Content introduction：

No.E2019001

                                                                                                                                                                                                                                                  2019-01-14

 

Structural Change, Industrial Upgrading and Middle Income Trap

 

Justin Yifu Lin, Yong Wang

This version: January 2019

 

 

Abstract

 

Motivated by several stylized facts about middle-income trap, we develop a simple multi-sector general equilibrium model of structural change and industrial upgrading. The model features the distinction between production service and consumption service and the input-output linkages between different sectors. We show that the role of production service is asymmetric at different levels of development. Whereas an underdeveloped sector of production service is not a binding obstacle for development (sometimes even beneficial) at an early stage of development, it becomes a key bottleneck when the economy reaches a middle-income status. To escape the middle-income trap, government intervention is needed to prevent premature de-industralization and facilitate beneficial industrial upgrad-ing. Moreover, it also requires a timely reduction of entry barrier to the production service and improvement in its productivity. These theoretical findings are shown to be consistent with the stylized facts and also useful to China.

 

Key Words: Structural Change, Industrial Upgrading, Middle-Income Trap, Chinese

 

Economy, Economic Growth

 

     JEL Codes: O11, O14, O33, O41