The dream of overcoming the middle-income trap on the journey to national development

In the development ladder of each country, to become a high-income country as we set the goal by 2045, the most difficult step is to overcome the "middle-income trap".

True to its name, whether each country's dream of becoming a dragon or a tiger can be realized or not depends largely on whether that country can overcome the middle-income trap or get stuck in it.

The dream of overcoming the middle income trap

If we look back at the history of development of countries since World War II until now, there are many countries and territories that have transformed into dragons and tigers, creating economic miracles such as the Japanese miracle, the Han River miracle of Korea, the dragon of Singapore, Hong Kong, Taiwan, the "Celtic tiger" of Ireland...

These achievements have been a source of inspiration and motivation for many other economies, including Vietnam, to learn from and follow.

Any developing country, as it moves up, goes through a stage from low income to middle income, and then from middle income to high income. The first stage seems to be quite easy for most countries.

Even if starting from a low-income economy, with certain and appropriate economic reforms, most countries have succeeded in rising to become middle-income countries.

Therefore, out of nearly 200 economies listed by the World Bank (WB), only 23 economies are currently classified as low-income, compared to 104 economies classified as middle-income and 61 economies classified as high-income.

However, the journey from middle-income to high-income countries is a different story. Achieving this feat is not easy and since World War II only a handful of countries have succeeded. In 2008, the World Bank reported that only 13 out of 101 middle-income countries in the 1960s had succeeded in becoming high-income countries by 2008.

Also according to a WB study in 2025, since the end of the Cold War in the early 1990s, only 34 out of more than 100 middle-income economies have succeeded in escaping the middle-income trap.

However, it is worth noting that these 34 countries are mainly small countries and among them, many have become high-income countries thanks to the exploitation of resources such as oil, gas, etc., such as Middle Eastern countries, or based on joining the European Union, such as some Eastern European countries.

Over the past half century, overcoming the middle-income trap to join the ranks of the dragons and tigers has remained a dream for most developing countries. Many countries in Southeast Asia, Latin America, North Africa, etc., although they reached middle-income status early in the 1960s and 1970s, after more than 50 years, are still stuck in the middle-income trap and have not yet become high-income countries.

That is why, despite accounting for 75% of the world's population, middle-income economies contribute only 40% to global GDP.

So what has prevented these countries from moving from middle-income to high-income?

The answer lies in the fact that these countries have all reached a critical state in terms of resource exploitation and cheap labor, factors that have helped them move from low to middle income but have not developed in depth enough to enter high-tech and service industries.

These countries are caught in a "stuck position", unable to compete with poorer countries in terms of labor and resources, but also unable to compete with more developed countries in terms of technology and innovation.

Source: World Bank updated July 2025 for fiscal year 2026 - Graphics: Hai Ha

General rules and 3 stages of development

So is there a general formula to overcome the middle-income trap to become a high-income country? Many studies have been conducted to find the answer and looking at the countries that have escaped the middle-income trap according to the WB list, it can be seen that many countries have their own advantages that not all countries have.

For example, some countries in the Middle East can take advantage of their inherent resources of oil, gas, etc., or some other small countries in Eastern Europe are lucky enough to join the European Union and take advantage of its large market for development.

But for the majority of countries, they will not have that luck and will have to find their own path of development. If we look at successful countries, we can see that their development models are very diverse.

While some economies prioritize manufacturing and industry like Taiwan, other economies focus on developing financial services and logistics like Hong Kong and Singapore.

While there are countries that prioritize investment in large domestic enterprises like South Korea, there are also countries that focus on becoming small but indispensable links for large global corporations like Ireland.

In contrast to Korea's focus on building chaebols (large corporations), Taiwan prioritizes the development of small and medium-sized enterprises that are flexible and innovative.

Therefore, it is difficult to have a general model that can be applied to all countries. But if we look at the path that countries have gone through, we can see that there are common rules that these successful countries all have.

From the WB's research, it has been concluded that these countries all go through three stages of development necessary to become high-income countries, which are the investment stage, the technology absorption stage and the technology creation stage.

Countries that cannot succeed are often stuck in stage 2 when they receive technology from outside but are unable to absorb it, unable to master the technology and from there develop innovation and rise up.

This is the difference between the dragons, the tigers and the countries stuck in the middle-income trap. Having started from the same starting point in the 1960s, South Korea and Taiwan have been able to transform into dragons, rising to become leading economies in a number of technological fields, while Malaysia, Thailand and the Philippines are still struggling to assemble and manufacture for foreign corporations.

Korean companies initially also manufactured for foreign corporations but gradually sought to learn and buy licenses to use the technology of previous companies to apply and gradually dominate the market, becoming masters in many electronic technologies such as televisions, computers, etc.

Vietnam still has a chance

Vietnam has achieved great achievements after nearly 40 years of Renovation. From one of the underdeveloped economies, Vietnam has risen and is now very close to becoming an upper middle-income country (according to the World Bank's classification in July 2025, an upper middle-income country has a per capita national income of 4,496 USD, while Vietnam's is currently 4,490 USD).

If nothing changes, Vietnam will become an upper-middle-income country by 2026. So far, the world has always seen Vietnam as a "success story", but whether that success story will become a "miracle" is still a question mark.

From starting as a country with the lowest per capita income in the world in the late 1980s, after just over 20 years of reform, Vietnam rose to become a middle-income country in 2009.

Among emerging economies, Vietnam is always considered one of the economies with the most potential to create the next miracle. Economists always rank Vietnam in the group of developing economies that have the potential to become dragons and tigers such as "Tiger Cubs", "Next Eleven", "VISTA".

Vietnam is facing a great opportunity to become a developed country but time is running out. The history of development of countries has proven that the transformation of development level, especially reaching the ranks of high-income countries, does not happen naturally but always requires strong and appropriate intervention from the State.

Lessons from countries that have escaped the middle-income trap are that it does not happen in a linear fashion, but rather that the breakthrough is often achieved in a relatively short period of time. Vietnam’s chances of escaping the middle-income trap are still there, despite facing many enormous challenges.

The role of the state

Successful economies all demonstrate the role of the state and government in quickly adjusting to find their place in the world economy. The Singapore government has seen its disadvantage and has not focused on manufacturing but has aimed to become a financial and logistics center in the region.

Taiwan started out similar to Vietnam, relying on exporting plastics, textiles, and simple electronics to escape poverty, but since the early 1980s, seeing the development of the electronics industry, the government has applied the model of a miniature "Silicon Valley".

From there, Hsinchu Technology Park was established with tax incentives, low-interest loans, good infrastructure, connecting universities, research institutes and attracting domestic and foreign engineers and experts, paving the way for the strong development of the electronic components, computer, semiconductor industry..., thereby creating a premise to become a semiconductor technology center with TSMC Group currently accounting for 90% of the global advanced chip market share.

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TO HOANG

Source: https://tuoitre.vn/giac-mo-vuot-bay-thu-nhap-trung-binh-tren-hanh-trinh-phat-trien-quoc-gia-20250828142934334.htm