Question

Which effect best explains why Ethiopia (a poor country) is able to achieve a high growth rate while Japan (a rich country) struggles with low growth?

Answer 1

Answer:

Catch-up effect

Explanation:

Catch up effect is expressed as an hypothesis or theory which explains that developing or poor countries economies per capita income grows faster or rapidly than the developed or rich countries per capita income, such that the all economies will meet up eventually in respect to per capita income.

It is otherwise defined as theory of convergence, which shows the reduction in gap between the poor countries and the rich countries, as a result of poor countries experiencing rapid growths in economy compared to the rich countries.

Answer 2

Answer: Catch-up effect

Explanation: The catch-up effect is also known in economics as the theory of convergence. It is a theory that is based on the law of diminishing marginal returns which states that It is based on, among other things, the law of diminishing marginal returns, which states that a country benefits slightly less from an investment for every time that country invests. This means that returns on capital investments in capital-rich countries such as Japan are not as strong as they would be in developing countries such as Ethiopia.

The catch-up effect is the theory speculating that poorer economies will grow more quickly than wealthier economies, resulting in a convergence in terms of per capita income. In simpler terms, the poorer economies will "catch-up" to the more healthy economies.

While poorer countries are able to get more returns on their investments, and are able to replicate production methods and technologies of richer countries, including opening up their economies to free trades resulting in faster economic growth than more economically advanced countries, however, the limitations posed by a lack of capital can greatly reduce a developing country's ability to catch up.