The Philippines, along with other developing countries in Asia, must invest heavily in education, technology and infrastructure – such as those for transportation, power and telecommunications – if it hopes to escape the “middle income trap.”
Middle-income trap is used to describe a country which, after emerging from poverty, tends to linger quite a while in the middle income level.
Factors that are commonly cited for this problem are inadequate investments in technology, lack of access to quality education, poor infrastructure and governance problems.
Haruhiko Kuroda, president of Asian Development Bank, said the institution would like the Philippines and its neighbours to adopt the strategies of four newly industrialised Asian economies – South Korea, Hong Kong, Taiwan and Singapore – which were able to escape the middle-income trap by investing heavily in things that could help boost production.
Kuroda also said that heavy investments in areas that matter must be combined with measures to improve the integrity of government, promote rule of law, and provision of social services to reduce poverty incidence.
“Utilisation of natural resources and abundant labour force are some of the things that will help a low-income country become a middle-income one. But for one to become a developed economy, it needs technology, better institutions, rule of law, and overcoming of social hurdles,” Kuroda said during one of the ADB forums held at the Philippine International Convention Centre.
To that end, he said, the ADB is open to extending more financial assistance to countries in support of relevant programmes.
Jeffrey Sachs, an American economist, said in the same forum that investments in science and technology would be crucial for the Philippines and other countries aspiring to attain newly industrialised status.
If enterprises were to maximise the potentials of technology, Sachs said, growth of an economy would easily accelerate.
Sachs also said middle-income countries must ensure that the benefits of economic growth would trickle down to the poor.
“Economic growth must be inclusive,” he said, explaining that if a sizeable number of people were to remain poor, then the country would have difficulty going on to the next level.
Sachs is a director of Earth Institute of Columbia University and is known for his advisory role in the transition of Eastern European countries from communism to open market systems.