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The disturbing "rise" of global income inequality

  • Xavier Sala-i-Martin

    ()

    (Columbia University - Department of Economics)

We use aggregate GDP data and within-country income shares for the period 1970-1998 to assign a level of income to each person in the world. We then estimate the gaussian kernel density function for the worldwide distribution of income. We compute world poverty rates by integrating the density function below the poverty lines. The $1/day poverty rate has fallen from 20% to 5% over the last twenty five years. The $2/day rate has fallen from 44% to 18%. There are between 300 and 500 million less poor people in 1998 than there were in the 70s. We estimate global income inequality using seven different popular indexes: the Gini coefficient, the variance of log-income, two of Atkinson's indexes, the Mean Logarithmic Deviation, the Theil index and the coefficient of variation. All indexes show a reduction in global income inequality between 1980 and 1998. We also find that most global disparities can be accounted for by across-country, not withincountry, inequalities. Within-country disparities have increased slightly during the sample period, but not nearly enough to offset the substantial reduction in across-country disparities. The across-country reductions in inequality are driven mainly, but not fully, by the large growth rate of the incomes of the 1.2 billion Chinese citizens. Unless Africa starts growing in the near future, we project that income inequalities will start rising again. If Africa does not start growing, then China, India, the OECD and the rest of middle-income and rich countries diverge away from it, and global inequality will rise. Thus, the aggregate GDP growth of the African continent should be the priority of anyone concerned with increasing global income inequality.

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File URL: http://www.econ.columbia.edu/RePEc/pdf/DP0102-44.pdf
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Paper provided by Columbia University, Department of Economics in its series Discussion Papers with number 0102-44.

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Length: 77 pages
Date of creation: 2002
Date of revision:
Handle: RePEc:clu:wpaper:0102-44
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  1. Charles I. Jones, . "On the Evolution of the World Income Distribution," Working Papers 97009, Stanford University, Department of Economics.
  2. Quah, Danny T, 1996. "Twin Peaks: Growth and Convergence in Models of Distribution Dynamics," Economic Journal, Royal Economic Society, vol. 106(437), pages 1045-55, July.
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  9. Lant Pritchett, 1997. "Divergence, Big Time," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 3-17, Summer.
  10. Deininger, Klaus & Squire, Lyn, 1996. "A New Data Set Measuring Income Inequality," World Bank Economic Review, World Bank Group, vol. 10(3), pages 565-91, September.
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  12. Ravallion, Martin & Shaohua Chen, 1996. "What can new survey data tell us about recent changes in distribution and poverty?," Policy Research Working Paper Series 1694, The World Bank.
  13. Bourguignon, Francois, 1979. "Decomposable Income Inequality Measures," Econometrica, Econometric Society, vol. 47(4), pages 901-20, July.
  14. T. Paul Schultz, 1998. "Inequality in the Distribution of Personal Income in the World: How it is Changing and Why," Working Papers 784, Economic Growth Center, Yale University.
  15. Steve Dowrick & Muhammad Akmal, 2005. "Contradictory Trends In Global Income Inequality: A Tale Of Two Biases ," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 51(2), pages 201-229, 06.
  16. Andrea Brandolini & Anthony B. Atkinson, 2001. "Promise and Pitfalls in the Use of "Secondary" Data-Sets: Income Inequality in OECD Countries As a Case Study," Journal of Economic Literature, American Economic Association, vol. 39(3), pages 771-799, September.
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