Convergence from Above: When Global Catch-Up Reflects Falling Back

Patrick Imam ()

No 2026/159, IMF Working Papers from International Monetary Fund

Abstract: Convergence is usually interpreted as evidence of catch-up: poorer economies grow faster because they are moving toward richer ones. This paper argues that the same empirical pattern can arise from a different source. If country-specific long-run trajectories shift over time, narrowing income gaps may reflect not only upward movement from below, but also adjustment from above. We develop a framework in which economies converge toward evolving rather than fixed steady-state paths, and construct empirical proxies for these paths using cross-country data. Economies above their predicted trajectories subsequently grow more slowly and are more likely to move downward within the world income distribution. Supporting evidence links positive overshooting to selected downside-adjustment episodes, especially banking-sector distress and loss of frontier position. The evidence suggests that observed convergence partly reflects compression from the top, not only catch-up from below.

Keywords: Convergence; Relative Decline; Macroeconomic Fragility; Distribution Dynamics; Steady States; Structural Transformation; IMF working papers; steady-state path; evidence of catch-up; long-run trajectory; narrowing income gap; Income; Income distribution; Income inequality; Productivity; Global; Europe; South America; Central America; Caribbean; Southern Europe; Asia and Pacific (search for similar items in EconPapers)
Pages: 52
Date: 2026-07-31
New Economics Papers: this item is included in nep-inv
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