Study on the Presence of Middle Income Trap in E7 and Fragile Five Countries

Among the emerging countries, those that display the most powerful economic performance, i.e., China, India, Indonesia, Brazil, Mexico, Russia and Turkey, are described as Emerging 7/Emerging economies (E7). Moreover, these E7 countries have been or are currently in a group referred to as Fragile Five, a grouping revised several times throughout the years. Fragile Five is about the relation between the countries’ economic growth and their high current account deficit and high inflation rate. It is predicted that decline in expansionary monetary policy in international economics would cause those countries to face difficulties in receiving external financing. Therefore, E7 countries in Fragile Five may be in a risky position due to inability to increase domestic savings, high dependency on external financing or volatile conditions of their economic performance indicators. This risky structure arising from mentioned factors also expose a danger for those countries to move up to upper income level without falling in the middle income trap. Hence this study investigates whether E7 and Fragile Five countries are in the middle income trap or not by using various methods and comparison techniques. The study is based on the classification created by Felipe, Abdon and Kumar using the middle income trap threshold values approach by obtaining growth rates, income transitions and times over historical data of countries. Furthermore, based on the middle income trap where per capita income cannot go beyond 20% of US GDP, since an economy would go into stagnation, this study compares GDP per capita of US with GDP per capita of E7 and Fragile Five countries. Furthermore, overall assessment is made after comparing GDP per capita of those countries with the average world middle income GDP per capita. In the light of the middle income trap definition of being stuck at 20% of per capita GDP of the USA, the per capita GDP of respective countries are compared against the per capita GDP of the USA. In addition, in line with the approach that takes world average per capita income as the basis for middle income, the per capita GDPs are compared against the world average per capita GDP values and relevant assessments are made.