What is Catch Up Effect?

Catch Up Effect refers to the faster growth is observed in poor and developing economies in comparison to the ones with a higher per capita income and gradually reach the same levels. It shows that there is a possibility that all the economies may combine as far as income per head is concerned gradually. Thus it is helpful in reducing or narrowing the divide between rich and poor economies. The growth that is observed is primarily because of better opportunities such as technical know-how from the developed nations and increasing returns to capital.

Although many economies have successfully tapped the benefits of faster growth, some others have been left far behind primarily due to social, institutional, political, economic limitations.