Middle Income Trap: Definition, Causes, and Overcoming Strategies

Have you ever heard the term Middle Income Trap?

This term is often used to describe a country’s national economic condition.

This term describes how a country experiences stagnation in economic conditions.

Definition of Middle Income Trap

Middle Income Trap is a term that describes the situation when a country succeeds in increasing middle income, but cannot get out of that level, thereby preventing the country from becoming a developed country with high per capita income.

This term was first mentioned by the World Bank in a 2007 report entitled; An East Asian Renaissance: ideas for Economic Growth.

Several Reasons for the Middle Income Trap

One of the reasons a country experiences this condition is a lack of competition in the industrial sector.

Other causes will be explained below:

Undeveloped Industrial Sector

The industrial sector is thought to be the main trigger for a country to be trapped in a stagnant economic condition.

There are things that underlie it, such as a lack of research and research and development of the industrial sector.

This causes the industry to tend to rely on traditional activities where companies still use manual equipment that is not yet modern.

The second cause is the interests of certain parties that influence the growth of the industrial sector.

For example, conservative parties reject the industrial improvement policy reform process.

Bureaucratic Gaps

The rate of economic growth of a country cannot be separated from the influence of bureaucracy.

If the bureaucracy is pro-industrial, people will have no difficulty carrying out economic activities.

In fact, bureaucracy in developing countries does not happen.

There is a gap between bureaucracy and economic growth, resulting in various bad accountability, such as corruption.

Low HR

Human resources are important things that enable a country to progress.

To create quality human resources, it is necessary to care for and fulfill their needs, such as education, health, etc.

However, developing countries tend to rarely have good human resources, so productivity is not as high as expected.

Unequal Development

Uneven development is also another cause that can trigger a middle trap in a country.

This is because infrastructure development only occurs in one or two locations.

This causes other areas not to receive development.

Uneven development like this has an impact on the quality of human resources occupying the area.

Economic Transformation

Economic transformation plays a role in causing this problem in a country.

This is because economic transformation costs a lot of money.

For example, when a policy does not work well and the competitive landscape becomes tighter, it is not impossible that a new problem will arise.

This will have an impact on macro-economic stability, thereby causing a credit bubble in the investment sector.

Effective Strategy to Overcome It

So, what strategies must be implemented so that a country can overcome the middle income trap ?

Improve the Quality of Human Resources (HR)

As the main factor that makes a country developed, a country must have quality human resources.

Several ways to improve a country’s human resources are by making efforts to improve education, the economy and social life.

When all of this is fulfilled, an individual can fulfill his own needs and grow into a person with qualities in terms of knowledge and character.

This way, he can focus on his goal of nation building.

Equitable Infrastructure Development in All Sectors

Good infrastructure influences the nation’s progress.

For this reason, infrastructure development must be equitable and of high quality.

It cannot just be there, but must really have a positive impact on the country.

To realize good infrastructure development, the state must involve the private sector to create comprehensive and equitable development.

Simplify bureaucracy

Bureaucracy that is easy, practical and pro-people is one of the things that can help the process of economic activity.

We can look at developing countries where they implement bureaucracies that are efficient, practical and agile.

Modernize Economic Activities

Change conservative methods and conventional economic guidance to an economic sector based on sophisticated and modern technology.

This will simplify the process of economic activities and provide extraordinary results to be proud of.

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