Malaysia and China Doing Well in Escaping 'Middle Income Trap'

Despite the global financial crisis, most emerging markets have continued to make progress since 2007 in their bid to escape the ‘middle income trap’, according to PwC’s new ESCAPE index.

 

The Middle Income Trap occurs when a country's growth plateaus and eventually stagnates after reaching middle income levels.

 

The problem can arise when emerging economies face rising wages and declining cost competitiveness, and find themselves unable to compete either with advanced economies in high-skill innovations, or with low income developing economies in the cheap production of manufactured goods.

 

Central and Eastern European countries such as Poland, Romania and Russia have shown particularly strong rises since 2000. The advanced economies as a whole have fallen back since the global financial crisis hit in 2007, with the notable exception of Australia.

 

“Saudi Arabia, Malaysia, China and Chile led the way for emerging markets in our 2012 ESCAPE index rankings and actually scored higher than the US in that year," says John Hawksworth, chief economist at PwC and co-author of the report. "These countries are escaping from the middle income trap and graduating to become full members of the advanced economy club. Central and Eastern Europe has also been a rising star since 2000.”

 

Many northern European economies have also performed consistently well according to the index, including: Sweden (1st), Switzerland (2nd), the Netherlands (4th), Finland (5th) and Denmark (6th). Outside Europe, Singapore scores well (3rd) while Australia has moved up from 13th place in 2000 to 7th in 2012. Malaysia has also performed well, moving up to 14th place in 2012 from 17th in 2007.

 

The US and UK have dropped down the rankings of advanced economies between 2007 and 2012 according to the index. But it’s the Eurozone crisis economies – Italy, Spain, Portugal and Greece – that have fallen the furthest since the crisis hit in 2007.

 

Greece has now dropped to outside the top 30 countries.

 

None of the four ‘MINT’ countries (Mexico, Indonesia, Nigeria and Turkey) have yet cracked the top 30, although all four have shown progress on the index since 2000.

 

Previously buoyant emerging economies such as India, Brazil and Turkey have run into turbulence recently, highlighting the need for additional structural reforms. This is reflected in these countries still being ranked outside the top 30 on PcW's ESCAPE index.

 

“To graduate to the advanced economy club, it is not enough just to do well on traditional economic indicators such as GDP growth and inflation.  Both governments and business investors should pay attention to the broader range of measures that our ESCAPE index captures,” says Hawksworth.

 

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