The Political Economy of the Middle Income Trap: The Challenges of Advancing Innovation Capabilities in Latin America, Asia and Beyond

Abstract

Building on the middle-income trap literature where contexts of time and location matter, the articles in this special section adopt a ‘political economy of development’ approach to the problem of the middle-income trap. The papers employ different analytical approaches and have different entry points into unpacking the complex economic, social, and technical processes that advance productive capabilities. But they share a common set of assumptions undergirding a political economy approach and come to a common understanding that advances the middle-income trap discussion: (1) the development of domestic productive capabilities is critical for upgrading and developing broad-based innovation that may translate into higher productivity growth; (2) the interaction of international with domestic factors changes over time and may exacerbate domestic innovation challenges; and (3) the nature of the inter-workings between the government and actors in the private sector is crucial for understanding the advancement of innovation capabilities or lack thereof. All the papers point to the importance of a systemic and long-term approach to building productive capabilities and the need for strong state action to advance these capabilities.