Professor Kamel Mellahi of Warick University has cautioned that China has to invest more in innovation if it is to stop the slowdown in its economy and prevent it falling into the ‘middle income trap’.
The so called middle income trap arises when a country attains a certain level of income, but then gets stuck at that level for a protracted level of time. Brazil and South Africa have both fallen victim to this, and as a result stagnated for years with poor growth and labour market conditions. At the moment, China stands at a crossroads, and is looking to stoke domestic consumption to keep its economy on an upward curve. But Professor Mellahi says for that to happen, more innovation is critical.
At the moment, China stands at a crossroads, and looking to stoke domestic consumption to keep its economy on an upward curve
According to the Professor, “Countries that have tried to make the transition from a low income to a high income economy often got caught in the ‘middle income’ trap. Very few countries managed to escape the trap. This is because it is much easier to move up from a low income to a middle-income economy than it is to make the leap from a middle income to a truly high income developed nation.”
He identifies level of education, especially in the engineering sector, as well as innovation capabilities, as the two key factors separating middle and high income economies, citing South Korea and Singapore as two prime examples of nations which have escaped a lower income plateau. As it stands, he believes that the Middle Kingdom needs to significantly invest in both these areas or risk being stuck in a lower income threshold.
