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Theoretical and Applied Economics
No. 1 / 2015 (602), Spring

How to escape the middle income trap: international evidence from a binary dependent variable model

Can Tansel TUĞCU
Nevşehir Hacı Bektaş Veli University, Turkey

Abstract. The middle-income trap refers to an economic situation at which a country gets stuck when it achieves the middle-income status. According to Rigg et al. (2014), there are 28 countries which by 1987 had attained middle-income status but in 2012 still remained in this middle-income category. In this context, this study aims to find a way out from the trap by analyzing countries some of which are high-income status and the others are not. To this end, the study employs a binary model with the cross-section data of 26 high and middleincome countries and estimates the marginal effects that have a good potential to show the way out from the trap. Findings indicate that countries which spend more on secondary education, health and R&D, which have more educated labor force, which experience higher level of labor force participation, which export high-tech items and which create higher level of value added in the manufacturing industry are more likely to achieve the high-income status. On the other hand, countries which spend more on primary education, which import more, and which create higher level of value added in the agricultural sector are less likely to get the high-income status.

Keywords: The middle-income trap, Logit, Marginal effects, Cross-country analysis.

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