Growth slowdowns at middle income levels: Identifying mechanisms of external constraints

Abstract

This paper provides evidence that external constraints determine growth slowdowns in middle-income countries. Econometric models corroborate a positive and significant relation between export margin and the growth of GDPpc for those countries that have remained between middle-income thresholds for at least 30 years, but not for others. While advanced economies have sustained their growth through permanent increases in productivity and the quality of products, many middle-income countries, most of them from Latin America, remain dependent on external prices for growth. Our results shed new light on old development challenges for developing countries.