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Policies for inclusive development in a globalizing world. François Bourguignon Paris School of Economics Islamabad, July 2012. The inequality dimension of globalized development. Globalization , growth and inequality over the last 20 years : - PowerPoint PPT Presentation
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Policies for inclusive development in a globalizing world
François BourguignonParis School of Economics
Islamabad, July 2012
1
The inequality dimension of globalized development
Globalization, growth and inequality over the last 20 years:
Prior to the present crisis, globalization seen as the world engine of growth and a major force for South-North catching-up
At the same time, inequality is increasing in a large number of countries (both developed and emerging/developing) and slowing down poverty reduction in emerging countries
Such an evolution raises several questions…2
The inequality dimension of globalized development: questions
Is globalization and/or growth really the main cause for the observed increase in inequality?
Is there any kind of tradeoff between growth (in a globalized world) and the degree of equality?
What are the likely consequences of an increase in inequality for poverty reduction and further development?
What scope for domestic policies: in fostering growth? In controling inequality?
3
Outline
1. Evidence on global and national inequalities World distribution and the South-North catching-up National distributions
2. The globalization-growth-inequality link The diversity of country experiences Globalized growth: equalizing and unequalizing factors Country specific circumstances
3. The design of domestic policies
4. Some implications for Pakistan4
1. Evidence on global and national inequalitiesa. World distribution and the South-North catching-up
5
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
0.300
0.350
0.400
0.450
0.500
0.550
0.600
0.650
0.700
0.750
1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
Gini
coe
ffici
ent
Global inequality: the 1990 trend reversal
80/20 ratio
Source: Bourguignon (2011)
The South-North catching up
6-5
-3
-1
1
3
5
7
9
GDP per capita: annual growth rates (%)
Source: World Bank
High Income countries
Developing countries
Poverty reduction in developing countries
7Source: World Bank
0.0
200.0
400.0
600.0
800.0
1000.0
1200.0
1400.0
1600.0
1800.0
2000.0
0
10
20
30
40
50
60
1980 1985 1990 1995 2000 2005 2010
Propotion and number of people with less 1.25 $ ppp a day in developing countries ( %)
Number (right axis)
Proportion (left axis)
Evolution of world income distribution: summary
Trend Reversal in global inequality and South's catching-up
Continuous drop in absolute poverty Main drivers of these evolutions:
Asian growth itself closely linked to globalization Global imbalances fostering US growth Spillovers onto other countries
Crisis did not modify the equalizing trend
8
b. The unequalizing of national income distributions
Trend reversal in post-redistribution inequality in developed countries
More diversity in emerging and developing countries Yet, inequality did increase in a majority of countries,
including among big Asian fast-growers
9
Generalized increase of inequality in developed countries
10-3 -2 -1 0 1 2 3 4 5 6
Spain
Ireland
France
Greece
Australia
Korea, Rep.
Denmark
Japan
Luxembourg
Belgium
Canada
Austria
Sweden
Netherlands
United States
Germany
Italy
Norway
United Kingdom
New Zealand
Portugal
Finland
Change in the Gini coefficient : mid 1980s to mid 2000s, developed countries
Percentage pointsSource: OECD
Much more diversity among developing countries …
11-10 -8 -6 -4 -2 0 2 4 6 8 10
KenyaMalaysia
Iran, Islamic Rep.Algeria
LesothoPakistanPanama
Yemen, Rep.South Africa
MoldovaMongoliaHungary
MadagascarSlovak Republic
India ruralTunisia
MoroccoIndia urban
TajikistanVietnam
MozambiqueSlovenia
IndonesiaPhilippines
AlbaniaChina rural
BotswanaGhana
Kyrgyz RepublicPoland
China urban
Change in the Gini coefficient : mid 1980s to mid 2000s,Other emerging and developing countries
Source: World Bank, Povcal
Inequality changes in Latin America
12-8 -6 -4 -2 0 2 4 6 8
Brazil
Mexico
Guatemala
Guyana
Nicaragua
Honduras
Chile
Trinidad and Tobago
Venezuela, RB
El Salvador
Dominican Republic
Costa Rica
Colombia
Jamaica
Ecuador
Uruguay
Argentina
Peru
Change in the Gini coefficient : mid 1980s to mid 2000s,LAC countries
Percentage pointsSource: World Bank, Povcal
Inequality change in selected Asian countries
13-2 0 2 4 6 8 10 12 14 16
Pakistan
India Rural
Vietnam
Indonesia
India Urban
Bangladesh
Sri Lanka
China Rural
China Urban
Change in the Gini coefficient from mid 1980s to mid 2000s (%)Selected Asian countries
2. The economic relationship between globalization, growth and inequality
a) The diversity of country experiences
Contemporaneous Asian fast-growers ( China, India, Indonesia) with fast increases in inequality
Contemporaneous Asian fast-growers with no or little change in inequality (Vietnam)
Asian fast-growers of the 1970s (dragons) with no change in inequality
Asian medium growers with no big change in inequality (Pakistan)
Fast LAC growers with drop in inequality (Brazil) Etc…
14
b) Globalized growth: equalizing and unequalizing common factors
Trade openness favors the relatively abundant factors (Heckscher-Ohlin) and hurts the relatively scarce factors E.g. unskilled labor hurt in developed countries, but 'favored' in
developing countries Yet implications for inequality differ according to how markets
work (e.g. labor surplus economies) Capital as a (often hidden) big winner
Technical progress and demand/supply gap for skilled labor
"Contagion" through highly skilled labor mobility Pressure on commodity prices "Financiarization"
15
c) Country specific circumstances
Elasticity of labor supply to modern sector (Kuznets U-curve)
Overall growth rate Domestic vs. foreign market focus of development
strategy Pace and modalities of human capital accumulation Redistribution Geographical distribution of economic activity, population
and public expenditures (infrastructure) Others (fertility)
Overall, many reasons why a common force (globalization) may have different distributional impacts! 16
3) The design of domestic policies in the field of (income) distribution
Inequality slows down poverty reduction for given growth and inequality is bad for growth beyond some level
Preventing inequality to grow beyond some limit is an important objective
How to do it without slowing down, and possibly with speeding up growth? a) Correct inequality increasing market distortionsb) Redistribute through the accumulation of productive
assets (education, health care, access to credit, infrastructure, …) among the poor rather than current income
c) Actually, combinations of both types of redistribution are to be used (as with conditional cash transfers) 17
4. Some implications for Pakistan
Relatively slow growth, moderate and rather stable inequality
Missing growth engine must be found in crisis-prone macro-management, limited openness, governance deficit, limited infrastructure, ...
Unclear whether the removal of any of these obstacles to growth would and really increase inequality, except maybe for openness
At the same time, broad scope for growth and equality through accumulation of human capital among the poor
18
19
520
540
560
580
600
620
640
1975 1980 1985 1990 1995 2000 2005 2010
Gini
coe
ffici
ent *
100
Year
The trend reversal of inequality in Brazil: 1975-2009
Trend 1977-2002
Inequality
Final remark:the case of Brazil
Final remark:the case of Brazil
20
520
540
560
580
600
620
640
1975 1980 1985 1990 1995 2000 2005 2010
Gini
coe
ffici
ent *
100
Year
The trend reversal of inequality in Brazil: 1975-2009
Trend 1977-2002
Inequality
-20
-15
-10
-5
0
5
10
15
20
520
540
560
580
600
620
640
1975 1980 1985 1990 1995 2000 2005 2010
Gini
coe
ffici
ent *
100
Year
The trend reversal of inequality in Brazil: 1975-2009
Trend 1977-2002
Inequality
GDPpc growth rate