The middle Income Trap Case Study Solution
Introduction
The middle income gaps refer to the economic situation of country, in which the country irrespective of certain competitive advantages remain struck at that level. China along with other South African regions are labeled as the middle income trap region, which despite of the high growth markets, growing GDP and reduced unemployment rate, fails to attract more business and new markets, that ultimately results in unequal distribution of income between different sectors like household service and manufacturing.
The Middle income trap merely rises due to the inadequate and unequal growth of the service center.Implying it on the Chinese market, it has been analyzed that despite of the rigorous growth in the Chinese market, the region has been exposed to low service market growth. According to the consensus, the growth of service sector in China remain to be 43% as compared to 53% growth in global markets in 2012.[1]
According to Keon Lee, many regions that fall into the middle tarp income lacks to invest in the long term technological cycle that results in getting back to the initial pout after the burst of the cycle after particular period of time.China is facing the same issue, that is respective of the overall GDP growth and manufacturing expertise, the country is investing in small technological cycle business that are not sustaining the level of the economics productivity and hence not elevating in the long run to move to high income countries.[2]
Middle Income Trap in china
China after opening up its gateways for the foreign business has been exposed to aggressive growth that on one hand allowed China to deal with the unemployment issues, but also raised the high inequality in the country. This resulted in unequal distribution of wealth and income to some groups and sectors and provinces, while the other suffered from poverty. China is actually in the same level as Latin America and Europe has been longtime ago.The factors analyzed for such in equality and struck at the middle income tarp is found to be the rise of disparities in social determinants like Health and Education.
This has caused skewedness towards labor income and national income.The skewedness can be seen from reduction in the GDP from 51.4% in 2000 to 45 % in 2010 while the government revenues and enterprise profits increased from 14.2 and 34.5% to 15.2% and 39.7% respectively.Also it can be seen, that the households in China are exposed to more heavy taxes that the manufacturing service sector, and since the households make small contribution to the national income, the government demands for large share from this sector. It may particularly be due to the rising rate in the household sector in the market as compared to other sectors, ignoring the fact, the house holds earns minimal as compared to other sectors and hence can contribute less.[3]
Course of actions
In order to resolve the middle income trap discussed above in China, the three courses of action are:
- The government should distribute the resources such as education, healthcare and living equally in all provinces.In doing so, it should develop the comparative and weighed quota according to the relative population. This will allow the government to allocate the weighted funds to each province and hence will generate the equality in the country.
- The government should inculcate more resources and employment opportunities in the poor provinces. This will allow to equally distribute the wealth and resources in all provinces, while on other hand will allow the country to collectively elevate the position by moving towards strategic global positioning, attracting FDI and international business.
- The government should change the current development mode and encourage the innovation process.In doing so, it should, facilitate the economic development patterns, reformation of new innovative models. This will give more power to the Chinese country and will attract the FDI in the form of expansions in the Chinese regions. This will also change the mode of national income, from outsourcing country to the innovation offering country.Moreover, in planning the strategy, the government should focus on technology, innovation, and shift its economic cycle from demand side to supply side. This will allow the country to gain the momentum in the global markets and develop new opportunities and markets simultaneously.
Moreover, in adopting the strategy so, the country should set up the new investment to reform the infrastructure and polices to protect the intellectual property, such changes in political and economic metric will allow the country to attract more international business.
The middle Income Trap Harvard Case Solution & Analysis
Analysis
From the last four decades, China has evolved from a totally self-indulge and closed country to the world’s largest exporter of the goods and services. The country constitutes 70% agricultural sector, while only 30% work in the industrial areas.Due to the wide spread rural plan in the court, the country has large availability of cheap labor that allows it to attract the foreign players to offer and serve at the undercutting rates.[4]
[1](Xinhua, 2012)China's survey-based jobless rate lowest since 2012: Official
[2](Peter, 2012), China's Innovation Challenge: Overcoming the Middle-Income Trap
[3]The Quality of Growth and Poverty Reduction in China (Xiaolin Wan,2012)...........................
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