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Is the Global Gap between Rich and Poor Getting Wider? Gary Burtless The Brookings Institution June 17, 2002.

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Presentation on theme: "Is the Global Gap between Rich and Poor Getting Wider? Gary Burtless The Brookings Institution June 17, 2002."— Presentation transcript:

1 Is the Global Gap between Rich and Poor Getting Wider? Gary Burtless The Brookings Institution June 17, 2002

2 The received wisdom (amateur) yIn the talk in America and Europe about the “war on terrorism,” little has been said about tackling root causes. Somewhere along the line, the attacks on the World Trade Center and the Pentagon stemmed from tensions created by the widening gulf between rich and poor nations.  International Herald Tribune  International Herald Tribune, October 3, 2001

3 The received wisdom (expert) “Between 1988 and 1998, the incidence of global poverty fell by the derisory rate of 0.2 percent a year. Already obscene global income inequalities are widening… The world economy ended the 1980s more unequal than any national economy, and since then it has become even more unequal…” - Kevin Watkins, Oxfam “Making Globalization Work for the Poor” (March 2002) “With regard to incomes, inequality is soaring through the globalization period – within countries and across countries. And that’s expected to continue.” - Noam Chomsky, M.I.T. “September 11 th and Its Aftermath: Where is the World Heading?” Chennai (Madras), India: November 10, 2001

4 Organization zInequality in life spans zInequality of income -- between countries zConclusions: yExpected life spans are growing more equal very top very bottom yIncomes at the very top continue to grow faster than incomes at the very bottom (i.e., bottom 5% or 10%): Confirming conventional wisdom ySince late 1970s, however, incomes in the bottom half have grown faster than at very top: Gini has fallen at birth yLongevity gains plus income gains: Expected lifetime incomes at birth have probably grown more equal

5 Evidence on longevity zLongevity has been rising almost everywhere in the world zSince 1950 it has climbed by larger absolute and percentage amounts in poor countries zWorld inequality in the distribution of expected life spans has declined (Data: 34 countries with reliable 1950 and 1998 life expectancy.)

6 Country income and average life expectancy Source: Author’s tabulations of U.S. Census Bureau International Data Base (2001).

7 Country income and average life expectancy Source: Author’s tabulations of U.S. Census Bureau International Data Base (2001).

8 Country income and average life expectancy Source: Author’s tabulations of U.S. Census Bureau International Data Base (2001).

9 Life spans in countries with short life expectancy are a rising fraction of average life spans in the most developed countries... Source: Author’s tabulations of U.S. Census Bureau International Data Base (2001).

10 Relative chances of survival to age 5 have also improved in the poorest countries... even as survival probabilities continue to rise in the rich countries. Source: Author’s tabulations of UNICEF Child Mortality data base (2002).

11 Relative chances of survival to age 5 have improved in the poorest countries: Source: Author’s tabulations of UNICEF Child Mortality data base (2002).

12 On balance, life spans are rising while cross- national inequality in life spans is falling Source: Melchior, A., Telle, K., and Wiig, H. (2000), Globalisation and Inequality: World Income Distribution and Living Standards,

13 How fast is income rising? zIMF - World Economic Growth data base (May 2001) zGrowth rates using home-country price indexes zIncome levels after conversion using PPP exchange rates z Rank countries using per capita GDP at PPP exchange rates z Ignore inequality within countries z Treat income as equal within each country z Period:

14 poorest The poorest countries: 5% of world population z1980: yETHIOPIA yTANZANIA yBHUTAN yBANGLADESH yYEMEN yMOZAMBIQUE yCHAD yMALAWI yLAOS yVIETNAM z 2000: ySIERRA LEONE yETHIOPIA yTANZANIA yCONGO (DEM. REP.) yBURUNDI yYEMEN yMALAWI yMALI yRWANDA yNIGER yNIGERIA

15 richest The richest countries: 5% of world population z1980: yQATAR yUNITED ARAB EMIRATES yLIBYA ySWITZERLAND yUNITED STATES z 2000: yQATAR yLUXEMBOURG yUNITED STATES ySINGAPORE yNORWAY yCANADA

16 zIt is possible to draw silly inferences if we rank countries by their current real income and ask: y“How fast did income grow over the period since 1980 ?” zCountries with the worst growth experience will naturally tend to have below-average current income Income trends: Richest & poorest countries,

17 Income trends: Poorest countries, Poorest countries in year 2000 Poorest 5% of world's population Poorest countries in year 1980 Source: Author’s tabulations of IMF World Economic Outlook data base (May 2001).

18 Income trends: Richest & poorest countries, Source: Author’s tabulations of IMF World Economic Outlook data base (May 2001).

19 Income trends: Richest & poorest countries, Source: Author’s tabulations of IMF World Economic Outlook data base (May 2001).

20 Income trends: Richest & poorest countries,

21 zThe basic trends seem clear: yResidents of the highest income countries had real income growth of about 2% per year  Residents of poorest countries experienced almost no real income growth (0.11%/yr.): 87 years of income growth needed for 10% increase. zThe rich are getting richer; People in the poorest countries have experienced little income gain. Income trends: Richest & poorest countries,

22 zThe trends seem less clear when we examine real income changes over the entire range of income ranks zAnother complication is how to treat differences in country size biggest zThe biggest poor countries -- China & India -- are growing faster than the richest countries Income trends: Richest & poorest countries,

23 Source: Author’s tabulations of IMF World Economic Outlook data base (May 2001).

24 Income trends, : Accounting for country size Source: Author’s tabulations of IMF World Economic Outlook data base (May 2001).

25 Income trends, : Accounting for country size Source: Author’s tabulations of IMF World Economic Outlook data base (May 2001).

26 Income trends, : Accounting for country size Source: Author’s tabulations of IMF World Economic Outlook data base (May 2001).

27 zUnder the assumption that incomes are equally distributed within countries -- World income inequality has declined since the mid-1970s z Absolute incomes from centiles 3 thru 61 were higher in 2000 than in 1980 z Incomes in centiles 61 thru 84 were lower z Incomes in centiles 85 and above were higher in 2000 than 1980 Income trends, : Accounting for country size

28 Income level and growth among world regions (ignoring population size)

29 Income level and growth among world regions (population-size weighted) Percent of world population residing in region (1973) Annual rate of change in real per capita income (%) Source: Maddison (2001) and author’s calculations.

30 World inequality accounting for population size -- Source: Branko Milanovic (June 2001), "World Inequality in the Second Half of the 20th Century," World Bank, Washington, DC., pp. 21 and 30.

31 Conclusion zThe poorest people (that is, people with below- average incomes in the poorest countries) have incomes not very different from those of the world’s poorest people 25, 50, 100, or 500 years ago yNota bene: Their expected life spans are much longer, in spite of limited gains in real income. zBecause of rising incomes in the world’s richest countries, residents of the poorest countries have incomes that are a shrinking percentage of average income in the richest countries.

32 Conclusion (cont.) zThe average person in countries that had below- world-median income in 1975 is considerably better off in 2000 than in 1975 or 1980 zIncome growth for people in these below-world- median income countries has been significantly faster than income growth in the richest countries zThis is not just a story about China: India, Indonesia & other large poor countries have also enjoyed faster percentage gains in real income than the rich countries


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