China: Surpassing the “Middle Income Trap” CONTEMPORARY CHINA STUDIES Contemporary China Studies Series Editor Angang Hu Institute for Contemporary China Studies Tsinghua University Institute for Contemporary China Studies Beijing, China Shaojie Zhou • Angang Hu China: Surpassing the “Middle Income Trap” Contemporary China Studies ISBN 978-981-15-6539-7 ISBN 978-981-15-6540-3 (eBook) https://doi.org/10.1007/978-981-15-6540-3 © The Editor(s) (if applicable) and The Author(s) 2021. This book is an open access publication. Open Access This book is licensed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons licence and indicate if changes were made. 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China This book was realized as a result of national top think tanks’ research initiative and sponsored by the Institute for National Governance and Global Governance at Tsinghua University P raise for China: Surpassing the “Middle Income Trap” “This book provides an empirical summary of how China crossed the “poverty trap” and an objective analysis of how China overcomes the “middle-income trap” by drawing China’s development paths. It is worth reading by those interested in China’s development.” —Jinjun Xue, Professor of Economics Research Center at Nagoya University and Co-Director of the Institute of Global Low-carbon Economy “There are many disputes about the concept of “middle-income trap” in the academic community, but the “middle-income trap” has become an important perspective for understanding China’s development prospects. Based on this perspective, this book gives an explanation of Chinese-style development and governance.” —Shaoguang Wang, Emeritus Professor at the Chinese University of Hong Kong and Professor at Tsinghua University ix 1 What Is the “Middle Income Trap”? 1 1.1 Proposition of the “Middle Income Trap” 1 1.2 Definition of the “Middle Income Trap” 3 1.2.1 Absolute Criteria 3 1.2.2 Relative Criteria 6 1.3 Overcoming the “Middle Income Trap”: A Comparison of East Asia and Latin America 10 1.3.1 A Comparative Analysis of Countries and Regions in Asia in Overcoming the “Middle Income Trap” 10 1.3.2 Latin American Countries Ensnared by the “Middle Income Trap” 16 1.3.3 A Comparison of the Two Groups of Countries 18 1.4 Why Does the “Middle Income Trap” Emerge? 20 2 How Did China Overcome the “Poverty Trap”? 33 2.1 The Analytical Framework of Multidimensional Poverty 34 2.2 Stagnant Development in China’s Contemporary History Plunged the Country into Poverty 37 2.3 Achievements in Development During China’s Planned Economy Era 38 2.4 Economic Development and Poverty Reduction 42 2.4.1 Rural Economic Reform and Poverty Reduction 43 2.4.2 SOE Reform and Development of Private Sector Economy 45 C ontents x CoNTENTS 2.5 Poverty Alleviation and Development Serve as a Powerful Tool for Overcoming the “Poverty Trap” 54 2.5.1 Poverty Alleviation Policies During Different Development Stages 54 2.5.2 Performance Evaluation of China’s Poverty Alleviation Efforts 61 2.6 The Global Effect of China’s Poverty Alleviation Efforts 64 3 Will China Fall into the “Middle Income Trap”? 71 3.1 Development Challenges During the Middle-Income Stage 72 3.1.1 The Challenge in the Transformation of the Economic Growth Model 73 3.1.2 The Environmental Resource Challenge 75 3.1.3 Challenge of an Aging Population 78 3.1.4 The Income Gap Challenge 81 3.1.5 The Social Stability Challenge 83 3.1.6 Political Development and Political Stability 86 3.2 Favorable Conditions for China to Overcome the “Middle Income Trap” 90 3.2.1 Steady Transition of the Economic System and Maturing of Macroeconomic Management 90 3.2.2 Continual Improvement in National Capacity for Strategic Planning 95 3.2.3 Modernized Infrastructure Provides Essential Support for Economic Development 102 3.2.4 China Already Fulfills the Essential Preconditions for Innovation-Driven Development 107 3.2.5 China’s Capacity for Green Development Continues to Grow 114 3.2.6 China Actively Participates in Globalization and Global Governance 116 3.2.7 The Superiority of the Socialist System Provides the Political Foundation for Overcoming the “Middle Income Trap” 121 3.2.8 Summary 130 xi CoNTENTS 4 How Can China Overcome the “Middle Income Trap”? 133 4.1 Breaking Out of the Middle-Income Trap Through the “Five Major Development Concepts” 136 4.1.1 Avoiding the Total Factor Productivity Trap Through Innovation-Driven Development 137 4.1.2 Avoiding the Urbanization Trap Through Coordinated Development 140 4.1.3 Avoiding the Ecological Environment Trap Through Green Development 144 4.1.4 Avoiding the Dependency Trap Through Open Development 145 4.1.5 Avoiding the Inequity Trap Through Shared Development 148 4.2 Supply-Side Structural Reform Is the Key to Overcoming the “Middle Income Trap” 149 4.2.1 The Three Major Rationale Behind Supply-Side Structural Reform 150 4.2.2 Supply-Side Structural Reform Ushers in China’s New Normal 169 4.2.3 How to Promote Supply-Side Structural Reform: The Formula 171 4.3 Supply-Side Structural Reform: China’s Practical and Theoretical Innovation 176 5 Looking Ahead: China Becoming a High-Income Economy 179 5.1 Income Group Classification of China’s Provincial Regions 180 5.1.1 Absolute Income Method 180 5.1.2 Relative Income Method 183 5.2 A Region-by-Region Statistical Analysis of Overcoming the “Middle Income Trap” in China 186 5.3 Forecast and Outlook for China’s Overcoming of the “Middle Income Trap” 192 5.4 Formation of the Chinese Path 195 5.5 The Global Significance of China’s Overcoming of the “Middle Income Trap” 202 Epilogue 211 xiii Fig. 1.1 Per capita income of countries relative to U.S. (1960–2008). (Source: World Bank 2012) 7 Fig. 1.2 Japan and South Korea’s per capita GDP relative to the U.S. level (1950–2010). (Source: The Maddison-Project, http://www.ggdc.net/maddison/maddison-project/home. htm, 2013 version) 12 Fig. 1.3 Per capita GDP of some East Asian countries relative to the U.S. level (1950–2010). (Source: The Maddison-Project, http://www.ggdc.net/maddison/maddison-project/home. htm, 2013 version) 12 Fig. 1.4 Thailand’s per capita GDP relative to the U.S. level (1990–2015). (Source: The World Bank, 2017 World Development Index. Note: per capita GDP percentage in PPP terms on the basis of 2011 constant prices is used) 14 Fig. 1.5 Four Southeast Asian countries’ per capita GDP (PPP) relative to the U.S. level (1950–2010). (Source: The Maddison- Project, http://www.ggdc.net/maddison/maddison-project/ home.htm, 2013 version) 15 Fig. 1.6 Four Latin American countries’ per capita GDP relative to the U.S. average (1950–2010). (Source: The Maddison-Project, http://www.ggdc.net/maddison/maddison-project/home. htm, 2013 version) 17 Fig. 1.7 Growth accounting for six Asian countries and regions (1970–2009). (Source: Shekhar Aiyar, Romain Duval, Damien Puy, Yiqun Wu and Longmei Zhang, Growth Slowdowns and the Middle-Income Trap, IMF working paper , WP/13/71, 2013. Note: The estimates for the Chinese mainland, Hong L ist of f igures xiv LIST oF FIGURES Kong, Taiwan, Singapore and South Korea are sourced from the period between 1970 and 2009; the estimates for India are sourced from the period between 1980 and 2009) 18 Fig. 1.8 Growth accounting for four Latin American countries (1970–1990). (Source: Shekhar Aiyar, Romain Duval, Damien Puy, Yiqun Wu and Longmei Zhang, Growth Slowdowns and the Middle-Income Trap, IMF working paper , WP/13/71, 2013) 19 Fig. 1.9 The theoretical model for the “Middle Income Trap”. (Note: formulated by the authors) 21 Fig. 1.10 Global economic growth before and after the global financial crisis (2004–2015). (Source: IMF) 30 Fig. 2.1 The multidimensional analytical framework for poverty. (Note: Formulated by the authors) 36 Fig. 2.2 Changes in the total factor productivity index of agriculture (1952–1989). (Source: Lin Yifu, “Institutions, Technology, and Agricultural Development in China”, Truth & Wisdom Press, 2008 First Edition, p. 19) 45 Fig. 2.3 Proportion of rural residents by income (1980–1990). (Source: National Bureau of Statistics, China Statistical Yearbook (1998), Beijing: China Statistics Press, p. 344. Note: This table is a sample survey of rural households) 46 Fig. 2.4 Changes in China’s employment structure (1950–2015). (original data source: China Statistical Abstract 2016, p. 40) 51 Fig. 2.5 Rural employment in China (1978–2015). (original data source: China Statistical Abstract 2016, pp. 41–42) 52 Fig. 2.6 Urban employment in China (1978–2015). (original data source: China Statistical Abstract 2016, p. 41) 52 Fig. 2.7 Geographical distribution of impoverished counties in China. (Source: Heilig, G.K., Zhang, M., Long, H., Li, X., Wu, X., 2006. Poverty Alleviation in China: A Lesson for the Developing World? Geographische Rundschau (International Edition) 2 (2), 4–13. Notes: National Poor Counties designated in 1994 are denoted by regions shaded in red) 57 Fig. 3.1 Chinese economic growth and investment rates (1980–2015) Note: Growth Rate is the three-year compound annual growth rate; Investment Rate is the three-year geometric mean. (Source: China Statistical Abstract 2016 ) 74 Fig. 3.2 The dynamic changes in Incremental Capital-output Ratio (1980–2015). Note: Incremental Capital-output Ratio (ICoR) = annual incremental investment (I)/annual GDP increase (ΔY). This gives the ratio of annual investment to annual incremental output. For computation purposes, xv LIST oF FIGURES three-year annual compound growth rates and three-year geometric mean of investment rates are used. (Compiled by the authors) 75 Fig. 3.3 The old-age dependency ratios in China and Japan (1950–2050). Note: old-age dependency ratio = number of people aged 65 and over/number of people aged 15–64. There is a slight discrepancy in the data on the Chinese population with that of the Chinese National Bureau of Statistics. (Source: Population Division, Department of Economic and Social Affairs, United Nations, World Population Prospects , the 2015 Revision) 79 Fig. 3.4 The total dependency ratios in China and Japan (1950–2050). Note: Total dependency ratio = (number of people aged 0–14 + number of people aged 65 and over)/number of people aged 15–64. There is a slight discrepancy in the data on the Chinese population with that of the Chinese National Bureau of Statistics. (Source: Population Division, Department of Economic and Social Affairs, United Nations, World Population Prospects , the 2015 Revision) 80 Fig. 3.5 China’s Gini coefficient over time (1980–2015). Note: According to UN standards, a Gini coefficient lower than 0.2 expresses absolute equality; a range of 0.2–0.3 is relative equality; 0.3–0.4 is a relatively reasonable income gap; 0.4–0.5 is a relatively large income gap; and over 0.5 is considered dangerous. (Source: World Bank, China’s National Bureau of Statistics) 82 Fig. 3.6 Criminal and public security cases statistics (2000–2014). (Source: China Statistical Yearbook 2015 ) 85 Fig. 3.7 Transport infrastructure (1980–2015, ten thousand kilometers). (Source: China Statistical Yearbook 2016 ) 103 Fig. 3.8 Energy infrastructure (1980–2015). (Source: China Statistical Yearbook 2016 ) 104 Fig. 3.9 Communication infrastructure (1990–2015). (Source: China Statistical Yearbook 2016 ) 106 Fig. 3.10 The number of associate’s, bachelor’s and master’s degree holders (1980–2015). (Source: China Statistical Yearbook 2016 ) 110 Fig. 3.11 The number of students studying abroad (1980–2015). (Source: China Statistical Yearbook 2016 ) 110 Fig. 3.12 The added value of high-tech industries in China and the U.S. as a share of the world’s total (2000–2015). (Source: Hu Angang and Ren Hao, “How China’s High-technology xvi LIST oF FIGURES Industry Catches-up with United States”, Bulletin of Chinese Academy of Sciences , Issue 12, 2016) 112 Fig. 3.13 The value of high-tech exports from China and the U.S. as a share of the world’s total (2000–2014). (Source: Hu Angang and Ren Hao, “How China’s High-Technology Industry Catches-up with United States”, Bulletin of Chinese Academy of Sciences , Issue 12, 2016) 113 Fig. 4.1 Average changes in total factor productivity (TFP) in middle- income countries (1960–2010). (Note: 11 countries have overcome the “middle income trap”; 35 countries remain in the “middle income trap” while 11 countries are reduced to low-income level. Data Source: UNIDo Database) 138 Fig. 4.2 Urbanization rate and relative income level. (Note: The vertical axis is the percentage of per capita GDP (in international US dollars in constant prices) in relation to that of the U.S. Data Source: World Bank, World Development Index, data from 1990 to 2015) 141 Fig. 4.3 China’s economic growth rate (1978–2015). (Data Source: National Bureau of Statistics: China Statistical Abstract 2016 , p. 24) 161 Fig. 4.4 Urban real estate investment and growth (2000–2015). (Data Source for Calculation: National Bureau of Statistics: China Statistical Abstract 2016, p. 91) 163 Fig. 4.5 Changes in economic growth rate and structure in various regions during the 12th Five-Year Plan. (Data Source for Calculation: National Bureau of Statistics: China Statistical Abstract 2011–2016) 165 Fig. 5.1 Groups of countries by income 1995 ( Atlas method). (Note: The horizontal axis represents the population proportion of countries of various income levels (ranked according to per capita GDP); the vertical axis represents per capita GDP (based on Atlas method); income levels indicated by the dotted lines are the threshold value of income groups—low-income countries, lower-middle-income countries, upper-middle- income countries and high-income countries.) 181 Fig. 5.2 Groups of countries by income 2005 ( Atlas method). (Note: Indications of the horizontal axis, vertical axis and dotted lines are identical with Fig. 5.1) 182 Fig. 5.3 Groups of countries by income 2015 ( Atlas method). (Note: Indications of the horizontal axis, vertical axis and dotted lines are identical with Fig. 5.1) 183 xvii LIST oF FIGURES Fig. 5.4 Per capita GDP of countries in 1995 relative to that of the U.S. (Note: The horizontal axis represents the population proportion of countries of various income levels (ranked in the order of per capita GDP); the vertical axis represents the percentage of per capita GDP (PPP, in international dollar in 2011) in relation to the U.S.; the dotted lines correspond to 5% and 40% respectively, representing the threshold value of low-income countries, middle-income countries and high- income countries according to the relative income method) 184 Fig. 5.5 Per capita GDP of countries in 2005 relative to that of the U.S. 185 Fig. 5.6 Per capita GDP of countries in 2015 relative to that of the U.S. 186 Fig. 5.7 Income groups by region (1995) 187 Fig. 5.8 Income groups by region (2005) 188 Fig. 5.9 Income groups by region (2015) 189 Fig. 5.10 Relative difference coefficient of per capita GDP across regions (1952–2014) 190 Fig. 5.11 Per capita GDP of various regions as a percentage of high- income threshold (%) in 2015. (Note: Based on China’s per capita GDP (international dollar value) in 2015, the international dollar value of per capita GDP of various provinces is calculated based on the relative value of per capita GDP against national per capita GDP; these values of provincial per capita GDP are divided by the high-income threshold value to calculate the percentage of per capita GDP of various regions in comparison with the high-income threshold) 191 Fig. 5.12 China’s GNI per capita (2010–2025) 193 Fig. 5.13 Average growth required of China to cross the high-income threshold in various years (2020–2025) 193 Fig. 5.14 China’s per capita GDP relative to the U.S. (2015–2025) 195 xix L ist of t abLes Table 1.1 Classification by income group in selected years (1995–2015) 5 Table 2.1 A comparison of per capita GDP growth among the major economies (1700–2015) 38 Table 2.2 The development of China’s primary education (1952–1985): Percentage of graduates entering higher level schools (Unit: %) 41 Table 2.3 China’s development through its economic, education and health indicators (1950–2015) 42 Table 2.4 Per capita income of urban and rural residents and Engel coefficient (1978–2016) 53 Table 2.5 Social assistance in China (2007–2015) 61 Table 2.6 Poverty in rural China (1978–2015) 63 Table 2.7 Policies in dealing with extreme and long-term poverty 64 Table 2.8 Chinese population living below the international poverty line and its poverty rate (1990–2013) 65 Table 2.9 Progress by China in implementing the Millennium Development Goals 67 Table 3.1 Status quo and challenges of ecological environment in China 76 Table 3.2 Japan’s population, urbanization and economic growth (1960–2010) (Unit: %) 80 Table 3.3 Key indicators of China’s innovation-driven development 111 Table 3.4 Distribution of main indicators in the 13th Five-Year Plan 116 Table 3.5 The distribution of Fortune Global 500 companies by countries (2016) 119 Table 3.6 Changes in the distribution of Fortune Global 500 companies by countries (1990–2016) 120 1 © The Author(s) 2021 S. Zhou, A. Hu, China: Surpassing the “Middle Income Trap” , Contemporary China Studies, https://doi.org/10.1007/978-981-15-6540-3_1 CHAPTER 1 What Is the “Middle Income Trap”? 1.1 P roPosition of the “M iddle i ncoMe t raP ” In 2007, Indermit Gill and Homi Kharas (2007), two World Bank econo- mists, published a report titled An East Asian Renaissance: Ideas for Economic Growth , 1 which suggested that East Asia would soon develop into a middle-income region and proposed the concept of the “middle income trap”. It should be noted that the report did not provide an in- depth interpretation of the concept, nor did it offer a clear income range for the “middle income trap”. In 2011, Homi Kharas and Harinder Kohli (2011) further elaborated on the concept, 2 specifying that when a country escapes the poverty trap in the low-income development stage and enters into the middle-income development phase, the country may face growth stagnation and inability to further move up the ladder into the high- income range. Why does the “middle income trap” phenomenon exist? They empha- sized the need for different growth strategies after reaching the middle-income status through comparing the long-term performance of Latin American economies and East Asian economies. In the latter case, 1 Indermit Gill and Homi Kharas (2007). An East Asian Renaissance: Ideas for Economic Growth , The World Bank. 2 Homi Kharas and Harinder Kohli (2011). What Is the Middle-Income Trap, Why do Countries Fall into It, and How Can It Be Avoided? Global Journal of Emerging Market Economies , 3(3) 281–289. 2 countries successfully shifted their growth strategies after achieving the middle-income status and adopted new growth strategies to sustain eco- nomic growth. However, economies from Latin America failed to achieve the shift. Generally, one fundamental reason for low-income economies to break away from the poverty trap lies in the ability to create jobs for the abun- dant and cheap labor which promotes labor transfer from the low- productivity agricultural sector to the high-productivity sector. The structural change of labor force allocation is the key factor in sufficiently mobilizing economic potentials. However, when a country enters into the middle-income status from the low-income development stage, it loses the comparative advantages of cheaper labor cost and becomes less competi- tive in manufacturing exports against low-income and low-wage countries due to rising labor costs. If the country does not achieve substantial prog- ress in technological innovation, its ability to compete with developed economies in the arena of high-tech and innovation products would be hampered, resulting in the loss of export competitiveness. Thus, the coun- try may fall into the predicament of declining economic growth or even experience economic regression, causing the country to be trapped in the middle-income status and lose the ability to stride toward the high- income status. After its proposal, the concept of the “middle income trap” which pro- vided a new perspective for understanding the economic growth in devel- oping countries, received immediate media and academia attention. In the wake of the 2008 global financial crisis, the investment-driven and export- led growth model of China faces great challenges due to the domestic structural adjustments and external demand shocks. Whether the Chinese economy could maintain its high-speed growth has raised substantial concerns. In 2010, China surpassed Japan in gross domestic product (GDP) for the first time to become the world’s second largest economy. The 2012 World Development Report listed China as a middle-income country for the first time on the basis of 2010 per capita income in China. In this sense, 2010 marked an important juncture in the course of China’s eco- nomic development. Subsequently, China began the implementation of its 12th Five-Year Plan. As the world was reeling from the global financial crisis, China’s economic performance came into the spotlight. Being the world’s second largest economy, China’s economic growth undoubtedly affects global growth, especially for countries that have China as their S. ZHOU AND A. HU 3 main trade partner. In the long run, questions of whether China can main- tain a relatively high growth rate and join the ranks of high-income coun- tries call for particular attention. The subject of the “middle income trap” has drawn consideration attention from Chinese scholars and has provided an important perspec- tive for understanding the prospect of China’s economic growth. The number of academic papers exploring the theme of the “middle income trap” in Chinese academic journals has witnessed rapid growth in recent years. However, an examination of international academic journals reveals that the majority of research on the “middle income trap” materialized in the form of working papers with only a few published in international journals. Among existing published textbooks on development econom- ics, the “middle income trap” has yet to be clearly defined and discussed as a coherent notion. How to understand the “middle income trap” remains an important and much contemplated subject matter in academia. 1.2 d efinition of the “M iddle i ncoMe t raP ” 1.2.1 Absolute Criteria Since 1978, the World Bank has been publishing the World Development Report annually (biennially on a few occasions). Although the subject of the World Development Report varies from year to year, the World Bank would consistently release data reflecting the development of each coun- try’s economy, population, education and health outcomes. In particular, the World Bank classifies all countries into different income groups based on per capita income calculated with the Atlas method. 3 In the 1978 World Development Report, the World Bank categorized countries into low-income countries (GNP per capita equal to or lower than $250 by Atlas method in 1976), middle-income countries (GNP per capita higher than $250), industrialized countries, capital-surplus oil-exporting 3 The Atlas method employed by the World Bank calculates the dollar value of per capita income based on the Atlas conversion factor. The Atlas conversion factor is obtained through the synthetic exchange rate method by averaging a country’s exchange rates in past three years and taking into account the changes in the country’s GDP deflator relative to a weighted GDP deflator of these countries with Special Drawing Right (SDR). The advantage of the method in calculating the per capita income of a country lies in its ability to cushion the effect of exchange rate fluctuations on per capita income calculation. 1 WHAT IS THE “MIDDLE INCOME TRAP”? 4 countries, central-planning countries and so on. 4 Since then, the World Bank’s classification of income groups has been adjusted several times. For example, countries were classified into low-income, middle-income, industrialized market economies, capital-surplus oil-exporting countries and industrialized non-market economies in 1981; Then in 1989, with the disintegration of the socialist camp in Eastern Europe, countries were clas- sified into low-income, middle-income (including lower-middle and upper-middle) and high-income countries. Thus far, the classification of countries through per capita income by the World Bank has solidified into four categories, that is, low-income, lower-middle income, upper-middle income and high-income countries. Currently, the World Bank classifies countries by income level based on per capita national income (GNI) calculated through the Atlas method. 5 Since this is calculated on the basis of the current price of dollars, the cri- teria for income group classification vary annually. The threshold for each income group also undergoes adjustments regularly according to changes in inflation rates and exchange rates of countries with Special Drawing Right (SDR). 6 Although the thresholds are adjusted according to the changes in exchange rates and inflation rates, the per capita GNI thresholds calcu- lated through the Atlas method can be presumed to be relatively fixed or regarded as absolute income criteria, because the adjustments of nominal value take the real value of income level of countries with SDR as the 4 In the 1978 World Development Report, China’s per capita GNP was 410 US dollars. By that measure, China should have already belonged to the club of middle-income countries which would be an apparent misrepresentation. The main reason was that at the very begin- ning of China’s “reform and opening up”, it had yet to regain its membership in the World Bank. Thus, China had yet to fully cooperate on data sharing with the World Bank. When China resumed its membership in the World Bank in 1980, the 1980 World Development Report published China’s per capita GNP was 230 US dollars, based on part of official infor- mation provided by Chinese authorities. 5 Gross national income (GNI) is equal to the sum of the gross domestic product of a country and the net inflow of such income as rent, profits and remuneration earned by resi- dents of the country abroad. The World Bank converts the GNI, as measured by national currencies, into GNI expressed in US dollars using the exchange rate average over the last three years for the sake of eliminating the effects of exchange rate fluctuations. 6 Since 1987, the World Bank has adjusted the income thresholds annually. For instance, the threshold for high-income countries stood at 6000 US dollars in 1987, compared to 7620 US dollars in 1990 and 9265 US dollars in 2000. Since 1996, the World Bank has announced the adjusted thresholds on July 1 every year. S. ZHOU AND A. HU 5 benchmark. In this sense, if a country can maintain a positive rate of real economic growth and keep the exchange rates relatively stable with coun- tries with SDR, the country will eventually reach the threshold for high- income countries. Table 1.1 shows the thresholds of income group classifications. According to the World Bank’s income group classification of countries by the 2015 criteria, countries with a per capita GNI of more than 12,746 US dollars can be considered as high-income. Notably, high-income countries might not necessarily equate to what we commonly refer to as developed or advanced economies. According to the International Monetary Fund, there are 39 countries and regions in the world classified as developed economies. 7 However, the World Bank listed as many as 79 countries in the high-income group in the report published on July 1, 2015. In fact, according to the World Bank, 8 among 154 countries in 1987, the numbers of high-income and middle-income countries were 41 and 7 Including the U.S., 19 eurozone countries, Japan, the U.K., Canada and 16 other coun- tries (Australia, South Korea, Singapore, the Czech Republic, Macau, Sweden, Denmark, New Zealand, Switzerland, Hong Kong, Norway, Taiwan, Iceland, Puerto Rico, Israel, San Marino). Source: IMF Advanced Economies List. World Economic Outlook, April 2016, p. 148. 8 World Bank GNI per Capita Operational Guidelines & Analytical Classifications. http:// siteresources.worldbank.org/DATASTATISTICS/Resources/OGHIST.xls accessed August 13, 2017. Table 1.1 Classification by income group in selected years (1995–2015) Income group 1995 2000 2005 2010 2015 Low-income countries <= 765 <= 755 <= 875 <= 1005 <= 1025 Lower-middle- income countries 766–3035 756–2995 876–3465 1006–3975 1026–4035 Upper-middle- income countries 3036–9385 2996–9265 3466–10,725 3976–12,275 4036–12,475 High-income countries > 9385 > 9265 > 10,725 > 12,275 > 12,475 Source: The World Bank 1 WHAT IS THE “MIDDLE INCOME TRAP”?