How to overcome the
middle-income trap
Dr. Pingfan Hong
UN/DESA/DPAD
May 16, 2013
Minsk, Belarus
Outline
Macroeconomic prospects for the MICs in
the aftermath of the global financial crisis
 The rise of MICs in the global economy
 How to overcome the middle-income trap
 Strengthen UN development cooperation
with MICs

2
Recovery from the global financial
crisis
GDP growth %
10
8
6
4
2
0
-2
2007
2008
2009
2010
2011
2012
2013
2014
-4
World
Middle income country
High income country
Low income country
Source: UN/DESA World Economic Situation and Prospects 2013
3
Contribution to global growth
100
45.9
44.8
53.8
56.4
61.2
44.8
41.9
37.1
2011
2012
2013
88.5
50
54.2
53.3
9.2
0
2007
2008
22.8
2009
2010
-50
-124.2
-100
Low income country
Middle income country
High income country
-150
4
Growth prospects for CIS, and
South-Eastern Europe
10
8
6
4
2
0
-2
-4
-6
-8
South-Eastern Europe
2007
2013
2008
2014
CIS and Georgia
2009
2010
2011
2012
5
Macroeconomic policy challenges
for MICs

Dealing spillover effects from the
unconventional monetary policies by
developed countries:
Increased volatility in capital flows,
commodity prices and exchange rates

Policy mix in accordance with the specific
situation in individual countries
6
The rise of MICs in the global
economy
10
8
6
4
2
0
-2
1991
1994
1997
2000
2003
2006
2009
2012
-4
World
Middle income country
High income country
Low income country
7
The share of MICs in the global
economy has increased
100
90
80
%
70
60
50
1991
1994
1997
High income country
2000
2003
2006
Middle income country
2009
2012
Low income country
8
A too optimistic projection?
9
A too optimistic projection? (2)
10
A too optimistic projection? (3)
11
The middle income trap
Source: World Bank
12
The middle income trap (2)
13
Factors entrapping MICs
 Productivity
gains exhausted from the model of
growth at low income level:
Shift of workers from rural to urbanreaching
a turning point;
Reaping the gains from imported
technology
 Lack of investment in human capital and in R&D
 Ending of demographic dividend
14
R&D spending among countries
R&D expenditure
(% of GDP)
5
4.5
4
3.5
Korea
3
2.5
China
2
Brazil
India
Argentina
1.5
1
0.5
0
100
1000
High Income
Source: Keun Lee (2013) CDP presentation
Upper Middle Income
10000
Lower Middle Income
100000
GDP per capita
(log scale)
Low Income
15
More challenges for MICs today
than 50 years ago in the area of
sustainable development
16
Strengthen UN system development
cooperation with MICs



Align programme with national development
strategies
Develop a specific framework for development
cooperation with MICs
Enhance capacity of MICs in the areas:
-Higher value-added industries
-Diversification
-Employment
-Coherent strategies in economic, social and environmental
-Macroeconomic management and prudential financial regulation
-Hubs for South-South cooperation

Increase voice and voting power of MICs in IFIs
17