The Middle Income Trap: A Way Out Based on Technological and Structural Change

This article is intended to provide an updated discussion on a series of issues that the relevant literature suggests to be crucial in dealing with the challenges a middle income country may encounter in its attempts to further catch up to a higher income status. In particular, the conventional economic wisdom\u2014ranging from the Lewis-Kuznets model to the endogenous growth approach\u2014will be contrasted with the Schumpeterian and evolutionary views pointing to the role of capabilities and knowledge, considered as key inputs to foster economic growth. Then, attention will be turned to structural change and innovation, trying to map\u2014using the taxonomies put forward by the innovation literature\u2014the concrete ways through which a middle income country can engage in a technological catching-up, having in mind that developing countries are deeply involved in globalized markets where domestic innovation has to be complemented by the role played by international technological transfer. Among the ways that a middle income country can foster domestic innovation and structural change in terms of sectoral diversification and product differentiation, a recent stream of literature underscores the potentials of local innovative entrepreneurship, which will also be discussed bridging entrepreneurial studies with the development literature. Finally, the possible consequences of catching up in terms of jobs and skills will be discussed