The middle-income trap has little evidence going for it

EVERY FEW YEARS Foreign Affairs, a magazine about international relations, provokes a fracas in a neighbouring discipline, international economics. In 1994 it published an essay by Paul Krugman, “The Myth of Asia’s Miracle”, which re-examined the source of the tigers’ success. Then, after the Asian financial crisis, it came up with “The Capital Myth” by Jagdish Bhagwati, which re-examined the case for free capital flows, the source of the tigers’ humiliation. In 2004 it offered “Globalisation’s Missing Middle” by Geoffrey Garrett, then at the University of California, Los Angeles. This essay is cited much less often than the other two, but in a roundabout way it has been equally influential. It argued that middle-ranked countries were in a bind, unable to compete either with the cutting-edge technology of rich nations or the cut-throat prices of poor ones. “Middle-income countries”, it said, “have not done nearly as well under globalised markets as either richer or poorer countries.”

To prove his point, Mr Garrett ranked the world’s economies by GDP per person in 1980, dividing them into three groups: top, middle and bottom. He then compared their growth by that measure over the subsequent two decades, finding that the middle-ranked economies grew more slowly than either the top or bottom ones. Three years later Homi Kharas and Indermit Gill of the World Bank cited Mr Garrett’s essay in a book about East Asia’s growth prospects. They invented the term “middle-income trap”, which subsequently took on a life of its own.