


How to Cite

Babatunde , O. H., Yaya , O. S., & Adekoya , O. B. (2024). Convergence and Middle-Income Trap between Asian Country Members: New Findings. South Asian Journal of Social Studies and Economics, 21(3), 46–57. https://doi.org/10.9734/sajsse/2024/v21i3782

Downloads

Download data is not yet available.

References

Solow, RM 1956, ‘A contribution to the theory of economic growth’, Quarterly Journal of Economics. 1956;70(1):65–94.

Romer, PM, ‘Increasing returns and long run growth’, Journal of Political Economy. 1986;941002–1037.

Otsuka K, Higuchi Y, Sonobe T. Middle-income traps in east asia : an inquiry into causes for slowdown in income growth’, China Economic Review. 2017;46:S3–S16.

Lavopa A, Szirmai A, Structural modernization and development traps. An empirical approach’, World Development. 2018;112:59–73.

Kar S, Roy A, Sen K, ‘The double trap: institutions and economic development’, Economic Modelling. 2019;76:243–259.

Bernard AB, Durlauf SN, ‘Interpreting tests of the convergence hypothesis’, Journal of Econometrics. 1996;71:161–173.

Greasley D, Oxley L, Time-series based tests of the convergence hypothesis: Some positive results’, Economics Letters. 1997;56:143–147.

Dickey, DA & Fuller, WA 1979, ‘Distribution of the estimators for autoregressive time series with a unit root’, Journal of American Statistical Association, vol. 74, pp. 427-431.

Perron P, Vogelsang TJ, Non-stationarity and level shifts with an application to purchasing power parity, Journal of Business and Economics Statistics. 1992;10:301–320.

Enders W, Lee J, A unit root test using a Fourier series to approximate smooth breaks’, Oxford Bulleting of Economics and Statistics. 2012a;74:574-599.

Furuoka F, A new approach to testing unemployment hysteresis’, Empirical Economics. 2017a; 53:1253–1280.

Furuoka F, A new test for analyzing hysteresis in european unemployment, Applied Economics Letters. 2017b;24:1102-1106.

Furuoka F, Pui KL, Ezeoke C, Jacob RI, Yaya OS, ‘Growth slowdowns and the middle-income trap: evidence based on new unit root framework’, The Singapore Economic Review; 2020. DOI: 10.1142/S0217590820500083

Pruchnik K, Zowczak J, Middle-income trap: Review of the conceptual framework, ADBI Working Paper Series No. 2017;760.

Woo W, Lu M, Sachs J, Chen Z. A new economic growth engine for China: Escaping the middle-income trap by not doing more of the same, Imperial College Press; 2012.

Agenor P, Canuto O. Middle income growth traps, World Bank Policy Research Working Paper No. 2012;6210.

Felipe J, Abdon A, Kumar U, Tracking the middle-income trap: What is it, who is in it, and why? ADB Economics Working Paper. 2012;306-307.

Islam N, Will inequality lead China to the middle-income trap? DESA Working.2015;142. ST/ESA/2015/DWP/142I.

Berglof E, Innovation and transition, Transition Report, European Bank for Reconstruction and Development; 2014.

Gill I, Kharas H. The middle-income trap turns ten, World Bank Policy Research Working. 2015;7403.

Kharas H, Kohli H, What is the middle-income trap, why do countries fall into it, and how can it be avoided?’, Global Journal of Emerging Market Economies. 2011;3:281-289.

Gill I, Kharas H, An East Asian renaissance: Ideas for economic growth, The World Bank; 2007.

Aiyar S, Duval R, Puy D, Wu Y, Zhang L, Growth slowdowns and the middle-income trap, IMF Working Paper; 2018. WP/13/71.

Spence M. The next convergence: The future of economic growth in a multispeed world, Farra, Straus and Giroux, New York; 2011.

Hawksworth J. 2014. Escaping the middle-income trap- What’s holding back the fragile five?’, PwC Blogs; 2014.

Robertson P, Ye L, On the existence of a middle-income trap, Economics Discussion/ Working University of Western Australia. 2013;13-12.

Bresser-Pereira LC, Araujo EC, Peres SC, ‘An alternative to the middle-income trap’, Structural Change and Economic Dynamics. 2020;52:294-312.

Garret G, ‘Globalization’s missing middle’, Foreign Affairs. 2004;83:84-96.

Eichengreen B, Park D, Shin K, When fast growing economies slow down: international evidence and implications for china, Asian Economic Papers. 2012;11:42-87.

Eichengreen B, Park D, Shin K, Growth slowdowns redux: New evidence on the middle-income trap, NBER Working; 2013. Paper No. 18673.

Yusuf S. Middle-income countries: Trapped or merely slowing?’, Asian-Pacific Economic Literature. 2017; 31:19-29.

Eichengreen B, Park D, Shin K Japan and the world economy growth slowdowns redux’, Japan and the World Economy. 2014;32:65-84.

Sen K, Tyce M, ‘The elusive quest for high income status-Malaysia and Thailand in the post-crisis years’, Structural Change and Economic Dynamics. 2019;48:117-135.

Ha J, Lee S, ‘Demographic dividend and asia’s economic convergence towards the us’, The Journal of Economics of Ageing. 2016;8:28-41.

Tamura R, Dwyer J, Devereux J, Baier S. Economic growth in the long run’, Journal of Development Economics. 2019;137:1-35.

Raiser M, Wes M, Yilmaz A. Beyond convergence: Poland and turkey en route to high income’, Central Bank Review. 2016;16:7-17.

Breuer JB, McNown R, Wallace M. Series-specific unit root tests with panel data’, Oxford Bulletin of Economics and Statistics. 2002;64(5):527–546.

Leybourne S, Newbold P, Vougas D, ‘Unit roots and smooth transitions’, Journal of Time Series Analysis. 1998;191:83-97.

Kapetanios G, Shin Y, Snell A, Testing for a unit root in the nonlinear star framework’, Journal of Econometrics. 2003;112:359–379.

Desli E, Gkoulgkoutsika A, ‘Economic convergence among the world’s top-income economies’, The Quantitative Review of Economics and France; 2019. DOI: 10.1016/j.qref.2019.03.001

Enders W, Lee J., ‘The flexible fourier form and dickey-fuller-type unit root tests’, Economic Letters. 2012b;117:196-199.

Estrin S, Urga G, Lazarova S, Testing for ongoing convergence in transition economies, 1970 to 1998’, Journal of Comparative. 2001;29:677-691.

Zivot E, Andrews DWK, ‘Further evidence on great crash, the oil price shock and the unit root hypothesis’, Journal of Business and Economic Statistics. 1992;10:251–270.