Measuring growth and convergence at the mesoscale

Abstract

Global inequality has shifted inward, with rising dispersion increasingly occurring within countries rather than between them. Using 8,790 newly harmonised Functional Urban Areas (FUAs), micro-founded labour-market regions encompassing 3.9 billion people and representing approximately 80% of global GDP, we show that national aggregates systematically, and increasingly, misrepresent the dynamics of growth, convergence, and structural change. Drawing on high-resolution global GDP data and country-level capability measures, we find that the middle-income trampoline that previously drove global convergence is flattening. This divergence in the lower-income regime does not reflect poverty traps: low-income FUAs exhibit positive expected growth, and the transition curve displays no stable low-income equilibrium. Instead, productive capabilities, proxied by the Economic Complexity Index, define distinct growth regimes. FUAs converge within capability strata but diverge across them, and capability upgrading follows a predictable J-curve marked by short-run disruption and medium-run acceleration. These findings suggest that national convergence policies may be systematically misaligned with the geographic scale at which capability accumulation operates.