Catch Up Effect

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.



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