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Frontiers of Economics in China

Front. Econ. China    2014, Vol. 9 Issue (3) : 347-369     DOI: 10.3868/s060-003-014-0018-3
research-article |
The Nature and Avoidance of the “Middle Income Trap”
Xudong Chen1(),Guoqiang Tian2()
1. School of Economics and Institute for Advanced Research, Shanghai University of Finance and Economics (SUFE), Shanghai 200433, China; Key Laboratory of Mathematical Economics (SUFE), Ministry of Education
2. School of Economics and Institute for Advanced Research, Shanghai University of Finance and Economics (SUFE), Shanghai 200433, China; Key Laboratory of Mathematical Economics (SUFE), Ministry of Education; Department of Economics, Texas A&M University, USA
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Abstract

The “middle income trap” is a significant theoretical and practical issue closely related to the economic and social transition and sustainable development of a country. This paper explores the essence of the “middle income trap” and ways to avoid it. It reveals that the inner nature of the “middle income trap” lies in the institutional transition dilemma, which results essentially from a lack of reasonable and clear definitions of governance boundaries between government and market as well as government and society. This lack of boundaries causes coexistent and interrelated government inefficiency, market distortion/failure and social anomie, leading to a stagnant transition from a factor-driven to an efficiency-driven and further innovation-driven economy. Moreover, this paper proposes that the proper way to avoid the “trap” can be found in the reconstruction of the state governance mode, that is, to transition from a development-oriented and omnipotent government to a public service-oriented and limited government, from factor-driven to efficiency-driven and further innovation-driven development, and from a traditional society to a modern civil society through defining reasonable and clear boundaries between government and market as well as government and society. Thus, reconstruction can establish a state public governance mode featuring the interactive role of government, market and society, and achieve the modernization of state governance systems and capacity.

Keywords middle income trap      institutional transition      state governance mode     
Issue Date: 23 September 2014
 Cite this article:   
Xudong Chen,Guoqiang Tian. The Nature and Avoidance of the “Middle Income Trap”[J]. Front. Econ. China, 2014, 9(3): 347-369.
 URL:  
http://journal.hep.com.cn/fec/EN/10.3868/s060-003-014-0018-3
http://journal.hep.com.cn/fec/EN/Y2014/V9/I3/347
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