Potential Costs to Asia of the Middle Income Trap

Abstract

Asian countries have the ability to dramatically improve their standards of living in coming decades, so much so that by 2050 the “converging” middle-income countries could become affluent societies. Historically, however, many fast-growing countries have stagnated upon reaching middle-income status, a phenomenon known as the “Middle Income Trap.” This article quantifies possible opportunity costs of Asian countries falling into or staying in the Middle Income Trap rather than sustaining or emulating current successes. Opportunity costs are quantified in terms of income and affluence, output and Asia’s share of the world’s economy, infrastructure critical to health (population without access to an improved water source, population without access to improved sanitation, and non-urban road net-work density), and infrastructure related to consumption (port and airport activity). However, there are further obstacles in addition to the Middle Income Trap—five other “mega”-challenges—and if those were not to be overcome the opportunity costs would be worse.