Sustainable Development vs. Middle-Income Trap

The middle-income trap (MIT) describes a situation faced by countries at a relatively mature stage of development that often poses an obstacle to sustainable long-term growth. The MIT is characterized by declining factor productivity from the exhaustion of labor-intensive, import and Foreign Direct Investment (FDI) based strategies when middle-income status is achieved. In this paper we focus on the MIT and Poland. In the past two decades, Poland experienced steady growth based largely on imported technologies and low-cost labor. Recently that economic growth has slowed, prompting economists to ask whether Poland is experiencing an MIT. To answer this question, we analyze changes in investment in Poland – specifically its growth and composition – as well as savings, FDI, educational attainments of the labor force, development of new technologies and products, the role of imports, diversification of exports, and product complexity. We also examine the development of modern infrastructure, institutions (including legal environment) and demographic changes in Poland that support growth. Our findings indicate that certain factors consistent with the MIT are gaining importance in Poland and that those factors represent a challenge to Poland's future growth rate.