The Middle-Income Trap in the Perspective of the Austrian Capital Theory
DOI:
https://doi.org/10.30800/mises.2018.v0.961Keywords:
Middle-income trap, emerging markets, Austrian economics, capital theory, entrepreneurship, development policy, conomic growthAbstract
This paper applies the Austrian capital theory to the problem why emerging economies fall into the middle-income trap and how they may escape. The analysis puts entrepreneurial action at the center with a focus on the subjectivist nature of capital and on the role of the entrepreneur as the creator of the capital structure based on expectations and his imagination. The central thesis says that when a developing country has come close to the lower bound of the income level of the industrialized countries in its catch-up process but does not open its economy to free markets and entrepreneurship, further economic progress will fail, and the country remains in the middle-income range. The paper identifies grand-scale malinvestments induced by government policies as the main culprit for a country to become stuck in the middle-income trap. The policy conclusion of the analysis is that the way out of the middle-income requires not more, but less intervention. Instead of more government spending, less spending is required and instead of promoting a few big companies, the country must open its markets to the full potential of entrepreneurial action.
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References
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EASTERLY, W. The Elusive Quest for Growth: Economists' Adventures and Misadventures in the Tropics. MIT Press, 2002.
EICHENGREEN, B. et. al. New Evidence on the Middle-Income Trap. NBER Working Paper n. 18673, January, 2013.
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GARRISON, R. W. Time and Money. The macroeconomics of capital structure. London and New York: Routledge, 2001.
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HAYEK, F. A. Scientism and the Study of Society. In: The Counter-Revolution of Science. Indianapolis: Liberty Press, 1979.
HAYEK, F. A. Intertemporal Price Equilibrium and Movement in the Value of Money. In: Money, Capital and Fluctuations. Early Essays. Chicago: The University of Chicago Press, 1984, p. 71-117.
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LEWIN, P. Capital in Disequilibrium. The role of capital in a changing world. London and New York: Routledge, 1999.
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MISES, L. v. Human Action. A Treatise on Economics. Auburn: The Ludwig von Mises Institute, 1998.
MUELLER, A. P. Facing the Challenge of Global Turmoil. The Position of Brazil in the International Monetary System. Interfaces Brasil/Canadá, v. 13, n. 16, p. 177-199, 2013.
MUELLER, A. P. Beyond Keynes and the Classics. Processos de mercado. Revista europea da economia política, v. 11, n. 2, p. 11-135, 2014. Available at: <https://dialnet.unirioja.es/servlet/articulo?codigo=4980988>. Retrieved October 16, 2018
MUELLER, A. P. Capital and the Business Cycle. Macroeconomics. Prices, Business Fluctuarions & Cycles e Journal, v.. 11, issue 47, April, 2018. Available at: <https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3141447>. Retrieved October 16, 2018
NALLARI, R. The Role for State Intervention. Frontiers in Development Policy, September, p.131-133, 2011.
O’DRISCOLL, G.P.; RIZZO, M.J. The Economics of Time and Ignorance. London and New York: Routledge, 1985.
PHELPS, Edmund S. Mass Flourishing: How Grassroots Innovation Created Jobs, Challenge and Change. Princeton University Press, 2015.
ROSTOW, W. The Take-Off Into Self-Sustained Growth. The Economic Journal, v. 66, n. 261, p. 25-48, March, 1956.
ROTHBARD, M. N. Man, Economy, and State. Auburn: The Ludwig von Mises Institute, 2001.
SALERNO, J. Money. Sound and Unsound. Auburn: The Ludwig von Mises Institute, 2010.
SCHNEIDER, H. An Austrian view on the middle income trap, Journal of Chinese Economic and Business Studies, v.11, n,3, p. 169-178, 2013.
SCHUMPETER, J. A. Theorie der wirtschaftlichen Entwicklung. Berlin. Duncker & Humblot 2006: Nachdruck der 1. Auflage von, 1912 (reprint of the first edition)
SCHUMPETER, J. A. Capitalism, Socialism and Democracy. London and New York: Routledge, 1994 [1942].
SELGIN, G. Less Than Zero: The Case for a Falling Price Level in a Growing Economy. Auburn: The Ludwig von Mises Institute, 1997.
SHENOY, S. R. Austrian Capital Theory and the Undeveloped Areas: An Overview. In: EBELING, R. (ed.). Austrian Economics: Perspectives on the Past and Prospects for the Future. Champions of Freedom: The Ludwig von Mises Lecture Series. Hillsdale College: Hillsdale College Press, 1991, p. 379-423.
SOTO, J. H. de. Dinero, Crédito Bancario y Ciclos Económicos. Madrid: Unión Editorial. Auburn: The Ludwig von Mises Institute. 2006 [1998].
WORLD BANK. Avoiding Middle-Income Growth Trap. The World Bank. Economic Premise Poverty Reduction and Economic Management Network. Washington: 2012. Available at: <https://openknowledge.worldbank.org/bitstream/handle/10986/16954/NonAsciiFileName0.pdf?sequence=1&isAllowed=y>. Retrieved October 16, 2018
WORLD BANK. Team, using data from Penn World Table, version 8.1, 2017. Available at: <https://openknowledge.worldbank.org/bitstream/handle/10986/25880/9781464809507_Spot06.pdf?sequence=41&isAllowed=y>.
WORLD BANK. The World Bank, Country Classification, 2018. Available at: <https://datahelpdesk.worldbank.org/knowledgebase/articles/906519>.
AUGUSTIN-JEAN, Louis. Entrepreneurship as a Contributor to Growth in Asia: The Case of Hong Kong. Canadian Journal of Development Studies, v. 31, p. 317-340, 2010.
BARBIERI, Fabio. A Economia do Intervencionismo. São Paulo: Instituto Ludwig von Mises, 2013.
BARRO, R. Economic Growth. Cambridge, Mass: MIT Press, 2004.
BASTIAT, Frédréric. L’etat. Journal des débats, in: Frédéric Bastiat, Selected Essays on Political Economy. Chapter 5: The State. Library of Economic and Liberty, 1848. Available at: em: <https://www.econlib.org/library/Bastiat/basEss.html>. Retrieved October 16, 2018
BAUER, P. T. From Subsistence to Exchange and Other Essays. Princeton University Press, 2000.
BÖHM-BAWERK, E. V. The Positive Theory of Capital. Auburn: The Ludwig von Mises Institute, 1971 [1884)].
CACHANOSKY, N.; PADILHA, A. Latin American Populism in the 21st Century. July 2, 2018, Social Science Research Network (SSRN). Available at: <http://dx.doi.org/10.2139/ssrn.3147096>. Retrieved October16, 2018
CANUTO, O. How to heal the Brazilian economy. EconMonitor. September, 2018. Available at: <https://moneymaven.io/economonitor/latin-america/how-to-heal-the-brazilian-economy-iAYiZQFWd0GR86s1WN45qQ/>. Retrieved October 16, 2016
COWEN, T. Creative Destruction: How Globalization Is Changing the World's Cultures. Princeton University Press, 2002.
DJANKOV, S. Employment laws in developing countries. Journal of Comparative Economics, v. 37, p. 3-33, 2009.
DORNBUSCH, R. The Macroeconomics of Populism in Latin America. University of Chicago Press, 1990.
EASTERLY, W. The Elusive Quest for Growth: Economists' Adventures and Misadventures in the Tropics. MIT Press, 2002.
EICHENGREEN, B. et. al. New Evidence on the Middle-Income Trap. NBER Working Paper n. 18673, January, 2013.
FELIPE, J. Development and Modern Industrial Policy in Practice: Issues and Country Experiences Reprint Edition. Cheltenham, U.K.: Edward Elgar Publisher, 2016.
FURTADO C. O longo amanhecer. Reflexões sobre a formação do Brasil. São Paulo: Paz e Terra, 1999.
GARRISON, R. W. Time and Money. The macroeconomics of capital structure. London and New York: Routledge, 2001.
GARRISON, R. W. The Austrian School. Capital-Based Macroeconomics. In: SNWDON, Brian; HOWARD, Vane. Modern Macroeconomics. Its Origins, Development and Current State: Aldershot. Edward Elgar, 2005.
GLAVAN, B. Poverty Traps, and the Market Process. A New Case for Industrial Policy? The Independent Review, v. 13, n. 2, p. 225–243, Fall, 2008.
HAUSMANN, R.; RODRIGUÉZ, F. Venezuela Before Chávez: Anatomy of an Economic Collapse. University Park, Pennsylvania: Penn State University Press, 2015.
HAYEK, F. A. Der Wettbewerb als Entdeckungsverfahren. Tübingen: Freiburger Studien, 1969.
HAYEK, F. A. Prices and Production. New York: Augustus M. Kelley, 1931.
HAYEK, F. A. The Pure Theory of Capital. Chicago: University of Chicago Press, 1941.
HAYEK, F. A. Scientism and the Study of Society. In: The Counter-Revolution of Science. Indianapolis: Liberty Press, 1979.
HAYEK, F. A. Intertemporal Price Equilibrium and Movement in the Value of Money. In: Money, Capital and Fluctuations. Early Essays. Chicago: The University of Chicago Press, 1984, p. 71-117.
HENNINGS, K. The Austrian Theory of Value and Capital. Studies in the Life and Work of Eugen von Böhm-Bawerk. Cheltenham and Brookfield: Edward Elgar, 1997.
HERITAGE (2018). The Heritage Foundation. Index of Economic Freedom. Heritage Foundation, 2018. Available at: <https://www.heritage.org/index/country/brazil>. Retrieved October 16, 2018
HOLCOMBE, R. G. Progress and Entrepreneurship. Quarterly Journal of Austrian Economics, v. 6, n.3, fall, p. 3-26, 2003.
HORWITZ, S. Microfoundations and Macroeconomics. An Austrian Perspective. London and New York: Routledge, 2000.
IORIO, U. Ação, Tempo e Conhecimento. A Escola Austríaca. São Paulo: Instituto Mises Brasil, 2011.
KING, J. E. A History of Post Keynesian Economics Since 1936. Cheltenham and Northampton: Edward Elgar, 2002.
KIRZNER, I. Competition and Entrepreneurship (The Collected Works of Israel M. Kirzner). LOCAL: Liberty Fund, 2013.
KNOOP, T. A. Recessions and Depressions. Understanding Business Cycles. Westport and London: Praeger, 2004.
KURER, O. Clientelism, corruption, and the allocation of resources. Public Choice, v.77, p. 259-272, 1993.
LACHMANN, L. Capital and Its Structure. Auburn, Ala. Ludwig von Mises Institute 1956. Available at: https://mises.org/library/capital-and-its-structure. Accessed in October 16, 2018
LARSON, G. et. al. The Middle-Income Trap: Myth or Reality? The World Bank Development Research. Research & Policy Briefs from the World Bank Malaysia Hub, n.1, march, 2016. Available at: <http://documents.worldbank.org/curated/pt/965511468194956837/pdf/104230-BRI-Policy-1.pdf>. Retrieved October 16, 2018
LEWIN, P. Capital in Disequilibrium. The role of capital in a changing world. London and New York: Routledge, 1999.
MANISH, G. P. The Contributions of Austrian Economics to Development Economics (with Benjamin Powell). In: BOETTKE, P.; COYNE, C.(eds.). The Oxford Handbook in Austrian Economics. Oxford University Press, 2015.
MISES, L. v. Theorie des Geldes und der Umlaufsmittel. Auburn: Ludwig von Mises Institute, 2010 [1912].
MISES, L. v. Human Action. A Treatise on Economics. Auburn: The Ludwig von Mises Institute, 1998.
MUELLER, A. P. Facing the Challenge of Global Turmoil. The Position of Brazil in the International Monetary System. Interfaces Brasil/Canadá, v. 13, n. 16, p. 177-199, 2013.
MUELLER, A. P. Beyond Keynes and the Classics. Processos de mercado. Revista europea da economia política, v. 11, n. 2, p. 11-135, 2014. Available at: <https://dialnet.unirioja.es/servlet/articulo?codigo=4980988>. Retrieved October 16, 2018
MUELLER, A. P. Capital and the Business Cycle. Macroeconomics. Prices, Business Fluctuarions & Cycles e Journal, v.. 11, issue 47, April, 2018. Available at: <https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3141447>. Retrieved October 16, 2018
NALLARI, R. The Role for State Intervention. Frontiers in Development Policy, September, p.131-133, 2011.
O’DRISCOLL, G.P.; RIZZO, M.J. The Economics of Time and Ignorance. London and New York: Routledge, 1985.
PHELPS, Edmund S. Mass Flourishing: How Grassroots Innovation Created Jobs, Challenge and Change. Princeton University Press, 2015.
ROSTOW, W. The Take-Off Into Self-Sustained Growth. The Economic Journal, v. 66, n. 261, p. 25-48, March, 1956.
ROTHBARD, M. N. Man, Economy, and State. Auburn: The Ludwig von Mises Institute, 2001.
SALERNO, J. Money. Sound and Unsound. Auburn: The Ludwig von Mises Institute, 2010.
SCHNEIDER, H. An Austrian view on the middle income trap, Journal of Chinese Economic and Business Studies, v.11, n,3, p. 169-178, 2013.
SCHUMPETER, J. A. Theorie der wirtschaftlichen Entwicklung. Berlin. Duncker & Humblot 2006: Nachdruck der 1. Auflage von, 1912 (reprint of the first edition)
SCHUMPETER, J. A. Capitalism, Socialism and Democracy. London and New York: Routledge, 1994 [1942].
SELGIN, G. Less Than Zero: The Case for a Falling Price Level in a Growing Economy. Auburn: The Ludwig von Mises Institute, 1997.
SHENOY, S. R. Austrian Capital Theory and the Undeveloped Areas: An Overview. In: EBELING, R. (ed.). Austrian Economics: Perspectives on the Past and Prospects for the Future. Champions of Freedom: The Ludwig von Mises Lecture Series. Hillsdale College: Hillsdale College Press, 1991, p. 379-423.
SOTO, J. H. de. Dinero, Crédito Bancario y Ciclos Económicos. Madrid: Unión Editorial. Auburn: The Ludwig von Mises Institute. 2006 [1998].
WORLD BANK. Avoiding Middle-Income Growth Trap. The World Bank. Economic Premise Poverty Reduction and Economic Management Network. Washington: 2012. Available at: <https://openknowledge.worldbank.org/bitstream/handle/10986/16954/NonAsciiFileName0.pdf?sequence=1&isAllowed=y>. Retrieved October 16, 2018
WORLD BANK. Team, using data from Penn World Table, version 8.1, 2017. Available at: <https://openknowledge.worldbank.org/bitstream/handle/10986/25880/9781464809507_Spot06.pdf?sequence=41&isAllowed=y>.
WORLD BANK. The World Bank, Country Classification, 2018. Available at: <https://datahelpdesk.worldbank.org/knowledgebase/articles/906519>.
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Published
2018-11-02
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Mueller AP. The Middle-Income Trap in the Perspective of the Austrian Capital Theory. MisesJournal [Internet]. 2018 Nov. 2 [cited 2024 Dec. 21];. Available from: https://revistamises.org.br/misesjournal/article/view/961
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