But recent falls in global inequality are predominantly attributable to rising prosperity in China a study finds
The interplay of between and within country inequality, the relative contribution of each to overall global inequality, and the implications this has for who benefits from recent global growth (and by how much), has become a significant avenue for economic research. However, drawing conclusions from the commonly used aggregate inequality indices such as the Gini and Theil makes it difficult to take a nuanced view of how global growth interacts with changing national and international inequality.
Studies have made two arguments in particular: first, that ‘global inequality’ (defined in different ways) is falling because international (between countries) inequality is falling. Second, that within-country inequality is rising in fast growing Asia, albeit from relatively low levels, and is falling in Latin America, albeit from very high levels.
It seems possible that the long-run trend of the twentieth century towards lower inequality within countries but higher inequality between countries could be starting to reverse, with the extremes between rich and poor people increasing within countries while the income gaps between rich countries and poor countries start to reduce.
Looking across the figures above it is apparent that global inequality has been falling since 2000. It is less clear whether inequality was static (see Gini figures) or rising (see Theil figures) in the 1980s and 90s (and the change in the Theil and lack of change in the Gini might point towards changes taking place at the extremes rather than the middle of the distribution). What is clear, however, is that since the mid-1980s within-country inequality has risen slowly but steadily. However, since the early 2000s between-country inequality has started to fall more quickly (although that does not guarantee that these falls will continue into the future) so that overall global inequality has also started to fall. Taken as a whole the results indicate that for the first ten to fifteen years since the late 1980s, global inequality was relatively static with a slow but steady rise in within-country inequality being partly offset by a gradual decline in between-country inequality. Since then, and particularly since 2005, while within-country inequality has continued to rise, albeit perhaps rather more slowly, between- country inequality has fallen quite rapidly, and with it global inequality has started to fall too. The interaction of these effects means that whereas in 1988 within-country inequality accounted for around 20 percent to 25 percent of global inequality, by 2010 it had risen to 30 percent of global inequality.
The figures below are consistent with Ravallion and Chen and appear to be the reverse of the longer term trend Milanovic identifies since 1870. It is possible that our model is detecting the first signs that the world is trending back towards the situation in the past where countries are more equal relative to each other but more unequal within themselves.
However, the picture looks rather different when China is excluded (comparing Figures 1, 3 and 5 which include China with Figures 2, 4 and 6 which exclude China). In the rest of the world within-country inequality has overall been remarkably constant – as some countries have become less equal others have become more so. But between-country inequality rose steadily in the 1980s and 1990s. Since 2000 between-country inequality has been fairly static (when China is excluded). On the basis of what we see here, it would seem that recent falls in global inequality are predominantly attributable to rising prosperity in China. Elsewhere, a trend beginning in 1980 of increasing inequality between rich countries and poor countries may have stalled since 2000 but it is not apparent that it has gone into decline even after the 2008 financial crisis. This would suggest that very modest signs of falling overall global inequality are due to the rapid progress of China which may be masking underlying trends that are quite different.
Who benefited most from global growth since 1990?
Figure 20 illustrates how in absolute terms only those in the world’s richest 10 percent have seen their consumption rise by more than the global average, with the main beneficiaries being the global prosperous and particularly those in the global top 1 percent, on family incomes in excess of around $250,000 pa – although caution is needed before drawing conclusions about this, the very richest percentile, because of the known inaccuracies of surveys noted earlier.
Global consumption grew by $10 trillion from 1990 to 2010.21 15 percent of that global growth accrued to the richest 1 percent of global population while the 3 percent of the global population that are the global prosperous (a group that includes large proportions of the populations of Europe and North America) captured 30 percent of global
growth since then.
Where do the poor, the prosperous and those in-between live?
The richest 1 percent are heavily concentrated in North America and Europe where nine-tenths of them live. This includes 15 percent of the US population, 8 percent of the UK population and 2 percent of the entire European Union population. If we turn to the more inclusive global prosperous segment that is 3 percent of the global population then we find here 36 percent of the US, 14 percent of the UK and 8 percent of the EU population – and 5 percent of the population of Brazil. By contrast, among the global poor and insecure segments we find 90 percent of the Chinese population, 60 percent of Brazil and almost the entire populations of South Asia and sub-Saharan Africa, as opposed to just 12 percent of the US and 13 percent of the EU populations – and only 3 percent of the UK population. The global secure segment includes a fifth of the world’s population. Not surprisingly, it includes half the population of the USA and four-fifths of the EU. However, it also includes one-third of Brazil’s population and 10 percent of China’s, but less than 1 percent of India’s population.
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