კონფერენცია

∘ Nino Bitsadze ∘
MAIN INDICATORS OF "MIDDLE-INCOME TRAP" AND THE WAYS TO AVOID IT

Summary

During the last two decades, both the press and economists have dedicated increasing attention to the so-called “middle-income trap.” This refers to a group of countries that became middle-income some time ago, but which have not been able to cross the high-income threshold. The problem with the debate of what prevents these countries from becoming high-income economies is that it is not clear what the trap refers to, as there is no accepted definition.

The “middle-income trap” is the phenomenon that is characterized by rapidly developing countries who stop their economic growth after they reach the middle level.

Is it possible that Georgia can be gambling in the above mentioned trap? This is a major question that might be facing Georgia and which is one of the most important issue for country's economic progress.

The possible causes of "middle income trap" can be: Improving Immigration Flows, Insufficient Human Capital, Slow Technological Progress, Insufficient Development Infrastructure, Insufficiently Developed Financial Market, etc.

The middle-income trap is a narrative of growth stagnation that reflects (and exacerbates) current and long-standing anxieties about slow economic growth. This anxiety is perhaps only growing more acute amid the prevailing notion of a global growth slowdown. This includes even China, the growth star in recent decades.

The aspect that sets countries apart from each other is their productive structure and the specific characteristics of the products that they export. These, in turn, depend on the capabilities that firms possess. Development in this paradigm is a process of generating new activities and letting others disappear. The primary driver of growth is the gradual build-up in firms’ capabilities, which raises the economy-wide real wage. Capital accumulation is a complementary effect: the higher real wage makes it profitable for each firm to shift to more capital-intensive techniques. As the firm makes that shift, the rise in its capital-labor ratio further raises the marginal revenue product of labor at the firm level; and so underpins the rising real wage.

Ultimately, each country's growth story is unique but the general prescription remains the same. Policymakers should critically examine their growth strategies to find the most effective ways to boost productivity improvement, which is the key to supporting, nourishing, and preserving long-run economic growth.

Ivane Javakhishvili Tbilisi State University Paata Gugushvili Institute of Economics International Scientific C O N F E R E N C E S "ECONOMY – XXI CENTURY"

E ISSN 2587 - 4691	∘ Nino Bitsadze ∘ MAIN INDICATORS OF "MIDDLE-INCOME TRAP" AND THE WAYS TO AVOID IT Summary During the last two decades, both the press and economists have dedicated increasing attention to the so-called “middle-income trap.” This refers to a group of countries that became middle-income some time ago, but which have not been able to cross the high-income threshold. The problem with the debate of what prevents these countries from becoming high-income economies is that it is not clear what the trap refers to, as there is no accepted definition. The “middle-income trap” is the phenomenon that is characterized by rapidly developing countries who stop their economic growth after they reach the middle level. Is it possible that Georgia can be gambling in the above mentioned trap? This is a major question that might be facing Georgia and which is one of the most important issue for country's economic progress. The possible causes of "middle income trap" can be: Improving Immigration Flows, Insufficient Human Capital, Slow Technological Progress, Insufficient Development Infrastructure, Insufficiently Developed Financial Market, etc. The middle-income trap is a narrative of growth stagnation that reflects (and exacerbates) current and long-standing anxieties about slow economic growth. This anxiety is perhaps only growing more acute amid the prevailing notion of a global growth slowdown. This includes even China, the growth star in recent decades. The aspect that sets countries apart from each other is their productive structure and the specific characteristics of the products that they export. These, in turn, depend on the capabilities that firms possess. Development in this paradigm is a process of generating new activities and letting others disappear. The primary driver of growth is the gradual build-up in firms’ capabilities, which raises the economy-wide real wage. Capital accumulation is a complementary effect: the higher real wage makes it profitable for each firm to shift to more capital-intensive techniques. As the firm makes that shift, the rise in its capital-labor ratio further raises the marginal revenue product of labor at the firm level; and so underpins the rising real wage. Ultimately, each country's growth story is unique but the general prescription remains the same. Policymakers should critically examine their growth strategies to find the most effective ways to boost productivity improvement, which is the key to supporting, nourishing, and preserving long-run economic growth.