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How China Can Keep Growing Fast?

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How China Can Keep Growing Fast?

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Could China get stuck in the “middle-income trap”?

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In recent decades, several nations, including Brazil and South Africa, have become mired in the “middle-income trap”: Wages rise, but their economies consequently stagnate because they can no longer compete with low-cost producers. Economist and Nobel laureate Edmund S. Phelps discusses how China can evade a similar fate in an academic text that assumes readers’ acquaintance with classical economic theory. getAbstract nevertheless recommends it to those who wonder how China’s economy will develop in the years to come.

Summary

How can China evade the “middle-income trap”? China’s ambition is to raise its standard of living to match Western benchmarks. However, the average level of labor productivity in China is about one-seventh that of some industrialized countries; in China’s coastal regions, it’s about half of Western levels. Since migration and education will likely raise labor productivity in China’s interior to meet coastal levels, China should concentrate on enhancing work outputs in coastal cities to meet Western standards.

Classical economists hypothesize that foreign trade alone will help China make up the gap. They ...

About the Author

Edmund S. Phelps, a 2006 Nobel laureate in economics, is director of the Center on Capitalism and Society at Columbia University and dean of the New Huadu Business School.

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