Convergence and Middle-Income Trap between Asian Country Members: New Findings

Abstract

This paper investigates the possibility of middle-income convergence among seven members of Southeast Asian nations (Indonesia, Laos, Malaysia, Myanmar, Philippines, Thailand, and Vietnam), with Malaysia being in upper-middle-income rank and other six countries in lower-middle-income rank. We apply unit root testing framework that allows for smooth nonlinearity, abrupt break, and cross-dependence in the income differences. Results show that these lower-middle-income countries are likely to converge among themselves and converge to the income level of Malaysia in the long run. Based on Add Asian cross-country policy recommendations, Economic policies capable of stimulating long-run economic growth of these lower-middle-income countries is therefore recommended, and the countries should be ready to take up the challenge of upper-income country, like Malaysia.