The middle income trap simply refers to a situation where a country can become stuck, financially, at a certain level. This happens because more jobs are created within a country and then more people move to the area for these jobs. Unfortunately, the conditions of the jobs, along with training and pay, become stagnant and they do not grow any longer. This becomes an issue because inflation then drives up the cost of living due to all of the additional growth, but people can not afford to live based on their present incomes.
Brazil has been stuck in the middle income trap for many decades due to these issues. While they have worked to resolve many of the issues around this trap, there is still more work to be done.
Brazil is Making Strides to Combat this trap
- Fixing the economic instabilities – This took more than two decades to get a good handle on, but once the policy and institutional reforms were implemented, stable gains showed improvement and steady growth for Brazil’s economy.
- Exclusion Trap – Most of Brazil’s population has remained in poverty, while Brazil’s average per capital income continues to rank among the upper-middle income countries. They continue to combat this imbalance by offering improved access to healthcare, more opportunities for financial services help, and better education opportunities (including on-the-job training) for children and adults.
What’s Next for Brazil
- Infrastructure Development and Investment – Brazil has opportunities to invest in their current infrastructure. This would allow for fine tuning of the public and private sectors to allow for better efficiencies.
- Cost of business – Taxes and other bureaucratic requirements make doing business in Brazil difficult and expensive. Brazil has proven that there are many opportunities for improvement within their tax systems to give businesses more opportunities to conduct their businesses efficiently and to pay employees better – salaries and benefits.
- Government Reform – Brazil needs to become more transparent with their taxpayers. The government needs a reliable communication tool (such as a government website) that would regularly post the financial status of various departments of their office. This would include overall government spending, along with broken down on how the government is spending the taxpayer money. This allows for the community to see and then vote accordingly to their own values and beliefs on how the government should be run.