Answer to Question #206736 in Microeconomics for Jai

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

• Restriction by a country's natural resources - a country may be restricted by its natural resources, this automatically limits productivity because there is no much that can be done to fix a country's natural resources. This is especially when the country cannot even afford to import these resources from other countries.
• Poor healthcare - low levels of healthcare is a limitation to productivity and thus prevents a poor country from catching up with a rich country. It is realised that human capital will fall hence lowering productivity if people cannot afford adequate and effective healthcare.
• Outdated methods of production - many poor countries are characterized by the use of outdated technology in their various fields of production because they cannot afford to cater for the expenses associated with modern technology. This results in a continual low production rate as compared to rich countries which employ advanced production methods which yield more output at a faster rate.