Examining the economic growth and the middle-income trap from the perspective of the middle class

• We explore the relationship between the middle class and economic growth.
• We quantify the odds of escaping the middle-income trap due to the middle class.
• The middle class has diminishing positive effect on economic growth.
• Innovation, FDI, and productivity also have diminishing positive effects on growth.
• 1% increase in the middle class increases the odds of moving up by a factor of 5.

In recent decades, while some countries have been growing consistently, others were not able to keep high growth rates and got stuck in the “middle-income trap.” This study aims to explore the relationship between the middle class and the persistence of economic growth, and understand the role of the middle class in avoiding the middle-income trap which is a serious threat for many emerging markets, yet an understudied topic in the academic literature. Our findings suggest that the key growth factors including the middle class, innovation, productivity, and foreign direct investment have diminishing marginal effect on economic growth. Moreover, the middle class plays an important role in avoiding the middle-income trap. We also find regional differences in the middle-class growth and economic evolution of emerging markets over time. To our knowledge, this is the first study examining the relationships between the middle class, economic growth, and the middle-income trap.