The Middle Income Trap: Production Structure, Innovation, and Government Policies

• In Event: The Political Economy of the Middle Income Trap

Abstract

I analyze the innovation performance and its context in Latin America during the last two-three decades to advance our understanding of how Latin American countries may escape from the middle income trap. More specifically I analyze the interrelations between the productive structure of the economy, firms’ innovation behavior, and relevant government policies, in the context of the current globalization process.
In the empirical analysis I will look at the development of the structure of production (of the economy broadly and of the manufacturing sector at a 2-digit ISIC level), indicators of innovation inputs and outputs, and differences in innovation behavior of domestic companies and TNC affiliates. I will look at aggregate data as well as firm-level behavior. Using data from the World Bank’s Enterprise Surveys I plan to use regression analysis to estimate how firm characteristics (e.g., size, nationality, engagement in international trade) and policy differences across countries impact the link between innovation inputs, innovation outputs, and productivity growth. While the primary focus will be on select Latin American countries, I hope to include one or two Asian countries as well to bring in a comparative perspective across regions.

Author

• Eva A Paus, Mount Holyoke College