High rates of economic growth in Southeast Asia in recent decades have led to rising income levels within the region. Yet few Southeast Asian countries have been able to move beyond middle-income status to achieve high-income status in the World Bank’s country income classifications, reflecting the fact that economic growth rates in the region have slowed since the late 1990s.
Today, only Singapore and Brunei are classified as high-income countries. Other countries in the region are either lower-middle income countries (Cambodia, Lao PDR, Myanmar, Timor-Leste, the Philippines, Vietnam) or upper-middle income countries (Malaysia, Thailand, Indonesia).
Moreover, some middle-income Southeast Asian countries have remained stuck at their current levels for many years. The Philippines, for instance, has been a lower-middle income country since the late 1970s while Malaysia has been an upper-middle income country since 1992. Timor-Leste, Thailand, Lao PDR and Vietnam have all been at their current levels since the late 2000s.
This situation has led some economic analysts to question whether the region is succumbing to the so-called “middle-income trap.” According to the World Bank — which coined the term — the middle-income trap is a systematic growth slowdown due to an inability “to take on the new economic structures needed to sustain high-income levels.” These structures include sound infrastructure, strong institutions, low levels of corruption, and policy settings that encourage technology transfer. But, perhaps most importantly, they include strong education and Research and Development (R&D) ecosystems capable of driving innovation. Such ecosystems are currently weak in most Southeast Asian countries.
