Middle-income trap and factors affecting the risk of growth slowdown in upper-middle-income countries

As the growth practices of countries are studied in the historical process, it is observed that some countries have remained at middle-income level for many years and not been able to move up to high-income group. This situation faced by those countries has brought up the concept of middle-income trap on the agenda. The concept started to gain popularity in economics literature after Gill and Kharas's report titled "An East Asian Renaissance: Ideas for Economic Growth" published by the World Bank in 2007. The concept is defined as the situation in which middle-income countries have difficulty in moving up to high-income level. In this study, it is aimed to determine the macroeconomic, demographic and institutional factors affecting the probability of growth slowdown in a group of countries in upper-middle-income level within the framework of the growth slowdown methodology developed by Eichengreen et al. (2011). For this purpose, the panel probit regression method is used in econometric analysis covering the period of 1980-2015 with a sample consisting of 38 countries in the upper-middle-income level according to World Bank income classification. The analysis results show that the growth slowdown typically occurs when per capita income reaches 22% of that in the USA. Besides, it is concluded that the increase in the relative income, gross capital formation, trade openness, average years of total schooling and old dependency ratio increase the risk of growth slowdown whereas, increase in public debt, inflation variability and average years of secondary and higher schooling decrease the risk of growth slowdown. Among institutional variables, a significant relationship is found only between the variables of law and order and the probability of growth slowdown.