Since the 1950s, rapid growth hasallowed a significant number of countries to reachmiddle-income status; yet, very few have made the additionalleap needed to become high-income economies. Rather, manydeveloping countries have become caught in what has beencalled a middle-income trap, characterized by a sharpdeceleration in growth and in the pace of productivityincreases. Drawing on the findings of a recently releasedworking paper (Agenor and Canuto 2012), as well as a growingbody of research on growth slowdowns, this note provides ananalytical characterization of 'middle-incometraps' as stable, low-growth economic equilibrium wheretalent is misallocated and innovation stagnates. Tocounteract middle-income traps, there are a number of publicpolicies that governments can pursue, such as improvingaccess to advanced infrastructure, enhancing the protectionof property rights, and reforming labor markets to reducerigidities all implemented within a context wheretechnological learning and research and development(R&D) are central to enhancing innovation. Such policiesnot only explain why some economies particularly in EastAsia were able to avoid the middle-income trap, but are alsoinstructive for other developing countries seeking to moveup the income ladder and reach high-income status.
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