Nonlinear Dynamics in Welfare and the Evolution of World Inequality

We propose a methodology to measure countries' welfare based on the lifetime utility of individuals and apply it to a large sample of countries. In the period 1960-2000 welfare inequality across countries appears stable as the result of increasing inequality in per capita GDP and decreasing inequality in life expectancy. However, the estimated distribution dynamics of welfare points out the emergence of three clusters of countries in 2000: one composed by low-income and low-life expectancy countries (mainly sub-Saharan countries); one by low-income but medium life expectancy countries (most of the highly populated Asian and Latin American countries); and, finally, the last one by high-income and high-life expectancy countries (almost all OECD countries). Such tendencies to polarisation are expected to strengthen in the future. In terms of the world population distribution, from 1960 to 2000 welfare inequality has been decreasing as the result of the falling inequality of both per capita GDP and life expectancy; this fall is mostly explained by the outstanding performance of the highly populated countries, mainly China and India. However, the decreasing trend is expected to be reverted (at most stabilise) in the future. Finally, the estimated distribution dynamics of welfare shows the emergence of two clusters of population, already detected in the distribution of 2000; such polarisation dynamics is expected to further intensify in the future, with the possible emergence of a cluster of populations from sub-Saharan countries.