Degree Name

Master of Arts (MA)

Semester of Degree Completion

2016

Thesis Director

Mukti P. Upadhyay

Abstract

Growth theories suggest that the factors affecting growth at low-income and high-income countries can be different. If countries struggle to graduate to high-income growth strategies, they may find themselves "stuck" at some middle-income level. This phenomenon can be termed as "middle-income trap". Using a panel of 145 countries over a period of 55 years, this study attempts to identify the existence of "middle-income trap" and its determinants. The aim of this study is to inspect whether the countries really get "stuck" at middle-income levels and if so, then pinpoint the factors associated with growth slowdowns. By employing panel probit estimations, this study has found evidence of the existence of middle-income trap. Most of the middle-income countries are sticky to their income levels and failed to make the additional leap necessary to achieve a high-income status. The study has identified the crucial factors associated with growth slowdowns and compared whether these factors in middle-income countries are any different than the low and high income countries. The results were validated using Bayesian Models and the findings suggest that the determinants of growth at middle and high income levels differ and middle income countries do need to change growth strategies to move smoothly to the high-income status. The recent anxiety over the issue of "middle-income trap" is not unfounded and this study affirms that the existing policies that have enabled few low-income counties to grow to middle income countries are not sufficient for transitioning to a high-income level. Middle-income countries need growth policies that are aimed at strong and sustained growth to help them to graduate to high-income status eventually.

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