Catch-Up Effect

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  • A theory of convergence that postulates that poor countries or regions tend to grow faster over time because of low levels of capital per worker. Beta convergence occurs if poor countries grow faster than rich ones, and sigma convergence occurs if the cross-sectional standard deviation of real per capita income for a group of countries is declining.

    In practical terms, evidence has not generally demonstrated that there is convergence. Rich countries continue to grow at a faster rate relative to poor countries so that the two sets of countries do not reach long-run equilibrium at the same time (when investment offsets depreciation, or the steady state), partly because there have been differences in the rate of savings. In other words, there has not been absolute convergence.

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