At the threshold: the increasing relevance of the middle‐income trap

Abstract

We investigate the existence of a middle‐income trap using finite state Markov chains, constant growth thresholds, and mean first passage times. As well as studying output per head, we examine the dynamics of its proximate determinants: total factor productivity (TFP), the capital–output ratio, and human capital. We find upward mobility in the relative capital–output ratio and human capital, but not in relative TFP. The persistence of relative TFP differences, particularly from intermediate income levels, implies slower progression toward frontier income. A middle‐income trap may therefore reflect asymmetric convergence dynamics near the frontier rather than a universal growth slowdown.