How to overcome the middle-income trap

Dr. Pingfan Hong UN/DESA/DPADMay 16, 2013Minsk, Belarus

2

Outline

Macroeconomic prospects for the MICs in the aftermath of the global financial crisis

The rise of MICs in the global economy How to overcome the middle-income trap Strengthen UN development cooperation

with MICs

3

Recovery from the global financial crisis

-4

-2

0

2

4

6

8

10

2007 2008 2009 2010 2011 2012 2013 2014

World High income country

Middle income country Low income country

GDP growth %

Source: UN/DESA World Economic Situation and Prospects 2013

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Contribution to global growth

53.3

9.2

-124.2

54.2 44.8 41.9 37.1

45.9

88.5

22.8

44.853.8 56.4 61.2

-150

-100

-50

0

50

100

2007 2008 2009 2010 2011 2012 2013

Low income countryMiddle income countryHigh income country

5

Growth prospects for CIS, and South-Eastern Europe

-8

-6

-4

-2

0

2

4

6

8

10

South-Eastern Europe CIS and Georgia

2007 2008 2009 2010 2011 20122013 2014

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Macroeconomic policy challenges for MICs Dealing spillover effects from the

unconventional monetary policies by developed countries:

Increased volatility in capital flows, commodity prices and exchange rates

Policy mix in accordance with the specific situation in individual countries

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The rise of MICs in the global economy

-4

-2

0

2

4

6

8

10

1991 1994 1997 2000 2003 2006 2009 2012

World High income country

Middle income country Low income country

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The share of MICs in the global economy has increased

50

60

70

80

90

100

1991 1994 1997 2000 2003 2006 2009 2012

%

High income country Middle income country Low income country

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A too optimistic projection?

10

A too optimistic projection? (2)

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A too optimistic projection? (3)

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The middle income trap

Source: World Bank

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The middle income trap (2)

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Factors entrapping MICs

Productivity gains exhausted from the model of growth at low income level:

Shift of workers from rural to urbanreaching a turning point;

Reaping the gains from imported technology

Lack of investment in human capital and in R&DEnding of demographic dividend

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R&D spending among countries

Source: Keun Lee (2013) CDP presentation

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More challenges for MICs today than 50 years ago in the area of sustainable development

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Strengthen UN system development cooperation with MICs

Align programme with national development strategies Develop a specific framework for development

cooperation with MICs Enhance capacity of MICs in the areas: -Higher value-added industries -Diversification -Employment -Coherent strategies in economic, social and environmental -Macroeconomic management and prudential financial regulation -Hubs for South-South cooperation Increase voice and voting power of MICs in IFIs