Catch‐Up Cycle: A General Equilibrium Framework

Successful economic latecomers have certain stylized facts: an inverse U-shaped growth rate, high growth rates of per capita output with high capital returns, and rapid structural changes. In this paper, we document for the first time a catch-up cycle that successful latecomers likely experience. The economic growth literature is inadequate to explain economies’ catching-up. We argue that technology imitation, together with diminishing marginal return of capital are the two driving forces of the catch-up cycle. This paper also sheds light on the different policy choices in various stages of the catch-up cycle.