Falling into a Middle Income Trap?

Korea was analyzed to have fallen into a middle income trap after losing its speed chasing economically-advanced nations by President Lee Geun of the Center for Economic Catch-up on August 13. 

At a seminar titled “A Nation’s Catch-up, Passing, and Falling – A Commentary on Korean Economics” hosted at the Korea Chamber of Commerce and Industry, President Lee, who is also an economics professor at Seoul National University, said, “For the past 10 years, Korea has not seen any special changes in its trends and stopped its economic catch-up.” The center revealed two statistics, a Catch-up Index and Catch-up Speed Index. The Catch-up Index indicates how much progress a nation has made in order to catch up with economically-advanced nations in first place. The Index is calculated as an average of the sum of the nation’s gross domestic product (GDP) per person and the nation’s proportion of the world’s GDP. The Catch-up Speed Index indicates how quickly a nation caught up economically when compared to other nations. 

The center analyzed the 2001-2011 Catch-up Index results of the top 100 nations by GDP and concluded that in 2011, Korea’s economic Catch-up Index was 26th out of 100. This is far behind Korea’s rival nations such as Singapore (6th place), China (8th), and Taiwan (23rd). Compared to advanced nations like the US (1st), Japan (4th), Germany (5th), and France (9th), Korea shows a considerable gap.

Lee explained, “Korea’s Catch-up Index has lingered between 30th (in 2001) and 26th (in 2011), showing no overall change,” and added, “When compared to advanced nations, Korea shows a low level of catch-up achievements and does not seem to pursue economic catch-up.”

Korea’s Catch-up Speed Index was behind as well. In 2011, Korea’s Catch-up Speed Index was 56th out of 100. This was actually ahead of some advanced nations such as Germany (60th), the US (85th), and Japan (90th), but behind emerging nations like China (8th), Russia (15th), Brazil (42nd), Taiwan (51st), and Mexico (53rd). 

In the calculation of the Catch-up Speed Index, a nation’s rate of increase of income per person and its proportion of the world’s economy are included. Korea showed an average of a 4% rate of increase of income per person from 2003 to 2007. However, the proportion Korea takes in the world’s economy decreased from 1.87% in 2005 to 1.61% in 2011. On the other hand, China increased its proportion from 4.99% to 10.54% and Brazil from 1.95% to 3.60%. 

Lee explained, “The fact that Korea ranked 56th in the Catch-up Speed Index proves that Korea is no longer trying to catch up economically with other nations,” and added, “It implies that Korea has low achievements in catching-up compared to advanced nations, as well as how Korea is stuck trying to move on to becoming an advanced nation instead of a middle income nation.”