Russia and Middle-Income Trap

choi

Doug Saunders, Russians Are Stuck in the ‘Middle-Income Trap.’ Globe and Mail, Mar 3, 2012
http://www.theglobeandmail.com/n ... rap/article2357037/

Quote:

"Mr Putin is confronting what leaders of many ex-poor countries are discovering: That it was easy to win mass popularity by getting people out of desperate poverty, but that the next step is elusive: Without a full set of democratic institutions and a competitive economy, people get stuck there. And when people are trapped on the first step, they stop believing.

"There’s evidence that other countries, such as China, are beginning to fall into this trap. In 1981, according to the World Bank, at least 77 per cent of Chinese were in absolute poverty (that is, with family incomes below $1.25 a day); by 2008 this had fallen to 13 per cent. But, the bank notes, a far, far smaller group of people have been able to rise above $2 a day, and hundreds of millions appear stuck in this awkward space between the end of starvation and the beginning of actual comfort and hope.

My comment:
(a) The article says, "Russia appears to be subject to what the economist Barry Eichengreen, in an influential paper published last year, calls the 'middle-income trap.' He analyzed the economies of dozens of countries that have risen above absolute poverty since 1957, and found that when their per capita GDP rises to somewhere between $12,000 and $16,000 a year, their economies suddenly stall, and annual growth falls by at least 2 percentage points a year."

See (2) below.

(b) The article quotes "economist Philip Hanson notes in a new report on Russia." See (3).
(c) For Carnegie Moscow Center, see Carnegie Endowment for International Peace
http://en.wikipedia.org/wiki/Car ... International_Peace
( a foreign-policy think tank based in Washington, DC; Founded in 1910 by Andrew Carnegie [1836-1919]; In 1993, the Endowment launched the Carnegie Moscow Center)
(d) frippery (n; Middle French friperie, alteration of Old French freperie, from frepe old garment):
"2a : FINERY; also : an elegant or showy garment
b : something showy, frivolous, or nonessential
c : OSTENTATION; especially : something foolish or affectedly elegant

(2) Barry Eichengreen, Escaping the Middle Income Trap. UC Berkeley, 2011.
http://www.kc.frb.org/publicat/s ... engreen.Remarks.pdf

Quote:

"We find that growth slowdowns typically occur at per capita incomes of $16,700.[footnote 4: That’s the mean; the median is $15,100] At that point, the per capita growth rate slows from 5.6 to 2.1 per cent, or by an average of 3 ½ percentage points. For purposes of comparison, note that China’s per capita GDP, in constant 2005 international (purchasing power parity) prices, was $8,500 in 2007. Extrapolating its growth rate between then and now, China will reach the threshold value of $15,100 around 2016– that is to say, five years from now.

"David Bloom and Jeffrey Williamson argue that the demographic dividend explains up to half of the East Asian Miracle * * * Note that the demographic dividend is not limited to East Asia. My favorite natural experiment in the phenomenon is the legalization of contraception in Ireland in 1979, which created a demographic dividend that helped to fuel the Irish economic miracle in the 1990s. China of course has its own unique natural experiment – the one child policy introduced in 1978-- to which I will return below.

My comment:
(a) In this article, "per capita income" is interchaneable with "per capita GDP," though in economy, they are distinct (the former is smaller, because corporations and individuals have to pay tax, randering one's output (GDP) smaller than his income).
(b) Different economists prescribe various thresholds for middle income trap--usually per capita GDP. But some economists employ PPP, and some others, based on foreign exchange rate.
(c) I can not find the date of this article.

(3) Philip Hanson, James Nixey,Lilia Shevtsova and Andrew Wood, Pitin Again; Implications for Russia and the West. Chatham House, February 2012.
http://www.chathamhouse.org/site ... lic/Research/Russia and Eurasia/0212rep_russia.pdf
(Chapter 4 Philip Hanson, The Russian Economy and its Prospects[. starting at page] 20)

My comment:
(a) The "easy gains" quotation that appears in the Globe and Mail article is in page 22, following this discussion: "One possible reason for the slowdown is that Russia has got caught in the middle-income trap [then citing Eichengreen's 2011 working paper].