The Middle-Income Trap in the Context of Intra-European Factor Mobility: Growth Prospects in the Republic of Moldova

Abstract

The Republic of Moldova is officially classified by the World Bank as a lower-middle income economy in 2005, the year in which it signed the EU-Moldova Action Plan, after which it signed the Moldova-European Union Association Agreement in 2014 and in 2021 it becomes officially classified as an upper-middle income economy. European integration is becoming the central development paradigm of the Republic of Moldova, while political association and increased trade are accompanied by increased factor mobility, implicitly by net inflows of private capital from Western European economies into the Moldovan economy, while the labour circulates in the opposite direction, reducing unemployment and fueling consumption through remittances. Although this development paradigm facilitates reindustrialization and stimulates economic growth, in the long term it fuels a series of chronic structural imbalances and places the economy of the Republic of Moldova in the "middle income trap", which may obstruct socio-economic convergence in relation to the European Union states and, as a consequence, requires adjustment policies based on comprehensive research. This article represents a synthesis of this comprehensive research and uses the World Bank methodology for assessing the "middle income trap" and the related strategies for overcoming this trap, relating the existing mechanisms at the international level to the realities of the Republic of Moldova. UDC: [339.727.22:338.1](478):061.1EU; JEL: E61, F22, F23, J11, L52