On the Existence of a Middle-Income Trap

© 2016 Economic Society of AustraliaThe concept of a ‘middle-income trap’ has attracted enormous interest, but the existing literature lacks formal tests. We develop and apply a test of some necessary conditions for a country to be in a middle-income trap that take into account short-run dynamics, stochastic trends and structural breaks. We find that only seven countries satisfy our definition of a middle income trap.