Answer to Question #211275 in Macroeconomics for nihar ranjan

Question

The catch-up effect says that countries with low income can grow faster than countries with higher income. However, in statistical studies that include many diverse countries we do not observe the catch-up-effect unless we control for other variables that affect productivity. Considering the determinants of productivity, list and explain some things that would tend to prohibit or limit a poor country's ability to catch up with the rich ones.

Answer 1

1. Lack of capital_ although developing countries can experience faster economic growth than developed countries, lack of capital can be a limiting factor to achieving the catch-up.
2. Social capabilities_ it includes the ability to absorb new technology, attract capital and participate in global markets. If technology is not freely traded or is expensively then the catch-up effect can't occur.
3. High quality institutions_ according to Andrew Warner national economic policies on free trade and openness are associated with more rapid growth. Therefore developing countries with less open trade policies won't achieve a good growth rate.
4. Population growth_ high population growth in developing countries act as an obstacle to catch-up effect. As per world Bank figures for 2019, more advanced countries experienced 0.5% average population growth, while least developing countries had an average of 2.3% population growth rate.
5. Natural resources_ a country can be restricted by it's natural resources. This would limit productivity especially if the developing country has no money to import resources from other countries.
6. Poor healthcare in developing countries limits productivity and prevents them from catching up with rich countries. Failure to afford adequate healthcare human capital and productivity goes down.