Catch-Up Effect

Business, Legal & Accounting Glossary

Definition: Catch-Up Effect



Full Definition of Catch-Up Effect


Catch-up effect is a theory that expresses the possibility of poorer economies growing at a quicker pace than richer economies. According to the catch-up effect theory, the national income of economically backward nations generally catches up with the national income of economically advantaged nations. It is seen that developing nations tend to surpass their more developed counterparts using comparatively older technological know-how. These developing nations clock higher economic growth rates and converge with richer, technologically advanced nations with the passage of time. Catch-up effect is also known as the theory of convergence.

The reason for the validity of the catch-up effect is that workers in developing nations have minimal access to capital. Productivity is therefore low. Increased production is possible by injecting small quantities of capital into the local economy. The richer nations, in contrast, have no shortage of capital and exhibit a much smaller gain with similar capital injection into their economies. The catch-up effect is starkly seen in the rapid growth of Japan and Germany after World War II.

National Income Accounting

It is an economic term that is applied to the bookkeeping system that a country’s government uses to ascertain the country’s economic activity level in a particular time period. This type of accounts factors in wages paid to domestic and foreign workers, revenues accrued by domestic companies and even income taxes paid by that country’s citizens and corporations.

National income accounting calculations include economic metrics like Gross National Product (GNP), Gross National Income (GNI) and Gross Domestic Product (GDP).

Microinsurance

A type of insurance product targeted towards households with lower incomes. A microinsurance plan encompasses those individuals who have little savings. Microinsurance generally covers assets with lower values and offers compensation for injury, illness and death. These type of financial cover is usually available in developing nations. Insured people in microinsurance pay smaller premiums compared to their regular counterparts


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Definition Sources


Definitions for Catch-Up Effect are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 29th March, 2020 | 2 Views.