Select a nation that has a low per capita income and discuss how the catch-up ef

Question

• Select a nation that has a low per capita income and discuss how the catch-up effect would work for that country. Consider the determinants of productivity and explain some of the things that would tend to prohibit or limit that country's ability to catch up with the richer nations.

• Select a nation that has a low per capita income and discuss how the catch-up effect would work for that country. Consider the determinants of productivity and explain some of the things that would tend to prohibit or limit that country's ability to catch up with the richer nations.

Explanation / Answer

Things that prohibit or limit a poor country's ability to catch-up with rich countries are many:
1. Many rich countries are percieved as potential exploiters of poor countries and past evidence shows that this indeed did happen. Given this perspective the poor countries are not always very open to foreign technology and foreign investment. Therefore the catch up effect can not take place as most poor countries do not have adequate savings to fund investments and they also lack modern technology.
2. Even where poor countries allow limited inflow of foreign technology and foreign direct investment, often the poor country's human resource quality is not up to the mark to get the best benfits of modern technology.
3. Many poor countries have dictatorship or socialist governments and very little background in modern education. The Govts. try to pkay God with the lives of people by introducing command economy structure that removes economic freedom, economic incentives and urge to innovate in those countries. Thus adaptation of foreign technology does not take place to suit the different environment in poor countries.
4. Catch up effect can take place better if adanvced rich countries have to compete in a particular poor country. Bbbbut poor country govts. often do political negotiation and choose foreign countries for access to the poor country's markets. Naturally, the best technologies do not come.
Many poor countries have societal structures that do not easily encourage modern technology to be used: there is a social resistance to accepting foreign products and technology.
5. Sometimes, some poor countries do not have the type of natural endowments that could be consistent with foreign technology. But they just import such technology on a selective basis and the struggle to make them viable with raw materials bought from abroad.
6. The catch up ffect is stronger if the poor countries are not very very poor. A wide gap in economic and social conditions limit catch-up effect. If the gap is smal, the catch-up effect is quick but since the gap is small, the catch up effect is not seen. All countries in the Europen Union are equally: there the catch up effect is fast.
7. Catch up effect is low when the technologies involved are not only highly capital intensive but also its ude is limited by the size of the poor country's overall size. It may be difficult for fast catchup effect to take place in the area of air transport equipment manufacturing but catch up effect can be quite fast in the case on internet and telecommunications technology that have potentially wider use for all cvlasses of people in poor countries. Now read below:

Note: The catch-up effect, also called the theory of convergence, states that poorer economies tend to grow at faster rates than richer economies. Therefore, all economies should in the long run converge in terms of per capita income and productivity. Developing countries have the potential to grow at a faster rate than developed countries as they can replicate production methods, technologies and institutions currently used in developed countries. This addition of capital allows them to rapidly increase productivity and incomes in order to achieve a higher growth rate than developed countries and therefore converge in the long-term.
The fact that a country is poor does not guarantee that catch-up growth will be achieved. Moses Abramovitz emphasised the need for 'Social Capabilities' in order to benefit from catch-up growth. These include an ability to absorb new technology, attract capital and participate in global markets. According to Abramovitz, these prerequisites must be in place in an economy before catch-up growth can occur, and explain why there is still divergence in the world today.
The theory also assumes that technology is freely traded and available to developing countries that are attempting to catch-up. Capital that is expensive or unavailable to these economies can also prevent catch-up growth from occurring, especially given that capital is scarce in these countries. This often traps countries in a low-efficiency cycle whereby the most efficient technology is too expensive to be acquired. The differences in productivity techniques is what separates the leading developed nations from the following developed nations, but by a margin narrow enough to give the following nations an opportunity to catch-up. This process of catch-up continues as long as the followed nations have something to learn from the leading nations, and will only cease when the knowledge discrepancy between the leading and follower nations becomes very small and eventually exhausted.
There are many examples of countries which have converged with developed countries which validate the catch-up theory. In in the 1960s and 1970s the East Asian Tigers rapidly converged with developed economies. These include Singapore, Hong Kong, South Korea and Taiwan - all of which are today considered developed countries. In the post-war period (1945-1960) examples include Germany, France and Japan, which were able to quickly regain their prewar status by replacing capital that was lost during World War II.
Some economists criticise the theory, stating that endogenous factors, such as government policy, are much more influential in economic growth than exogenous factors. For example, Alexander Gerschenkron states that governments can substitute for missing prerequisites in order to trigger catch-up growth.

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