The Globalization of Inequality François Bourguignon Paris School of Economics Santiago, Buenos-Aires, Montevideo, October 2011 1
"Rich people are getting richer and poor people poorer" Critiques of recent global development increasingly bear on mouting inequality: What is the evidence? At global level At national level What are the causes of change? What can be done? 2
1. The evolution of global inequality a) Definition and measurement Statistical unit: Country (inter-country or international distribution) All individuals (global distribution) Data Income (consumption) :National Accounts Purchasing Power Parity correction (1990/2005) Population: UN Distribution data from household surveys (1985-2005) 3
The historical rise in global inequality Source: Bourguignon and Morrisson, 2002 4
Gini coefficient The reversal in global inequality trend 0.750 Global inequality: the 1990 trend reversal 80.0 0.700 70.0 0.650 60.0 0.600 0.550 0.500 50.0 40.0 80/20 ratio 0.450 30.0 0.400 20.0 0.350 10.0 0.300 0.0 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 5
Evolution of global extreme poverty (developing countries) Source: World Bank 6
Theil coefficient Between and within country inequality Decomposition of global inequality into Between and Within components (Theil coefficient) 1.000 0.900 0.800 Global inequality 0.700 0.600 0.500 0.400 Inequality within countries International inequality 0.300 0.200 0.100 0.000 1810 1830 1850 1870 1890 1910 1930 1950 1970 1990 2010 7
Evolution of global inequality: summary Historical explosion of global inequality since 1820 Confusing evolution in recent period : Reversal in historical ascending trend in global inequality Within country inequality is increasing (although almost negligible effect in global inequality change) Continuous drop in (absolute poverty) Main drivers of these evolutions: Asian growth Satisfactory growth in poor countries since 2000 Inequality increase in a number of countries 8
2. The unequalizing of national income distributions The widespread drop in the GDP labor share Trend reversal of post-redistribution inequality in developed countries Increasing inequality in a number of emerging and developing countries 9
The drop in the GDP labor share 10
Recent increase on inequality in developed countries Change in the Gini coefficient : mid 1980s to mid 2000s, developed countries Finland Portugal New Zealand United Kingdom Norway Italy Germany United States Netherlands Sweden Austria Canada Belgium Luxembourg Japan Denmark Korea, Rep. Australia Greece France Ireland Spain -3-2 -1 0 1 2 3 4 5 6 Source: OECD Percentage points 11
Per cents Top incomes in developed countries: a trend reversal 40 Share of top 5% income in total income: 1920-2009, selected developed countries 35 USA 30 25 UK Japan France 20 15 10 Sweden China 5 0 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 Source: Top incomes Year 12
Inequality change in developing countries (excluding LAC) Change in the Gini coefficient : mid 1980s to mid 2000s, Other emerging and developing countries China urban Poland Kyrgyz Republic Ghana Botswana China rural Albania Philippines Indonesia Slovenia Mozambique Vietnam Tajikistan India urban Morocco Tunisia India rural Slovak Republic Madagascar Hungary Mongolia Moldova South Africa Yemen, Rep. Panama Pakistan Lesotho Algeria Iran, Islamic Rep. Malaysia Kenya -10-8 -6-4 -2 0 2 4 6 8 10 Source: World Bank, Povcal 13
Inequality change in LAC countries Change in the Gini coefficient : mid 1980s to mid 2000s, LAC countries Peru Argentina Uruguay Ecuador Jamaica Colombia Costa Rica Dominican Republic El Salvador Venezuela, RB Trinidad and Tobago Chile Honduras Nicaragua Guyana Guatemala Mexico Brazil -8-6 -4-2 0 2 4 6 8 Source: World Bank, Povcal 14 Percentage points
Per cents Top incomes in emerging countries: a trend parallel to developed countries? Share of top 1% income in total income: 1920-2009, emerging countries + USA 30 25 20 15 Argentina USA 10 Indonesia India 5 China Source: Top incomes 0 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 Year 15
Possible causes of changes in national income inequality levels Globalization as an important driving factor Favorable to skilled labor, capital and natural resources in most countries Technical progress Financial sector Importance of country-specific factors: Domestic vs. foreign market focus Human capital accumulation Redistribution Others (fertility, labor market, ) Asymmetry between developed and developing countries easily understandable 16
3. Policies to correct global inequality: global level Catching-up by emerging countries likely to continue Concern about growing gap between poor and emerging countries International redistribution to the poorest countries from rich and emerging countries through: Official Development Assistance Trade restrictions or preferences Capital flows ( FDI - profit repatriation) Migration Technological transfer 17
Domestic policies to control national inequality The issue of protection Justified in poor countries, but less and less so in emerging countries Increased protection by developed and emerging countries likely to stop the global equalizing trend The positive distributional impact of solid domestic oriented growth The key role of redistribution policies 18
The key role of redistribution policies Coordinated and more agressive tax policies in developed countries Development of taxing capacity and efficient social protection in emerging countries The spread of cash transfer programs as the proof that cash redistribution is possible in developing countries Financial development makes it easier to monitor individual incomes and to tax them Equalizing 'opportunities': Human capital policies (Education, health care,..) Taxing bequests Fighting discrimination 19
Gini coefficient *1000 Conclusion: domestic policies can reduce inequality without impairing growth!! The trend reversal of inequality in Brazil: 1975-2009 640 620 600 Trend 1977-2002 580 560 540 520 500 1975 1980 1985 1990 1995 2000 2005 2010 Year 20
Thank you 21
Remark 1: Inter-country inequality keeps increasing 22
Remark 1: Inter-country inequality keeps increasing 23