AP MacroeconomicsEconomic Growth
Convergence (Catch-Up Effect)
The catch-up (convergence) effect is the tendency for poorer economies to grow faster than rich ones because capital has higher returns where it is scarce.
Because of diminishing returns to capital, a country with little capital per worker earns high returns on new investment and can grow quickly by adopting existing technology, so it tends to 'catch up' to richer economies. This conditional convergence holds for economies with similar saving rates, institutions, and access to technology, which converge toward the same steady state. It is a key prediction of the Solow growth model. Persistent income gaps across countries are often attributed to differences in institutions and human capital that prevent convergence.