Long Neglected Facts and the Vicious Circular Mechanism Behind the Middle-income Trap: An Explanation from the Debt Crisis Perspective

The "middle-income trap" refers to the phenomenon that an economy stagnates for a long time after its income per capita achieves the middle level of the world, which frequently occurs in developing countries. Taking Latin America as an example, the author establishes a unified framework that includes other explanations from the perspective of the debt crisis for research. Adopting multiple methods including literature and case study, data analysis and mechanism reasoning, the main conclusions are as follows. First, middle-income economies bear a higher actual risk of external debt problems. Second, debt crises cause permanent losses and the recovery tends to be less effective in the middle-income group than others. Third, a lower yet concealed debt ratio threshold in the middle-income economies misleads the state government’s decision-making on borrowing. Finally, "debtcrisis-recovery-debt", the vicious circle, systematically reveals the essence of the "middle-income trap" in the debtor countries, excessive sovereign debt serves as both the trigger and the accelerator in the collapsing process.