Factors affecting the middle income trap: The case of selected countries and Turkey

In the historical process, it is observed that some middle-income countries could not reach the high income level due to the slowdown in their economic growth. The Middle Income Trap, which entered the literature for the first time in 2007, is accepted as one of these reasons. The Middle Income Trap is defined as the situation in which a middle-income country enters into economic recession and cannot go beyond this stage, that is, cannot reach a high income level. While many factors affecting the Middle Income Trap, social factors such as labor force, research and development/technology level, total factor productivity, manufacturing industry, savings, investments, education, health, income distribution and institutional factors such as law, freedoms, transparency, corruption are some of those factors. In this study, while seeking the answer to the question of why countries are caught in the Middle Income Trap, effective factors in Turkey's escape from the Middle Income Trap were also investigated. In this context, two separate empirical analyzes were made for both selected countries and Turkey. In the first empirical analysis, a binary panel logit model estimation was made on selected countries to determine Middle Income Trap variables. The findings show that education, qualified workforce, institutional factors, exports, gross capital formation, medium-high technology manufacturing industry production, research and development and foreign direct investments increase the probability of avoiding the Middle Income Trap. However, the increase in the amount of labor force and the weight of the public in the economy decrease the probability of avoiding the Middle Income Trap. In the second empirical analysis, it has been tried to determine the factors that are effective in Turkey's recovery from the Middle Income Trap. In this context, first factor analysis and then binary logit model estimation were made. The findings revealed that structural factors including education, qualified workforce, research and development, individual freedoms, law and order variables increase the probability of Turkey's exit from the Middle Income Trap and the degree of impact of this possibility is very high.