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The Globalization of Inequality
François Bourguignon
Paris School of Economics
Moscow, April 2012
1
"With globalization, rich people are
getting richer and poor people poorer"
Critiques of recent global development increasingly
bear on mouting inequality:
What is the evidence?
• At global level
• At national level
What are the causes of change?
What can be done ?
2
1. The evolution of global inequality
a) Definition and measurement
Statistical unit:
All individuals on earth (global distribution)
Country (population weighted or not)
Data
Income (consumption) :National Accounts (GDPpc or
Cpc)
Purchasing Power Parity correction (1990/2005)
Population: UN
Distribution data from household surveys (1985-2005)
3
4
The historical rise in global
inequality
Source: Bourguignon and Morrisson, 2002
5
The reversal in global
inequality trend
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
Gin
i co
eff
icie
nt
Global inequality: the 1990 trend reversal
80
/20
ratio
Source: Bourguignon, 2010
Evolution of global extreme poverty
(developing countries)
6 Source: World Bank
0
200
400
600
800
1000
1200
1400
1600
1800
2000
0
10
20
30
40
50
60
1980 1985 1990 1995 2000 2005 2010
Per
cen
ts
Year
Evolution of global extreme poverty (1.25$ ppp a day): 1980-2008
Proportion of poor people (left axis)
Number of poor people(right axis)
Remark 1: Inter- and Intra country global
inequality
7 0.000
0.100
0.200
0.300
0.400
0.500
0.600
0.700
0.800
0.900
1.000
1810 1830 1850 1870 1890 1910 1930 1950 1970 1990 2010
Th
eil
co
eff
icie
nt
Decomposition of global inequality into Between and Withincomponents (Theil coefficient)
Global inequality
International inequality
Inequality within countries
8
Remark 2: Inter-country inequality keeps
increasing
Evolution of global inequality:
summary
Historical explosion of global inequality since 1820
Confusing evolution in recent period :
Reversal in historical ascending trend in global inequality
… but divergence between rich and poor countries rises
Within country inequality is increasing (although almost
negligible effect in global inequality change)
Continuous drop in (absolute poverty)
Main drivers of these evolutions:
Asian growth
Poor growth performances in several African countries
Inequality increase in a number of countries 9
2. The unequalizing of national
income distributions
The widespread drop in the GDP labor share
Trend reversal of post-redistribution inequality in
developed countries
Increasing inequality in a number of emerging and
developing countries
10
The drop in the GDP labor share
11
Recent increase in inequality in
developed countries
12 -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
Top incomes in developed
countries: a trend reversal
13 Source: Top incomes
0
5
10
15
20
25
30
35
40
1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
Pe
r ce
nts
Year
Share of top 5% income in total income: 1920-2009, selected developed countries
USA
UK
France
Sweden
Japan
Inequality change in developing
countries (excluding LAC)
14 -10 -8 -6 -4 -2 0 2 4 6 8 10
Kenya
Malaysia
Iran, Islamic Rep.
Algeria
Lesotho
Pakistan
Panama
Yemen, Rep.
South Africa
Moldova
Mongolia
Hungary
Madagascar
Slovak Republic
India rural
Tunisia
Morocco
India urban
Tajikistan
Vietnam
Mozambique
Slovenia
Indonesia
Philippines
Albania
China rural
Botswana
Ghana
Kyrgyz Republic
Poland
China urban
Change in the Gini coefficient : mid 1980s to mid 2000s,Other emerging and developing countries
Source: World Bank, Povcal
Inequality change in Eastern Europe and
Russia
15
0
5
10
15
20
25
30
35
40
45
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
Pe
r ce
nt
Year
Recent evolution of inequality in Russia and some Eastern European countries (Gini coefficient)
Russian Federation
Poland
Slovak RepublicHungary
Inequality change in LAC countries
16 -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
Top incomes in emerging countries:
a trend parallel to developed countries?
17 0
5
10
15
20
25
30
1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
Pe
r ce
nts
Year
Share of top 1% income in total income: 1920-2009, emerging countries + USA
USAArgentina
India
China
Indonesia
Source: Top incomes
Possible causes of changes in
national income inequality levels
Globalization as an important driving factor Favorable to skilled labor, capital and natural resources in
most countries
Asymmetric causes between developed and developing
countries ??
Technical progress
Financial sector
Importance of country-specific factors: Domestic vs. foreign market focus
Human capital accumulation
Redistribution
Others (transition, fertility, labor market, …)
18
3. Policies to correct global inequality:
global level
Catching-up by emerging countries likely to continue
Concern about growing gap between poor and
emerging countries
International redistribution to the poorest countries
from rich and emerging countries through:
Official Development Assistance
Trade restrictions or preferences
Capital flows ( FDI - profit repatriation)
Migration
Technological transfer
19
Domestic policies
to control national inequality
The issue of protection
Justified to a limited extent in poor countries, but less and
less so in emerging countries
Increased protection by developed and emerging countries
likely to stop the global equalizing trend without correcting
inequality
Positive distributional impact of solid domestic
oriented growth
The key role of redistribution policies …
20
The key role of redistribution policies
Coordinated and more agressive tax policies in
developed countries
Development of taxing capacity and efficient social
protection in emerging countries
The spread of cash transfer programs as the proof that cash
redistribution is possible in developing countries
Financial development makes it easier to monitor individual
incomes and to tax them
Equalizing 'opportunities':
Human capital policies (Education, health care,..)
Taxing bequests
Fighting discrimination
21
Conclusion: domestic policies can reduce
inequality without impairing growth!!
22
520
540
560
580
600
620
640
1975 1980 1985 1990 1995 2000 2005 2010
Gin
i co
eff
icie
nt
* 1
00
Year
The trend reversal of inequality in Brazil: 1975-2009
Trend 1977-2002
Inequality
Conclusion: domestic policies can reduce
inequality without impairing growth!!
23
520
540
560
580
600
620
640
1975 1980 1985 1990 1995 2000 2005 2010
Gin
i co
eff
icie
nt
* 1
00
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
Gin
i co
eff
icie
nt
* 1
00
Year
The trend reversal of inequality in Brazil: 1975-2009
Trend 1977-2002
Inequality
GDPpc growth rate
24
Thank you
25
Remark 1: Inter-country inequality keeps
increasing