Question

Our economic growth model implies that developing economies should see higher growth rates and catch up to developed economies. However, the data suggests this isn't happening. Explain why this might be the case.

Answer 1

The lack of catch-up growth in developing economies can be attributed to difficulty attracting capital, limited access to international markets, and the long-standing advantage of developed economies. Convergence between developing and developed economies is a slow process that may take decades.

Step-by-step explanation:

The lack of catch-up growth in developing economies despite the expectation of higher growth rates can be attributed to several factors. One reason is the difficulty these economies face in attracting inexpensive capital to invest in new businesses and improve productivity. Additionally, they often lack access to international markets, making it challenging for them to buy and sell goods globally.

Another factor contributing to the diverging growth rates is the long-standing advantage that developed economies have built over time. These economies have been able to continually enhance their standard of living, creating a significant gap that is difficult for developing economies to bridge quickly.

Convergence between developing and developed economies is a slow process that may take several decades, even in optimistic scenarios. The small differences in annual growth rates accumulate over time, resulting in significant disparities in standard of living.