Shared Socio-economic pathways and global income distribution

New socio-economic pathways have been developed in the context of ongoing work for the Intergovernmental Panel on Climate Change (IPCC), starting with the Fifth Assessment Report (AR5). Economists, part of the Integrated Assessment Modeling Consortium (IAMC) and linked to the IPCC process, have been developing so-called shared socio-economic pathways (or SSPs) that are designed to span the spectrum of potential outcomes for the global economy along two broad axes—relating to the challenges of adaptation and mitigation respectively. Part of the storyline of the SSPs relates to relative developments of per capita incomes, i.e. different assumptions about processes of income convergence and divergence. To date, most of the analysis on income distribution has focused on the across country distribution of global GDP. The main purpose of this paper is to combine the across country analysis with within country assumptions about income distribution and to assess the implications for global and regional income distribution when populations are merged into larger entities. A focus on across country analysis provides a distorted picture of what the current distribution is and how it may evolve. Even in the most optimistic growth scenario, the degree of improvement in the Gini coefficient, one measure of global income distribution, is not nearly so great when taking into consideration within country distribution. This paper provides some insight into global income distribution taking into account differential macro growth rates as well as the changing within-country distribution. The main drivers—GDP and population—are taken from the publicly available database for the five SSP scenarios. The base distribution information is sourced from the World Bank’s Povcal website for developing countries and from the OECD for the OECD countries. The available country distributional data is used to calibrate parameterized distribution functions (e.g. log-normal). These latter are projected forward in time with assumptions about their evolution consistent with an interpretation of the SSP storylines. The parameterized distribution functions are then used to construct artificial household distributions for each country. These latter are then pooled in different regional aggregations, including a world aggregation, to assess implications for regional and global income distribution.