Why do some countries escape the middle-income trap while others languish? Intuitively we know that a more educated population makes for a healthier and more stable economy over the long term. That is why Asian countries, and developing countries around the world, have scambled to build deep and competitive education systems after the initial burst of hard infrastructure and industrial development.
Recent research cited in the latest ADB 2013 Outlook (see also Eichengreen, Park and Shin, 2013) shows just how accurate this is, particularly after the 2008 global financial crisis. Specifically, countries with higher growth early on, high old-age dependency ratios, extremely high investment ratios and undervalued currencies are the most vulnerable to slowdowns.
More importantly, education is the key differentiator. I have previously written about the investment prospects and pitfalls in education but what is clear for ASEAN countries, as well as China and India, is that human capital development is the main solution to the middle income problem. This is why places like Korea and Singapore rebound from downturns much faster and why their neighbors are fast trying to emulate their K12 and workforce training systems.
At this moment it is a race against time.