The Leap of the Tiger: Escaping the Middle‐income Trap to the Technological Frontier

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The Asian miracles along with a handful of European economies and oil exporters are the few countries that reached high‐income status during 1960–2014. In contrast, many good‐performing countries such as Malaysia have been middle‐income countries for several decades despite relatively strong growth and a substantial improvement in education and export sophistication. We argue that the key factor differentiating the Asian miracles from economies like Malaysia is the creation of technologies by domestic firms and leapfrogging to the technological frontier at an early stage of development.

Policy Implications

  • Improving standard growth determinants such as education, business climate, infrastructure, and regulation and relying on FDI and multinational firms are not sufficient to achieve high growth rates and escape the middle‐income trap.
  • The key to escaping the middle‐income trap is creation of technologies by domestic firms and a push to leapfrog to the technological frontier at an early stage of development.
  • Encouraging firms to export and compete on both domestic and international levels provides crucial incentives for firms to innovate and grow, potentially resulting in high productivity and employment growth.
  • Policies should support firms to move to high‐tech sectors and could include access to: (1) finance; (2) innovation and spin‐off ecosystems; (3) public research institutes and (4) research and development funds.
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