The Arab Economy and the Middle-Income Trap

In the economic growth literature, two interesting ideas stand out: nominally speaking, the first captures a standard idea and the second happens when the first idea fails midway. In concreate terms, the first idea is economic catch-up or convergence, and it takes place when poorer countries grow faster than richer ones, closing income gaps, and driven by the adoption of existing technologies, higher returns on capital investments, and higher capital labor ratios. The second idea is the middle-income trap, obtained when a country achieves rapid growth to reach middle income but then stagnates and can no longer catch up, and as a result fails to transition to a high-income economy.

What we like to do in this note is to check whether the Arab economy has fallen into a middle income trap and, if it had, why that is so.

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