The middle income trap is a disease that has afflicted a number of developing economies over the years. After breakneck economic expansion, growth suddenly begins to stagnate when per capita income reaches a level the World Bank defines as middle income -- on average $6,900. As old economic drivers, like the development of light manufacturing or commodity exports, become exhausted, they need to be replaced by new ones. Policy paralysis, however, often prevents the adjustments needed to propel the economy to the next level.
Some economies in Latin America are often cited as prime examples. Brazil, for instance, grew as rapidly in the late 1950s and 1960s as some of the Asian tiger economies; but its expansion subsequently fizzled. In Mexico, per capita income peaked in the early 1980s, taking over two decades to recoup lost ground. By contrast, South Korea, Taiwan, Hong Kong and Singapore have gone through similar growth shocks over the years, but quickly bounced back to attain high income status.
