Question

Discuss the assumptions, predictions, and performance of the “catch-up” model. What are some reasons that countries might have failed to “catch-up” over time? What, if anything, should those countries do differently in the future?

Research an article that illustrates a country pursuing a policy which has hampered their economic growth in the past. Share a link to the article and include a brief description of the situation it describes, along with how you think they could improve things moving forward.

Answer 1

Catch up effect refers to a theory where poorer economies tend to grow faster than wealthier economies and eventually all economies will converge in terms of per capita income. This is also referred to as the convergence theory. This refers to the fact that poorer countries grow economically faster than wealthier countries. One of the important reason behind catch up effect is the law of diminishing returns. It states that for a country with low productivity even a small investment will boost output. On the other hand, for a developed country, a small investment will have a nearly negligible effect. Poorer countries have an advantage of replicating the ideas and technologies from the wealthier countries. This also helps a poorer economy grow faster than a wealthier nation.

Some basic reasons why poor countries fail to catch up :

The LDCs usually lag behind in establising proper democracy and better education. Investment will not be effective if there is not the appropriate level of education and training that is necessary to make this work. Political and social instability is another cause that doesnt allow the poorer economies to catch up. Data shows that poorer economies lose more than 40% of their output in wars. War alone gives a compaitively larger reason as to why LDCs remain poor. Most such poorer economies are great stores of natural resources of major reserves which attract international eyes who try to access the control of these resources. Population or over population is another major drawback in such economies which donot allow them to catch up.