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Why India🇮🇳 and China🇨🇳 will go on to become high per capita income nations meanwhile Bangladesh🇧🇩 and Vietnam🇻🇳 probably will get stuck in middle income trap.
1/15
To add context to this, first let's see the case of other developed countries and the ones stuck in middle income trap and club them.
Club 1 - (Japan🇯🇵, South Korea🇰🇷, Taiwan🇹🇼)
Club 2 - (Brazil🇧🇷, Russia🇷🇺, Turkey🇹🇷, South Africa🇿🇦)
2/15
Growth in club 1(🇯🇵,🇰🇷,🇹🇼) started in early 60s and in roughly 30 years catapulted their per capita income from 2000$ to over 35,000$.
3/15
When growth in Club 2(🇧🇷,🇷🇺,🇹🇷,🇿🇦) started in 90s, they were seen as next high income nations but their growth engine went off as they reached the 10,000$ per capita income threshold.
4/15
Reason - The club 2 countries didn't produce homegrown corporate giants meanwhile the club 1 countries made homegrown corporate giants.

The homegrown companies generate revenue from foreign markets and increase wages at home, thus increasing GDP.
5/15
We often see growth in wages from the lens of gdp growth, when a better way is to look at gdp growth from a perspective of wages growth.

Samsung, LG from 🇰🇷; Toyota, Honda from 🇯🇵; TSMC from 🇹🇼 generated revenue from foreign markets and invested back in their countries.
6/15
To make big homegrown companies, a nation needs a big pool of excellent engineers.
Club 1 invested in education and had a lot of excellent engineers
Club 2 didn't do so. They relied on foreign manufacturers and as soon as they left for cheaper places, their growth was over.
7/15
Now 🇮🇳,🇨🇳 and 🇧🇩,🇻🇳 also resemble these countries.
🇨🇳 has reached the middle income threshold but it's growth won't stop as the country has big corporate giants like Huawei, Tencent, Alibaba etc. Tiktok was next big social media company. Only hurdle to growth - CCP.
8/15
🇧🇩and🇻🇳 are witnessing high growth on the back of foreign manufacturing firms. This growth will only last till they reach middle income threshold as companies will start leaving then for cheaper alternatives in Africa.
Beyond that big homegrown companies are needed.
9/15
For big companies, a lot of excellent engineers are needed which 🇧🇩 and 🇻🇳 so far don't have. If they don't heavily invest in education and produce large numbers of engineers in next 10-15 years, they will also go down like club 2 countries.
10/15
🇮🇳's growth so far has been on the back of services sector, so we already have corporate giants like TCS, Infosys, Wipro. These companies generate over 95% of their revenue from outside of India.
We also have a large startup ecosystem. All this because of IITs.
11/15
IITs produce some of the best engineers. Founders of Ola, Flipkart, Zomato are from IITs. Infosys founder Narayan Murthy is IIT gradute. IITs in 2017 were 4th largest producers of unicorns in the world. The first 3 positions were bagged by Stanford, Harvard and UCLA.
12/15
So 🇮🇳's growth won't stop once it reaches middle income threshold like club 2 countries but will continue like China and Japan. But first it has to reach that threshold.
13/15
🇮🇳 indeed will achieve that, what matters is how fast it can grow. Fast pace of reforms will bring fast growth.
Reforms and ease of doing business not only helps to attract foreign manufacturers but also encourages Indian entrepreneurs to build tomorrow's corporate giants.
14/15
India is better placed than Bangladesh and Vietnam in long run in terms of gdp growth and gdp/capita.

In short, any country can grow upto 10,000$ per capita income with the help of foreign investments but to become high income nations, it needs big domestic companies.
15/15.

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