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CONTRADICTORY TRENDS IN GLOBAL INCOME INEQUALITY: A TALE OF TWO BIASES

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Author Info
Steve Dowrick
Muhammad Akmal

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Abstract

Did global income inequality rise or fall over the last decades of the twentieth century? The answer depends on how cross-country income comparisons are made. Exchange rate comparisons suggest that inequality rose whilst the purchasing power comparisons of the Penn World Table suggest it fell. We show that both measures of real incomes lead to biased international income comparisons. Exchange rate comparisons ignore the relative price of non-tradables, whilst the fixed price method underlying the Penn World Table is subject to substitution bias. The contradictory trends are due to growing dissimilarity between national price structures increasing the degree of bias in each method. When we correct the income data to eliminate bias we find no compelling evidence of a significant change in world inequality. Copyright 2005 Blackwell Publishing Ltd.

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File URL: http://www.blackwell-synergy.com/links/doi/10.1111/j.1475-4991.2005.00152.x/enhancedabs
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Publisher Info
Article provided by Blackwell Publishing in its journal Review of Income and Wealth.

Volume (Year): 51 (2005)
Issue (Month): 2 (06)
Pages: 201-229
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Handle: RePEc:bla:revinw:v:51:y:2005:i:2:p:201-229

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  2. K. H. O'Rourke, 2001. "Globalization and Inequality: Historical Trends," CEG Working Papers 20015, Trinity College Dublin, Department of Economics. [Downloadable!]
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  3. Duangkamon Chotikapanich & William E. Griffiths & D.S. Prasada Rao, 2005. "Estimating and Combining National Income Distributions using Limited Data," Department of Economics - Working Papers Series 926, The University of Melbourne. [Downloadable!]
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  4. Branko Milanovic, 2003. "The Two Faces Of Globalization: Against Globalization As We Know It," Development and Comp Systems 0303007, EconWPA. [Downloadable!]
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  6. Albert Berry & John Serieux, 2006. "Riding the Elephants: The Evolution of World Economic Growth and Income Distribution at the End of the Twentieth Century (1980-2000)," Working Papers 27, United Nations, Department of Economics and Social Affairs. [Downloadable!]
  7. Branko Milanovic, 2003. "The Ricardian Vice: Why Sala-i-Martin’s calculations of world income inequality are wrong," HEW 0305003, EconWPA. [Downloadable!]
  8. K.K.Tang & Lim, A. S. K, . "Education Inequality, Human Capital Inequality and the Kuznets Curve," MRG Discussion Paper Series 0506, School of Economics, University of Queensland, Australia. [Downloadable!]
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  10. Mark Beeson & Iyanatul Islam, 2005. "Neo-liberalism and East Asia: Resisting the Washington Consensus," The Journal of Development Studies, Taylor and Francis Journals, vol. 41(2), pages 197-219, February. [Downloadable!] (restricted)
  11. Andrea Brandolini, 2007. "Measurement of income distribution in supranational entities: the case of the European Union," Temi di discussione (Economic working papers) 623, Bank of Italy, Economic Research Department. [Downloadable!]
  12. Andrea Brandolini & Timothy M. Smeeding, 2007. "Inequality Patterns in Western-Type Democracies: Cross-Country Differences and Time Changes," CHILD Working Papers wp08_07, CHILD - Centre for Household, Income, Labour and Demographic economics - ITALY. [Downloadable!]
  13. Novotny, J., 2004. "Decomposition of global and European socio-economic inequalities with attention to their regional dimensions," Regional and Sectoral Economic Studies, Euro-American Association of Economic Development, vol. 4(2). [Downloadable!]
  14. Xavier Sala-i-Martin, 2002. "The World Distribution of Income (Estimated from Individual Country Distributions)," Economics Working Papers 615, Department of Economics and Business, Universitat Pompeu Fabra, revised May 2002. [Downloadable!]
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  15. Bargain, Olivier & Bhaumik, Sumon K. & Chakrabarty, Manisha & Zhao, Zhong, 2008. "Earnings Differences between Chinese and Indian Wage Earners, 1987–2004," IZA Discussion Papers 3284, Institute for the Study of Labor (IZA). [Downloadable!]
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  16. Timothy M. Smeeding, 2002. "Globalization, Inequality, and the Rich Countries of the G-20: Evidence from the Luxembourg Income Study (LIS)," Center for Policy Research Working Papers 48, Center for Policy Research, Maxwell School, Syracuse University. [Downloadable!]
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