Answer to Question #198931 in Macroeconomics for alysse

Question

how do you elaborate catch up effect through the differences in per capita capital and per capita output (with example will be better)?

Answer 1

The catch-up effect is a theory that states that all economies would eventually converge in terms of per capita income because poorer economies grow faster than rich economies. In other words, the less developed economies will "catch up" to the more developed economies. The theory of convergence is another name for the catch-up effect.

The capital/labor ratio is defined as capital per capita while The gross domestic product (GDP) per capita is a metric that measures a country's economic output per person and is computed by dividing the GDP by the population. The highest per capita GDP is found in small, wealthy countries and more developed industrial countries. It is important to connect this to catch up effect as follows:

The catch-up effect is a theory that states that developing nations would eventually catch up to more established economies in terms of per capita income. It is founded on the basis of decreasing marginal returns, which is applied to national investment, and the empirical observation that as an economy develops, growth rates tend to slow. Opening up their economies to free trade and increasing "social skills," or the ability to absorb new technologies, attract capital, and engage in global markets, are two ways developing countries might improve their catch-up impact.