Definitions of middle-income trap

Absolute definitions

Spence, 2011

The absolute MIT definition shows that Namibia is above the MIT identified threshold. This study provides fixed level of income as a threshold for the MIT, GDP per capita ranging between US$5 000 and US$10 000.

Using the data by the World Bank, as a low middle-income country, Namibia entered the threshold of real GDP per capita of US$5 000 in 1999.

The country then succeeded to move to an upper-middle income (UMI) country status in 2008, with an average GDP per capita growth of 5.3% between 1999 and 2008. Between 2009 and 2018, Namibia’s real GDP per capita growth slowed to 3.1%, despite bridging the US$10 000 threshold in 2014.

The absolute MIT definition does not provide conclusive results on Namibia.

This is mainly because the UMI upper bound is straddled around Namibia’s present-day GDP per capita. The thresholds of US$10 000 and US$11 750 is close to Namibia’s GDP per capita of US$11 135 in 2018.

Felipe et al., 2012

This approach emphasises the number of years a country spent within the income category. A country is in a MIT if it stays for more than 28 years in the lower-middle income range (LMIR).

From the available data provided by the World Bank, Namibia spent around 19 years as a LMIR country before moving to the upper-middle-income (UMIR) range in 2008. Between 2008 and 2018, Namibia’s real GDP capita grew by 3.2% per annum which is more or less in line with the definition, which calls for 3.27% growth rate for UMI to transverse to higher-income (HI) countries.

Namibia has been in the middle-income category for a period of 11 years, which is still below the 15 years which is the median of the economies that transition from the UMI category to HI.

Eichengreen et al, 2013

Namibia’s recent growth pattern suggests that it could be in danger of becoming part of the slow transition economies.

Given the number of years that Namibia has been UMI and the recent growth performance, there are indications that the economy may be at risk of making a slow transition from UMI to HI. For Namibia to transition into HI within the historical median of 15 years, a growth rate of 3.27 % is required.

Relative definitions

In most empirical work on the middle- income trap, the relative income definition is the preferred approach.

Bulman et al., (2014)

Growth determinants at low- and high-income levels may be different and there is a need for countries to transition from growth strategies that are effective at low-income levels to growth strategies that are effective at high-income levels.

Namibia barely makes it into the middle-income category, just above the low income threshold of 10% over the last 28 years, which implies that Namibia could be stuck at this middle-income level and this calls for change in growth strategies.

Woo et al. (2012)

Namibia has always been in the low-income category relative to the global economic leader, i.e. the US and showed no tendencies of catching up. The Namibia Catch up Index (CUI) has not moved above 20% for more than 28 years, which is required to be classified as a middle-income country.

Im and Rosenblatt (2013)

If a country grows faster (in per capita terms) than the rich countries, it will eventually catch up with the high-income countries GDP per capita.

Using the catch-up definition, assuming the US economy’s average growth rate of GDP per capita is 1.8%, it will take Namibia another 54 years to

converge to high income status, provided that it grows by an average of 4% per annum. The interpretation is such that Namibia’s average GDP per capita growth rate over the last 50 years is 0.64%, at this growth rate, it will take Namibia over six centuries to reach high income status.

However, taken the period after independence, it shows that it will still take Namibia 54 years to reach high income status, however, it will have to grow at 5% per annum.

Namibia’s average GDP per capita growth rate since independence is 2.13%, at this growth rate, it will take Namibia over three centuries to reach high income status. – Bank of Namibia

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