Long-Run Economic Growth: Stagnations, Explosions and the Middle Income Trap

Robert C. Shelburne

doi:10.1515/gej-2016-0010

Article

Long-Run Economic Growth: Stagnations, Explosions and the Middle Income Trap

Robert C. Shelburne

Published/Copyright: June 2, 2016

Published by

Become an author with De Gruyter Brill

Author Information Explore this Subject

From the journal Global Economy Journal Volume 16 Issue 3

Abstract

This paper explores the empirics of long-run economic growth by studying the pattern of growth for every country in the world between 1950 and 2015. Special emphasis is placed on ascertaining how the pattern of growth has changed over the last 65 years and how growth is related to the level of development. The analysis identifies historical time periods when growth stagnated or exploded and the levels of development where growth has a tendency to either stagnate or explode. Studying these growth episodes provides a number of insights into the question as to whether or not there is such a thing as a middle income trap. Although there are economies at every level of development that have stagnated for long periods, this study finds no evidence that this is systematically or uniquely related to middle income economies. An additional point of emphasis of this study is to highlight how the inclusion or exclusion of the former planned economies of Eastern Europe and the Soviet Union affect these results; and likewise how China’s exceptional performance affects these results. Generally it is found that because of the size and extraordinary performance (both good and bad) of China and the Economies in Transition (EiT), that excluding them from the sample has a quite significant effect on estimates of global long-run growth and trends regarding growth over time and by income level.

Keywords: economic growth; middle income trap; global development

References

Angus Maddison Project. 2013. Database online at http://www.ggdc.net/maddison/maddison-project/home.htm, 2013 version. Also see Bolt and van Zanden (2014).Search in Google Scholar

Bolt, J., and J. L. van Zanden. 2014. “The Maddison Project: Collaborative Research on Historical National Accounts.” The Economic History Review 67 (3):627–51.10.1111/1468-0289.12032Search in Google Scholar

Eichengreen, B. 2012. “Escaping the Middle Income Trap.” In Achieving Maximum Long Run Growth. Proceedings of a Symposium sponsored by the Federal Reserve Bank of Kansas City, Kansas City, Mo, 409–419.Search in Google Scholar

Eichengreen, B., D. Park, and K. Shin. 2011. “When Fast Growing Economies Slow Down: International Evidence and Implications for China.” NBER Working Paper no. 16919, March.10.3386/w16919Search in Google Scholar

Eichengreen, B., D. Park, and K. Shin. 2013. “Growth Slowdowns Redux: New Evidence on the Middle-Income Trap.” NBER Working Paper no.18673, January.10.3386/w18673Search in Google Scholar

Felipe, J., A. Abdon, and U. Kumar. 2012. “Tracking the Middle-Income Trap: What Is It, and Who Is in It, and Why?” Levy Economics Institute Working Paper no. 715.10.2139/ssrn.2049330Search in Google Scholar

James, S. L., C. J. Paul Gubbins, L. Murray, and E. Gakidou. 2012. “Developing a Comprehensive Time Series of GDP per capita for 210 Countries from 1950 to 2015.” Population Health Metrics, July. Available online at the US Library of Medicine, National Institutes of Health: http://www.ncbi.nlm.nih.gov/pmc/articles/PMC3487911/.10.1186/1478-7954-10-12Search in Google Scholar

Ocampo, J. A., J. K. Sundaram, and R. Vos. 2007. “Explaining Growth Divergences, Chapter 1.” In Growth Divergences, edited by Ocampo, J. A., Sundaram, J. K. and R. Vos. London: Zed Books Limited. 1–24.Search in Google Scholar

United Nations. 2009. “Development Cooperation with Middle Income Countries: Report of the Secretary-General.” UN document A/64/253.Search in Google Scholar

United Nations. 2012. World Population Prospects: The 2012 Revision. New York, UN.Search in Google Scholar

Appendix

The growth rate for a 10-year period is calculated by first taking the ratio of income in ten years divided by the income in the base year (i. e., Y₁₀/Y₀) and from that calculating the instantaneous (continuous compounding) rate of growth over that period. Since Y₁₀=Y₀(1 + g)¹⁰, then the growth rate would be:

g=Y10/Y0(1/10)−1×100

When a growth rate is calculated for an aggregated group of countries either by income level or time period, the income ratio is calculated for each country i, i. e., (Y₁₀/Y₀)_i and then those are averaged over n countries, i. e., ∑_i(Y₁₀/Y₀)_i/n. The growth rate is then calculated from this, i. e.,

g=ΣiY10/Y0i/n(1/10)−1×100.

Note that this provides a slightly different result from calculating the growth rate for each country over the ten year period and then taking an average of these, i. e.,

g′=ΣiY10/Y0(1/10)−1i/n×100.

Thus g’ does not equal g. This paper uses the formula for g.

Using a specific example, assume two countries both with income of 100 initially. After 10 years country 1 has an income of 160 and country 2 an income of 120; thus their income ratios are 1.6 and 1.2.The average is 1.40 and the implied growth rate would be 3.422. However, the implied growth rate for country 1 would be 4.812 and for country 2 it would be 1.840. The average of these two would be 3.226, which does not equal to 3.422.

Table 2:

Example of the difference in growth formulas.

Y0	Y10	Y10/Y0	Growth rate
100	160	1.6	4.812239
100	120	1.2	1.839938
Average (g’)		1.4	3.326088
Growth rate (g)		3.421969

Published Online: 2016-6-2

Published in Print: 2016-9-1

You are currently not able to access this content.

Articles in the same Issue

https://doi.org/10.1515/gej-2016-0010

Keywords for this article

economic growth; middle income trap; global development