Final answer:
Convergence is the process where low-income countries grow faster than high-income countries, potentially narrowing the income gap due to more significant returns on investment in physical and human capital.
Step-by-step explanation:
The process in which low per capita income countries grow faster than nations with high per capita incomes is called convergence. During convergence, the economic growth in low-income countries may be quicker due to the significant impact that new investments in physical and human capital have when they are applied to a less developed economy. In comparison, this level of investment will likely have a smaller impact on a high-income country, which may already possess high levels of capital investment. Hence, while both types of countries aim to grow their GDP by increasing investment, the efficiency gains for low-income countries can lead to a more rapid growth rate, allowing these economies the potential to 'catch up' with richer nations. 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-income and low-income countries increase investment in the physical and human capital with the objective of growing GDP. This is because the impact of new investment in physical and human capital on a low-income country may result in huge gains as new skills or equipment are combined with the labor force. In higher-income countries, however, a level of investment equal to that of the low-income country is not likely to have as big an impact, because the more developed country most likely has high levels of capital investment.
Therefore, the marginal gain from this additional investment tends to be successively less and less. Higher income countries are more likely to have diminishing returns to their investments and must continually invent new technologies; this allows lower-income economies to have a chance for convergent growth. However, many high-income economies have developed economic and political institutions that provide a healthy economic climate for an ongoing stream of technological innovations. Continuous technological innovation can counterbalance diminishing returns to investments in human and physical capital.