An Austrian view on the middle income trap

Henrique Schneider

Journal of Chinese Economic and Business Studies, 2013, vol. 11, issue 3, 169-178

Abstract: This paper intends to give a nuanced interpretation 'the middle income trap' in the discussion on China's economic future. A developing nation gets 'trapped' when it reaches a relatively comfortable level of income but cannot take the step into the next level. In this paper, the usually made connection between income trap and the structure of economy is critically examined and the 'trap' is interpreted as a bearer of information in itself. According to the Austrian school of economics (Hayek), prices represent the sum of information that is available to the markets. Stagnating incomes will consequentially be read as information concerning the lack of growth of the productivity of the work force and the industry. The 'middle income trap' has to be addressed at microeconomic level, focusing on the increase of productivity. Usually, the trap cannot be addressed by government policies, but has to be solved by increased entrepreneurship.

Date: 2013
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DOI: 10.1080/14765284.2013.814457

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