ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The catch-up effect is a theory that all economies will eventually converge in terms of per capita income, due to the observation that underdeveloped economies tend to grow more rapidly than wealthier economies. In other words, the less wealthy economies will literally “catch-up” to the more robust economies.

Detailed explanation-2: -When countries with lower levels of GDP per capita catch up to countries with higher levels of GDP per capita, the process is called convergence. Convergence can occur even when both high-and low-income countries increase investment in physical and human capital with the objective of growing GDP.

Detailed explanation-3: -GDP per capita convergence, often described as the catch-up process, refers to the process by which less advanced economies with lower-income per capita converge towards more advanced economies through higher growth rates, as they capitalise on technology transfer, inward investment, and relatively lower labour costs.

Detailed explanation-4: -Divergence occurs when the price of an asset and an indicator move away from each other. Convergence happens when the price of an asset and an indicator move toward each other.