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Catch-up effect
In any period, the economies of countries that start off poor generally grow faster than the economies of countries that start off rich. As a result, the national income of poor countries usually catches up with the national income of rich countries. New technology may even allow developing countries to leap-frog over industrialised countries with older technology. This, at least, is the traditional economic theory. In recent years, there has been considerable debate about the extent and speed of convergence in reality. One reason to expect catch-up is that workers in poor countries have little access to capital, so their productivity is often low. Increasing the amount of capital at their disposal by only a small amount can produce huge gains in productivity. Countries with lots of capital, and as a result higher levels of productivity, would enjoy a much smaller gain from a similar increase in capital. This is one possible explanation for the much faster growth of Japan and Germany, compared with the United States and the UK, after the Second World War and the faster growth of several Asian "tigers", compared with developed countries, during the 1980s and most of the 1990s.
- Part of Speech: noun
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- Industry/Domain: Economy
- Category: Economics
- Company: The Economist
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