By Abdurohman and Xianguo Huang, Senior Economist
FOR DECADES, the middle-income trap was viewed as a slow-burn structural dilemma. Economies grew rapidly by mobilizing labor and capital, then slowed when easy productivity gains faded and reforms stalled — leaving many countries caught between rising wages and limited productivity growth.
Today, this framing is no longer sufficient. The global economy is now shaped by repeated shocks, geopolitical fragmentation, and rapid technological change. For middle-income economies in the ASEAN+3 region, the ladder to high income remains climbable, but the window is narrowing and closing faster than before.
UNEVEN CONVERGENCE
Growth fundamentals across ASEAN+3 remain broadly robust. Macroeconomic frameworks have strengthened, inflation is better contained, and many economies retain adequate fiscal and monetary policy space. However, beneath these positive indicators lies a large and persistent productivity gap relative to global frontier economies.
In some middle-income economies such as Indonesia and Thailand, manufacturing productivity has stagnated since the global financial crisis, while the services sector — which now employs the majority of workers — has struggled to upgrade. China’s experience stands in contrast. Its sustained growth in GDP per capita reflects decades of structural transformation, industrial advances, and a consistent emphasis on productivity-driven competitiveness. These factors have positioned China closer to attaining high-income status than many of its regional peers.
There are clear lessons within and beyond the region. Korea overcame the middle-income trap through strong macroeconomic discipline, export-driven industrial upgrading, and substantial investment in skills and technological infrastructure. On the other hand, several Latin American economies, including Brazil and Mexico, achieved occasional economic stability but struggled to implement lasting productivity-enhancing reforms. As a result, manufacturing stagnated, services absorbed more workers without becoming more efficient, and growth became increasingly reliant on domestic demand and credit cycles rather than global competitiveness.
The implications are clear. Economic growth and employment can advance, but income convergence will remain elusive without productivity gains. Manufacturing that fails to incorporate technological advancements may reach an impasse, while service-sector expansion without digitalization and skills upgrading becomes counterproductive.
In this environment, simply accelerating growth is insufficient. The priority must shift toward sustainable, high-quality growth — driven by productivity, underpinned by inclusivity, and safeguarded by economic resilience.
AI, PRODUCTIVITY AND GROWTH IN ASEAN+3
What distinguishes today’s world is the speed of technological change. Unlike past waves of industrial catch-up largely driven by diffusion, artificial intelligence (AI) increasingly rewards early movers and strong ecosystems. Productivity gains tend to accrue to firms and countries with advanced digital infrastructure, abundant data, deep talent pools, and large markets.
This poses a challenge for ASEAN+3, where development has traditionally relied on diffusion — through learning by doing, technology transfer through trade and investment, and steadily advancing along value chains. If diffusion slows, or if emerging technologies intensify “winner-takes-most” effects, productivity leaders could pull even further ahead — especially in economies with smaller domestic markets and weaker innovation networks.
AI is already transforming productivity not only across sectors, but within them. Companies with strong data resources, digital systems, and skilled employees are using AI to reorganize production, streamline logistics, and advance to higher value-added activities. Smaller firms, especially in traditional services, face a growing risk of being left behind.
This widening gap across companies, workers, and regions could worsen inequality, strain social cohesion, and erode political support for essential long-term reforms needed to sustain growth.
POLICY PRIORITIES FOR HIGH-QUALITY GROWTH
Escaping the middle-income trap will require a renewed push to boost productivity through timely structural reforms. Key priorities include reducing entry barriers, improving firm resource allocation, and strengthening competitive edge.
Equally important is improving infrastructure governance so that investments translate into productivity gains rather than simply expanding balance sheets. Investing in human capital is vital, as skill shortages and limited adaptability have become binding constraints in many middle-income economies. Coordinated reform efforts, particularly within ASEAN, can amplify these gains.
Technology policy must also adapt. AI should be regarded as a general-purpose technology rather than a niche sector. Promoting its adoption, especially among small- and medium-sized enterprises, is as important as fostering frontier innovation. Without targeted interventions, AI risks entrenching dual economies, where a select group of highly productive leaders coexist with a large number of low-productivity firms, exacerbating inequality and informal market pressures.
Ultimately, even robust domestic reforms may not be sufficient. The development landscape is increasingly shaped by international rules, standards, and networks — from digital trade and data governance to climate finance and resilient supply chains. Regional and global cooperation is therefore becoming more critical.
ASEAN+3 is well positioned to respond. Deeper regional integration can help economies overcome scale constraints, share technological advancements, and sustain income convergence.
AI and global fragmentation are reshaping the path to development. For ASEAN+3, sustaining income convergence will depend on productivity-driven reforms, effective use of policy space, and deeper regional cooperation. Escaping the middle-income trap is no longer a slow, incremental process — it is a high-stakes race against a rapidly advancing frontier. In an era defined by AI-driven disruption and increasing global fragmentation, inaction is not an option.
Dr. Abdurohman is the deputy director (Functional Surveillance and Research) for the ASEAN+3 Macroeconomic Research Office or AMRO. Xianguo Huang is a senior economist at AMRO.
