Global income inequality in the 21st century

Branko Milanovic

I Congreso Internacional de Estudios de Desarollo

Santander Nov. 2012

Global inequality today and in the last 25 years

Three concepts of inequality defined

Concept 1 inequality

Concept 2 inequality

Concept 3 (global) inequality

Inequality 1950-2010 The mother of all inequality disputes

With new PPPs Graph in interyd\dofiles\defines.do

Concept 2

Concept 1

Concept 3

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Divergence begins

China moves in

Divergence ends

India moves in

International unweighted and population- weighted inequality, 1952-2010

Graph in interyd\dofiles\defines.do; using gdppppreg.dta

Concept 2

Concept 2 without China

Concept 1

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G

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India as new engine of

equalization

Population coverage

1988 1993 1998 2002 2005 2008

Africa 48 76 67 77 78 75

Asia 93 95 94 96 94 98

E.Europe 99 95 100 97 93 92

LAC 87 92 93 96 96 95

WENAO 92 95 97 99 99 97

World 87 92 92 94 93 94

Non-triviality of the omitted countries (Maddison vs. WDI)

What does Gini of 70 mean?

twoway (scatter gini_disposable year if contcod=="SWE", c(l)) (scatter gini_disposable year if contcod=="USA“ , c (l)) (scatter gini_gross year if contcod=="BRA" & source=="SEDLAC", c(l) legend(off) text(0.30 2005 "Sweden") text(0.42 2004 "USA") text(0.63 2001 "Brazil")) (scatter gini_disposable year if contcod=="WRL", c(l) text (0.72 2005 "World")) Using data_voter_checked.dta to which I added the world from my global data

Sweden

USA

Brazil

World

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How many people (ranked from the poorest to the richest) you need to get to each 1/5th of

global income?

75

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From forpogge.xls

How the world has changed: between the fall of the Berlin Wall and

the fall of Wall Street

Real income growth at various percentiles of global income distribution, 1988-2008 (in 2005 PPPs)

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Percentile of income distribution

Global Lorenz curves in 1988 and 2008

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Shape of global growth vs. US growth

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Percentile of income distribution

World, 1988-2008

United States, 1990-2008

US pattern is not unusual: in most countries increasing gains for the rich

Philippines and Bangladesh Mexico and Colombia

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Increasing gains for the rich with a widening urban-rural gap

Urban and rural China Urban and rural Indonesia

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From key_variables_calcul2.do

Average real growth (in $PPP) across

country deciles (population-weighted)

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Real $PPP growth 1988-2008, in percent, by decile

population-weighted

Global inequality over the long-run of history

Global income inequality, 1820-2008 (Bourguignon-Morrisson and Milanovic; 1990 PPPs )

Theil

Gini

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twoway (scatter Gini year, c(l) xlabel(1820(40)2020) ylabel(0(20)100) msize(vlarge) clwidth(thick)) (scatter Theil year, c(l) msize(large) legend(off) text(90 2010 "Theil") text(70 2010 "Gini"))

A non-Marxist world

• Over the long run, decreasing importance of within-country inequalities despite some reversal in the last quarter century

• Increasing importance of between-country inequalities (but with some hopeful signs in the last five years, before the current crisis),

• Global division between countries more than between classes

Composition of global inequality changed: from being mostly due to “class” (within-national), today it is

mostly due to “location” (where people live; between-national)

Based on Bourguignon-Morrisson (2002), Maddison data, and Milanovic (2005) From thepast.xls

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Class

Location

Location

Class

Gaps between countries today

Different countries and income classes in global income distribution in 2008

From calcu08.dta

USA

India

Brazil

China

Russia

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• Almost non-overlapping distributions of India and the US: less than 10% of people in India better-off than the poorest percentiles in the US

• But this is not true for Brazil and China: more than ¾ of the population of Brazil better off than the poorest Americas; about ½ of the Chinese.

• Brazil within itself spans the entire global distribution

• China dominates India at any point of income distribution Russia dominates Brazil.

• Americans (richest 10%), Brazilians and Russians (for both, just the highest national percentile) all in the top global percentile

Spain and the rest of the world

Germany

Argentina

Ecuador

Spain

Ivory Coast

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Problems of migration

The XXI century trilema

A. Globalization of ideas, knowledge, Communication, awareness of others’ living standards

B. Increasing differences in mean incomes

among countries

C. No movement of people

If A and B, then no C. Migration is the outcome of current unequal globalization. If B and C, then no A. Unequal globe can exist if people do not know much about each other’s living conditions or costs of transport are too high. If A and C, then no B. Under globalization, people will not move if income differentials are small.

Growing inter-country income differences and migration: Key seven borders today

Concluding comments

• Are the increase around the median and the dip around the 70-80th global percentile related?

• Are China/India growth spelling the doom of the Western middle class?

• Will within-inequalities increase as between-country inequalities go down?

• Role of migration as an engine of development

The key difficulty

• How to manage:

• (1) Rise of the emerging market economies and rich world middle class

• (2) Rising domestic inequalities

• (3) Migration, while recognizing its potential for global poverty alleviation

From the point of view of Spain or any advanced country, this means…

• Increased competitiveness in the age of globalization

• Protection of welfare state and lower domestic inequality

• Openness of borders and managed migration

• Often these objectives might go against each other.

Concept 2

Concept 1

Concept 3

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