Trapped In The Semi-Periphery Understanding The Middle-Income Trap From a World-Systems Theory Perspective

Abstract

This paper attempts to explain the middle-income trap from the lens of an amended world-systems theory, in which capitalists within the semi-periphery are taken into account. It rejects that developing countries should pursue an import-substitution industrialization strategy, and instead argues developing countries should pursue a strategy similar to South Korea’s. An export-oriented industrialization strategy, with tight limits on foreign direct investment (FDI) and multinational corporations (MNCs) operating within the economy, building up state capacity in order to form a close collaborative, not corrupting relationship between private businesses and the state, and calls for heavy investments in human capital and industrial upgrading. This would ensure that surplus value does not leave the country nor does it lay idle in the hands of domestic capitalists. It also calls for changes to the global economic governance regime, such as common rules for FDI and taxes on MNCs, on the part of developing countries in order to create a more development friendly international economic system.