Belgrade. The biggest obstacle preventing many Asian economies from reaching high-income status may not be growth, trade, or industrialization, but weak institutions and fragmented policymaking, according to Asian Development Bank Institute (ADBI) Dean Bambang Brodjonegoro.

The former Indonesian finance minister said ADBI's research found that the middle-income trap is increasingly an institutional and political economy challenge rather than a purely economic one.

“Middle-income trap appears to be primarily an institutional and political economy problem,” Bambang said at the International Economic Association (IEA) World Congress in Belgrade on Monday.

The findings come as many economies in Southeast and Central Asia seek to move into the high-income group amid geopolitical tensions, aging populations, artificial intelligence, and climate-related risks.

Bambang said Asia's development challenge differs from previous generations because countries are now pursuing growth while simultaneously dealing with demographic decline, technological disruption, and climate pressures, creating a far more complex path to prosperity.

“The path for upper-middle-income Asia today will be much more difficult than the previous ones,” he said.

Bambang added that countries that successfully escaped the middle-income trap — including South Korea, Japan, Singapore, and several Central and Eastern European economies — combined economic reforms with strong institutions, policy continuity, and state capacity.

“There has to be political stability and institutional coherence together. Not one of them,” he said. “You can have political stability, but if you do not have institutional coherence, you are not going anywhere.”

The study also found that manufacturing remains important for development, but countries must continuously move into higher-value industries to sustain growth.

“If you start with labor-intensive manufacturing, it doesn't mean that if you keep going with labor-intensive manufacturing, it will help you very much,” Bambang said. “You have to move into higher-value manufacturing or high-tech manufacturing in order to sustain economic growth.”

According to Bambang, South Korea's rise into a high-income economy underscores the importance of innovation, with the country maintaining one of the world's highest ratios of research and development spending to gross domestic product.

Bambang added that the research suggests institutional coherence is a stronger determinant of long-term productivity than a country's political system.

“We are not choosing between democratic or autocratic systems,” he said. “Institutional coherence is the most important one for your long-run productivity.”