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Catch Up Effect
Definition: Catch up effect, alternatively called the theory of convergence, states that poor or developing economies grow faster compared to economies with a higher per capita income and gradually reach similar high levels of per capita income. Thus, all economies, over time, may converge in terms of income per head.
Description: The catch up effect briefly stated implies that the poorer nations grow much faster because of higher possibilities of growth and over time catch up with the richer countries in terms of per capita income such that the divide between the two gets minimized.
This theory of convergence of incomes is based on the logic of better opportunities of growth available for developing economies like access to technological know how from the developed world and increasing returns to capital, etc.
Empirical evidence suggests that while some developing economies have been able to effectively tap the available advantages to grow faster and catch up with robust economies, this has not been true for a large part of the developing world. The limitations of the theory are based on grounds of social, institutional or political differences, which simultaneously influence growth.
Also See: Unconvergence, Increasing Returns to Scale, Per Capita Income, Growth Models
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