Question

Economic Growth Model

Why does the economic growth model predict that poor countries should catch up to rich countries in income per capita ? Have poorer countries been catching up ( converging) with richer countries ? Explain.

Answer 1

Catch up growth refers to model of convergence. Model of convergence argues that in near future per capita incomes of all countries would most probably converge. Catch up growth model says that per capita income growth of developing countries is likely to outpace the per capita income growth of developed countries.

Diminishing return is critical factor that would be responsible for convergence of per capita income. Investment and resultant profits keep on diminishing in developed countries while initial investment in developing countries generates substantial profits. Thus, it pushes for convergence of per capita incomes.

But catch up growth requires that technology must flow smoothly to developing countries from developed countries. Restriction in movement of technology can prolong the process of catch up.