Here is a very good article on Substack by Oliver Kim, here is the key paragraph:
Intuitively, poorer countries have a greater share of their labor force and consumption baskets dependent on non-tradable subsistence agriculture, so that when agricultural productivity increases, the price level falls – exactly the opposite of the conventional Balassa-Samuelson relationship. But at some point, enough people shifted to manufacturing that agricultural productivity growth became less relevant and the traditional Balassa-Samuelson bottom-up relationship reasserted itself. Hence: a U-shape between income and prices.
A very good point, knowing that I would also cite rent-seeking and local monopoly privileges – often more common in Africa than in Latin America or Southeast Asia, for example.
The Balassa-Samuelson relationship, by the way, is based on the idea that trade is determined by tradable goods, where differences in productivity are large, so that non-tradable goods (a haircut in Mexico, Are you interested in a massage in Thailand?) are generally relatively inexpensive in poor and low-income countries. country with wages. For more explanation, read the whole thing and query GPT if you need it.
