The Politics of Productivity Improvement: Quality Infrastructure and the Middle-Income Trap.
Keywords:
Political economy, upgrading and institutionsAbstract
The “middle-income trap” can be considered a stage of development in which firms, sectors and countries remain in low-productivity activities and dependent on foreign technology. As a result, prescriptions to escape the trap typically involve measures to help firms upgrade their processes and products through improvements in human capital (education and training), R&D, and infrastructure. This paper seeks to fill two gaps in the middle-income gap literature. First, it explores the roles of a particular type of “soft” or “quality infrastructure:” public testing and research centers (PTRs). PTRs have historically been important mechanisms through which firms upgrade. Second, the article explores why PTRs do (not) develop. The paper explores these questions through a one-sector (rubber) / two-country (Malaysia and Thailand) comparison. In explaining Malaysia’s superior performance in higher value added rubber products, the paper highlights the central importance of institutional and political contexts within which such quality infrastructure is (not) built. These political considerations include the coalitional importance of specific groups within the sector (e.g. rubber farmers), the relative importance of the sector for the national economy, and options for growth without upgrading.
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