The Stages of Economic Growth Revisited, Part 2: Catching Up to and Joining the Economic Leader

Rostow (1960) hypothesized that taking off into economic growth was a difficult task for countries in the 19th century, requiring major changes in institutions. In the 20th century, however, as the United States and other advanced countries became richer because of improvements in technologies and managerial practices, it became easier for poor countries to take off into rapid growth by adopting some of these improvements. {{p}} We hypothesize that, while taking off is now easier, the difficult transition is now from take-off to catch-up, where nations grow closer to the economic leader (now the United States). Doing so often requires major reforms in policies and institutions. Data suggest that when countries reach the limits imposed by their policies and institutions, their growth slows sharply. Even countries like Japan that have joined the United States in economic leadership in defining best practice in some sectors lag behind in other sectors. Our theory suggests that China is currently reaching its limits to rapid growth.