Catch Up Effect

AAA

DEFINITION of 'Catch Up Effect'

A theory speculating that, since poorer economies tend to grow more rapidly than wealthier economies, all economies in time will converge in terms of per capita income. In other words, the poorer economies will literally "catch-up" to the more robust economies.


The catch-up effect is also referred to as the theory of convergence.

INVESTOPEDIA EXPLAINS 'Catch Up Effect'

Because developing markets have access to the technological know-how of the advanced nations, they often experienced rapid rates of growth. However, although developing countries can see faster economic growth than more economically advanced countries, the limitations posed a lack of capital can greatly reduce a developing country's ability to catch-up.


Historically, some developing countries have been very successful in managing resources and securing capital to efficiently increase economic productivity; however, this has not become the norm on a global scale.

RELATED TERMS
  1. Developed Economy

    While there is no one, set definition of a developed economy ...
  2. Economics

    A social science that studies how individuals, governments, firms ...
  3. Microeconomics

    The branch of economics that analyzes the market behavior of ...
  4. Emerging Market Economy

    A nation's economy that is progressing toward becoming advanced, ...
  5. Macroeconomics

    The field of economics that studies the behavior of the aggregate ...
  6. Monopoly

    A situation in which a single company or group owns all or nearly ...
Related Articles
  1. Investing Basics

    Broadening Your Portfolio's Borders

    Find out what type of international fund might suit your needs in gaining exposure to foreign markets.
  2. Options & Futures

    Evaluating Country Risk For International Investing

    Investing overseas begins with determining the risk of the country's investment climate.
  3. Forex Education

    The New World Of Emerging Market Currencies

    Take advantage of foreign currency markets without stepping out of your house.
  4. Economics

    What Is An Emerging Market Economy?

    Emerging markets provide new investment opportunities, but there are risks - both to residents and foreign investors.
  5. Economics

    What Is The Labor Market Conundrum?

    We are facing a conundrum with investment implications: Why are wages still stagnant, when jobs are being created at the fastest pace since the late 90's?
  6. Economics

    Understanding Impairment

    In finance and accounting, impairment refers to the loss of value of a company’s capital stock.
  7. Economics

    What is a Promissory Note?

    A written promise by one party to pay another party a definite sum of money either on demand or at a specified future date.
  8. Chart Advisor

    Is Now the Time to Invest in North America?

    Bullish chart patterns across the North American markets suggest that now might actually be a wise time to allocate closer to home.
  9. Investing

    How To Trade Foreign Stocks

    We weigh the major ways to trade foreign stocks for investors.
  10. Savings

    How Microeconomics Affects Everyday Life

    Microeconomics is the study of how individuals and businesses make decisions to maximize satisfaction. Microeconomic principles can describe many everyday experiences. We use renting a New York ...

You May Also Like

Hot Definitions
  1. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
  2. Asset Class

    A group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same ...
  3. Fiat Money

    Currency that a government has declared to be legal tender, but is not backed by a physical commodity. The value of fiat ...
  4. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  5. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  6. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
Trading Center