Which countries were stuck for the longest period in the upper-middle-income category before moving to high income?

Greece and Argentina.

Prof Andres Velasco explains that apart from poor macro policy, both countries also share this aspect.

Aside from an established tradition of bad macroeconomics, what do Greece and Argentina have in common? One answer is that they were the world’s longest-held captives of the so-called middle-income trap – and remain within its reach to this day. With countries in Asia, Eastern Europe, and Latin American fearing that, having reached the international middle class, they could be stuck there, Greece and Argentina shed light on how that might happen.

A recent paper by economists from Bard College and the Asian Development Bank categorizes the world economy according to four groups – with the top two categories occupied by upper-middle-income and high-income countries – and tracks countries’ movements in and out of these groups. Which countries were stuck for the longest period in the upper-middle-income category before moving to high income? You guessed it: Greece and Argentina.

Correcting for variations in the cost of living across countries, the paper concludes that $10,750 of purchasing power in the year 1990 is the threshold for per capita income beyond which a country is high income, while $7,250 makes it upper-middle income. (These thresholds may sound low, but the World Bank uses similar cutoffs.)

By these criteria, Argentina became an upper-middle-income country all the way back in 1970, and then spent 40 years stuck in that category before reaching high-income status in 2010. Greece joined the international upper middle class in 1972, and then took 28 years to reach the top income group, in 2000. No other country that became upper middle income after 1950, and then made the transition, took nearly as long. In fact, the average length of that transition was 14 years, with economies such as South Korea, Taiwan, and Hong Kong taking as little as seven years.

It does not end here. The crisis poses several issues for the two countries.  Greece might have moved back to middle income:

Data in the paper stop at 2010, but the story may well be worse today. According to IMF figures, Greece’s never-ending crisis has cut per capita GDP (in terms of purchasing power parity) by 10% since 2010, and by 18% since 2007. Indeed, Greece may have dropped out of the high-income category in recent years.

Argentina’s per capita income has risen, albeit slowly, during this period, but the country was never far from a full-blown macroeconomic crisis that could reduce household incomes sharply. So it seems fair to conclude that both countries are still caught in the middle-income trap.

What kind of trap is it? In Greece and Argentina, it is both political and economic.

The usual story..

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