China's Premier Li sees growth of 7.0 percent in 2015

[tranquilium]

Growth comes three factors 1) Capital stock 2) Labor 3) Totally productivity factor. As countries move towards middle income category, it would have squeezed the last out of 1) capital stock 2) labor. So now majorly growth depends on totally productivity factor, and it is very hard to get high and consistent growth rate out of totally productivity factor. This is called growth accounting. This is the reason why developed countries don't have high growth rates.

Then there is also something called 'middle income trap'. Most countries are good at milking growth out of 1) Capital stock 2) Labor, but many countries, given the complexity of totally productivity factor, fail to extract growth of totally productivity factor. Example are lot of South American countries that are trapped as middle income group and failed to make transition into developed economies. So growth is not as easy as you make it sound.

The third part is mostly an infrastructure issue. Both in term of physical assets and things like forming domestic research base. Basically, the South American countries had a rapid increase in personal wealth per person, but very little into infrastructure, long term R&D and its support. This is easy to understand because this type of invest costs astronomical amount of wealth and has a very long investment period, so private entities are not likely to do it. To simply put, the "middle income" trap would traps countries that merely inflated personal wealth instead the overall wealth of the whole society. People may not like to hear it, but an individual's personal wealth really is secondary to the overall wealth of the nation.

 

[ito]

The third part is mostly an infrastructure issue. Both in term of physical assets and things like forming domestic research base. Basically, the South American countries had a rapid increase in personal wealth per person, but very little into infrastructure, long term R&D and its support. This is easy to understand because this type of invest costs astronomical amount of wealth and has a very long investment period, so private entities are not likely to do it. To simply put, the "middle income" trap would traps countries that merely inflated personal wealth instead the overall wealth of the whole society. People may not like to hear it, but an individual's personal wealth really is secondary to the overall wealth of the nation.

Infrastructure is part of Capital stock.

 

[tranquilium]

Infrastructure is part of Capital stock.

I would argue that they are inter-related. For example, industrial automation is large factor contributing into raise the total productivity, yet it can also be argued to be part of the capital stock. There are also other type of infrastructure investment, such as building schools for educating the work force. These investments are important part of raising the total productivity, but typically not counted in capital stock of business because their relationship is not immediate.

Though these are just details, the overall point stands, many nations trapped in middle income trap because they are not truly wealthy and has not been able to make the appropriate investment into long term infrastructure.