Entries in income (4)


The middle income trap

As the middle or consumer class in countries with developing economies grows, do these countries face newer, higher hurdles? An economic development concept that is increasingly used by economists and international financial institutions considers the possibility of a middle income trap.
According to an IMF working paper, the “middle-income trap” is the phenomenon of hitherto rapidly growing economies stagnating at middle-income levels and failing to graduate into the ranks of high-income countries. The chart below maps national economies' progress from 1960 to 2008, from low to high income.

“World Bank (2012) estimates that of 101 middle-income economies in 1960, only 13 became high income by 2008”

Zoning into South East Asia, the region with some of the fastest growing economies in the world, a report by the Heritage Foundation covers the risks facing Indonesia, the Philippines, Thailand and Vietnam, and explains how these countries can avoid, or escape, this trap. At the end of this report, the author shared his view on the middle-income-trap statuses of these four countries.

Applying this analysis to other middle-income countries could be an approach for us to flag out other middle-income countries that are already “trapped” with limited growth potential.

Image source: The Economist

-- Jia Yan Toh


"Stars" of economics, shifting to the left?

In a recent opinion piece in Bloomberg, Noah Smith writes that economics--and the public stars of the field--are shifting leftwards. Overall, economics has moved away from unfettered advocacy of free markets to focus on inequality, human welfare and the ways that markets break down.

New tools and models have played a part: game theory, models of asymmetric information decision theory, learning theory and behavioral economics have poked holes in the old assumptions. But Smith sees the greatest transformation in the leading public personas of economics: Milton Friedman has been replaced by Paul Krugman, at least according to Smith and George Mason University economist Tyler Cowen.

We are interested in what economics can tell us, and therefore interested in how the field is evolving and why. Do you think economics as a whole has moved to the left? If so, what's driving the change?

Smith ends his piece suggesting that one reason for the shift could be the chief problems facing the economy. In Friedman's era the economy was beset by high taxes, inflation, heavy regulation, and powerful unions. Today the chief concerns are rising inequality and economic insecurity.

-- Jie Hu


Developing apps with mutuality

I came across this article regarding the experience and unexpected challenges of building apps for low income Americans, written by a developer from Significance Labs. Significance Labs makes "middle of the diamond" products for developed world, and I found many points from her experience that are relevant to the work we are doing at the Mutuality Lab. Key takeaways include:

  • The challenges faced by low income communities in the developed world can be very similar to that of the low income communities in developing world -- "Living on a low income translates into other forms of scarcity: of power, information, respect, opportunity, time, health, security, and even of sleep”
  • Building a mutual business model would require very clear motives and steer determination -- "It’s much easier to feel good by giving away meals to starving kids in Sudan, but you are not going to solve any systemic problem in the world by doing that. This is business, and business is messy and you have to make hard decisions."
    • Sometimes even the poor communities may think that “we were a company… trying to take advantage of them”
    • Building a business model for the poor will need a lot of hard work, to win the trust of many stakeholders operating in the hybrid value chain we have set up (in the case of Project Maua / Project Bloom).
  • Intuitive knowledge is very important when trying to develop something for the low income groups
    • In Significance Labs, all six fellows are “zero or first-generation immigrants”, and “their families know what it was like to live a very different life”.
    • “Maybe the best long-term solution is to train a new generation of developers and designers from a low-income background to build their own solutions”

--Jia Yan Toh


Statistician with a mission

Hans Rosling’s Gapminder Foundation has a mission is to fight devastating ignorance with a fact-based worldview that everyone can understand using powerful visualizations of statistics. Choosing among his many TED talks and videos is not easy, but this introductory video can be a nice gateway to his many videos on different global matters: 200 Years That Changed The World.

I teach global health, and I know having the data is not enough.”


Image source:

--Sorin Patilinet