Global Interpersonal Inequality. What do we know? Miguel Niño-Zarazúa, UNU-WIDER Laurence Roope, Oxford University Finn Tarp, UNU-WIDER
INTRODUCTION
Economics 101 First: any competitive equilibrium is Pareto efficient Second: under certain conditions, every Pareto efficient allocation can be achieved as a competitive equilibrium “Under certain conditions” …..
The “mainstream” view Economic transactions mainly occur in free and competitive environments Externalities and the political process Efficiency issues separate from issues of equity/inequality
WDR 2006 The dichotomy between policies for growth and policies specifically aimed at equity/inequality is false (emphasis added) The distribution of opportunities and the growth process are jointly determined (emphasis added)
A wider perspective The classical view Many channels through which inequality affects growth negatively (come back to) Equity/equality both as an end and as a means No rejection of the competitive market (and the need for incentives to work)
Turning to policy Choices have to be made Focus on equity must not be an excuse for poor economic policy But what is poor policy? Good and bad: not so easy
“Easy” policy choices Early childhood development Access to affordable health care Cost-effective land redistribution
Difficult policy choices What to do when trade-offs exists – and there are many Is there too much “soft” talk? “… growth … was de-emphasized in favor of fuzzy schemes like ` empowering the poor,’ which nobody knows how to implement or to evaluate afterwards” (Easterly) Agriculture vs social sectors (and a word about the MDGs)
A WIDER VIEW
The concern of inequality • The concern of inequality is a critical factor in the success of development strategies in developing countries • Inequality affects a country’s potential of economic growth , by impacting negatively on consumer demand , national savings and human capital formation • Negative implications of high levels of inequality, in terms of social cohesion, crime, conflict and political instability, governance, and social exclusion , are widely acknowledged
Growth, poverty and inequality closely related (Bourguignon’s iron triangle) Growth Poverty rate Inequality
High inequality reduces the efficacy of economic growth to poverty reduction Larger absolute poverty- income elasticities in countries with lower Ginis % P / % Y 3 if gini 0 . 25 Δ Δ = − ≅ HH HH % / % 1 0 . 6 P Y if gini Δ Δ = − ≅ HH HH UNU-WIDER, Katajanokanlaituri 6 B FI-00160 Helsinki, Finland Tel +358-(0)9-6159911 Fax +358-(0)9-61599333 From Ravallion (2011)
The concern of inequality • The report of the UN System Task Team (2012) to support the preparation of the Post 2015 UN Development Agenda points out that inequality is a “ key concern, not just from the perspective of a future in which a decent and secure wellbeing is a prerogative of all citizens, but sustained development itself is impeded by high inequalities. Hence, redressing these trends will be a major challenge in the decades ahead ” • Despite this, there is no consensus regarding the direction of change in global interpersonal inequality. The most recent and authoritative review on the issue (Anand and Segal, 2008) points out that “ it is not possible to reach a definitive conclusion regarding the direction of change in global inequality over the last three decades of the twentieth century ”
MEASUREMENT and TRENDS
How to measure global interpersonal inequality? `Concept one' measures inequality among countries, where countries are ranked according to their average per capita income, and every country receives an equal weight ->`Concept two‘ measures inequality among all the individuals in the world and assigns each person the average per capita income for his/her country (`between- country' inequality) -> ` Concept three' measures global interpersonal inequality , taking into account the actual global distribution of income of all the citizens of the world. The Gini coefficient is the most common inequality measure. Theil L index (or Mean Logarithmic Deviation) belongs to the family of generalized entropy measures, and it is additively decomposable, with population share weights.
UNU-WIDER World Income and Inequality Database WIID is the longest and most comprehensive database of income distributions • Inequality trends within and across countries • Observations for 156 existing countries + Good Quality Ginis based on HH surveys and NOT National Accounts Mainly quality data – otherwise quality ranking Deininger & Squire, LIS, Eurostat, UNICEF, CEDLAS It provides information on the source (e.g. income or consumption), and quality of Ginis, fundamental for the study of global interpersonal inequality. Neither World Bank’s PovcalNet, CIA Factbook, UNDP offer these features http://www.wider.unu.edu/research/Database/
What are the recent trends in global interpersonal inequality? Global Interpersonal Inequality has fallen steadily between 1975 and 2008 • Ginis fell from 0.727 to 0.681 • Theil L idex (or MLD) fell from 1.314 to 0.981 1.400 1.200 Gini 1.000 Theil L (MLD) 0.800 0.600 Theil L within-country component 0.400 Theil L between-country component 0.200 0.000 1976 1985 1995 2008 Source: Niño-Zarazúa, Roope and Tarp (2013)
Counterfactual Scenario I • We assumed that India’s and China’s populations grew at the same rate as they actually did during 1975-2008, but remained with per capita incomes at the 1975 levels • China and India were low-income countries in 1975. If their per capita incomes had remained unchanged in a period that saw mean world incomes soaring , an increase in between-country inequality would have been expected Inequality Measure 1975 2008 Gini 0.727 0.764 Theil L (MLD) 1.314 1.449 Theil L within-country component 0.254 0.272 Theil L between-country component 1.060 1.177 Source: Niño-Zarazúa, Roope and Tarp (2013)
Counterfactual Scenario II • We consider the case where India and China had been able to grow their per capita incomes at the same rates as they actually did over 1975-2005, WHILE maintaining the same quintile shares as in 1975 • The further fall in inequality would have been driven by the much smaller level of within-country inequality in those countries • The increases in domestic inequality in India and China have not been good for global interpersonal inequality. Inequality Measure 1975 2008 Gini 0.727 0.662 Theil L (MLD) 1.314 0.872 Theil L between-country component 1.060 0.600 Theil L within-country component 0.254 0.272 Source: Niño-Zarazúa, Roope and Tarp (2013)
Poverty headcount ratio (USD 1.25 per day)
Poverty is falling globally – but remains a huge challenge % of people living on less than $1.25 USD (2005 PPP) • Since 1990: people living on less Caucasus and Central Asia than $1.25 has fallen in every region, including sub-Saharan Oceania Africa: Western Asia – In 1990 ≈ 46% (or ≈ 2 billion people) were extremely poor South-Eastern Asia – MDG target of cutting extreme 2008 Southern Asia excluding poverty by half will be achieved I ndia 1990 by 2015 Southern Asia – Still: ≈ 1 billion people ( ≈ 14%) Eastern Asia (China only) remain in extreme poverty Latin America and the – Fragile states (most of which Caribbean are Africa) not on track to reach Sub-Saharan Africa MDGs – Poverty problem in Africa Northern Africa remains very severe (both rate Developing Regions and absolute numbers) 0 20 40 60 80
Poverty increasingly associated with middle- income countries (often with high levels of inequality) 100 MENA 90 80 Latin America 70 Low-income % of global poverty 60 Countries East Asia 2008 50 Middle- 1990 Sub-Saharan 40 income Africa 30 Countries 20 South Asia 10 0 20 40 60 0 % of global poverty 1990 2008 People living on less than $1.25 USD a day (2005 PPP)
Inequality remains a major challenge Income gap between country Inequality measured by mean-log groupings deviations of income Constant 000 US$ (2005 PPP) 1 Latin America 35.0 0.9 sub-Saharan Africa 30.0 East Asia 0.8 25.0 South Asia 0.7 20.0 0.6 15.0 0.5 10.0 0.4 5.0 0.0 0.3 Gap between high- Gap between high- 0.2 and low-income and upper-middle 0.1 countries income countries 0 1980 2010 1981 1990 1999 2008
Infant mortality rate
Life expectancy
Primary school enrolment, 1990-2010 (%) 1990 2010 Boys Girls Boys Girls Developing world 84 75 91 89 Sub-Saharan Africa 57 50 78 74 Latin America and the Caribbean 88 84 96 95 Eastern Asia 99 96 97 97 Southern Asia 83 66 94 91 South-Eastern Asia 94 91 95 96 Western Asia 87 79 94 89 Developed Regions 95 95 97 97
Prevalence of undernourishment
Percent of population with access to a safe water source
Percent of population with access to improved sanitation facilities
BUSINESS CYCLES, FISCAL POLICIES AND WITHIN-COUNTRY INEQUALITIES
Gini index before and after taxes and transfers 0.6 Before Tax After Tax 0.5 0.4 0.3 0.2 0.1 0
Recommend
More recommend
