The Arab Economy and the Middle-Income Trap

GDP Per-Capita in 2015 Prices[1]: USD

Source: World Bank 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^[2], 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.

[1] GDP per capita is expressed in 2015 prices so as to capture real increases in GDP per capita by neutralizing any inflationary effects.

[2] There two types of convergence: sigma and beta convergence. Sigma convergence is the reduction in dispersion in per-capita income across countries; and beta convergence is the catch up by low-income countries that would grow faster than high-income ones thus closing the gap. For simplicity, we are not going to distinguish between these two convergences in this note.

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