George Magnus, the UBS advisor, has published an important paper about the so-called 'middle-income trap' (*). The idea is simple enough: developing countries that hit the $12,000/$15,000 level (in terms of GDP per capita) will find it difficult to grow beyond that level if they fail to improve governance:
The appetiser to this discussion is the recent slowdown in growth in China, India, Brazil and elsewhere since 2011, notwithstanding signs of stabilisation in recent months. The cyclical issues are well understood, including weak Western demand. [To escape the middle-income trap, countries must] built trust, rules, good macro, corporate and social governance, and property rights and the rule of law, into national institutions … High levels of prosperity, which are ultimately about investment and innovation, rest on important political foundations, namely strong central government, and inclusive economic, social and political institutions, political checks and balances.
Political checks and balances! I like the idea! In fact, I have cooked up my own Checks and Balances Index [see, in Spanish].
(*) “Hitting a BRIC Wall: the risk of the middle income trap”, UBS Investment Research, 21 January 2013. See also the article: "China can yet avoid a middle-income trap", Financial Times, June 2011: "Richer, more complex economies need high-quality institutions, especially in the legal arena, to sustain human development. This is far more important than national output, steel production or any other metric".
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