THE PRODUCT SPACE AND THE MIDDLE-INCOME TRAP: COMPARING ASIAN AND LATIN AMERICAN EXPERIENCES

By Anna Jankowska, Arne Nagengast and José Ramón Perea

Link:  http://www.oecd.org/dataoecd/2/62/50249524.pdf

Rapid and sustained economic growth in the emerging world has brought new members,
notably China, into the group of middle-income countries. Reaching this level of income,
however, has historically presented countries with a new set of challenges to
development, resulting in slowing growth and an entrapment in what is known as the
middle-income trap. Limited income convergence in Latin America has at least partly been due
to its reduced capacity to engage in a structural transformation conducive to higher productivity.
In contrast, emerging Asia offers a few examples of these “virtuous” productive transformations.
With these two references in mind, we build a comparative analysis based on the following
points: First, we illustrate differences in the process of structural transformation, both with
regard to sector productivity and employment absorption. Second, we adopt the Product Space
methodology to compare the structural transformation that took place in both regions. Finally,
we consider the role played by Productive Development Policies (PDP) in shaping the process of
structural transformation, through a comparative review of these policies in Korea, Brazil and
Mexico. In short, the analysis allows us to gauge the role that the economic specialisation of a
country plays in facilitating transitions to more advanced stages of economic development.
JEL Classification: F10, F40, L5, O4.
Keywords: Exports, middle-income trap, product space.