corey 🧮🏗🌐🔰

The literature of the “middle-income trap,” which speaks in particular of Brazil and South Africa, presupposes a mercantilist notion that growth depends on exports, which are alleged to have a harder time growing when wages rise. The theory is defective, since the absolute “advantage” of low wages is irrelevant to the pattern of trade. The mercantilist policies adopted by Brazil and South Africa to encourage this or that export depend, in other words, on denying comparative advantage. And anyway the literature on the middle income trap focuses on externals when what matters mainly to the income of the poor is domestic productivity. Therefore, countries such as South Africa with trade-denying laws, such as those that obstruct entry to new business and overregulate old business, drag along at growth rates of less than 3 percent per year per person—at which rate a mere doubling takes a quarter of a century and a transformative quadrupling fifty years. Slow growth yields envy, as the economist Benjamin Friedman has argued, and envy yields populism, which in turn yields slow growth. In 2014, Venezuela ranked 182nd out of 189 countries in the world in the ease of doing business, Brazil 120th. That’s the real “middle-income trap.”