Beyond Cheap Labor: Lessons for Developing Economies The specter of China and it's massive fleet of low-cost laborers haunts developing economies worldwide. However, for middle-income countries, focusing on cheap labor is not the answer for sustained economic growth, according to The McKinsey Quarterly. Using Mexico as a basis for discussion, this report offers alternative strategies for successful competition. More effective routes to economic development involve transitioning to higher-value-added industries, exploiting comparative advantage, and pursuing reforms that increase entrepreneurship and encourage competition. In short, middle-income countries would do best to avoid panicked responses to offshoring; as the authors warn, "Don't overestimate the value of low-wage employment." – YaleGlobal