Working Papers

L. Vinhas de Souza: Caught in the Middle? China and the “Middle Income Trap”

This paper looks at the concept of a “middle income trap” and its validity for China. It finds that the fundamental growth drivers for China are becoming exhausted: capital accumulation has reached unsustainable levels and labor contribution is likely to decrease, among other reasons due to demographic shrinking. Innovation, or the “Solow residual”, is the wild card, and is likely to determine China’s growth path going forward.

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