Explaining economic growth: the 'catch-up' hypothesis

The ‘catch-up’ hypothesis

In this regular column, Paul Turner of Loughborough University examines ways in which we can use and interpret economic data. Here he discusses the convergence hypothesis, which suggests that in the long run, countries that start with relatively low levels of average income should be able to grow more rapidly than those with higher average incomes

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Understanding why some economies grow rapidly and others fail to do so is arguably the most important question in economics. In the long term even minor differences in the growth rate can result in significant differences in the levels of output between different economies.

In this Interpreting economic data column I will use data to examine the relative growth performance of a sample of high-income industrial economies. I will show that, within this sample, there is some support for the ‘catch-up’ hypothesis. This is the idea that there is a tendency for those economies which begin with a lower initial level of output per head to grow faster. In the long term, this means there will be convergence of per capita output across different economies. However, I will also show that this is sensitive to the particular group of economies considered and that, when we include economies with much lower initial levels of output, the relationship tends to break down.