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World Inequality and Globalization by Bob Sutcliffe Presented by Meg Spearman April 13, 2007 PUAF 699I Professor Milanovic Presented by Meg Spearman April 13, 2007 PUAF 699I Professor Milanovic

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Outline 1. Introduction 2. Three Approaches 3. Data Alternatives 4. Inter-Country Distribution 5. Global Distribution 6. Another Method: True Distribution 7. Using a Different Statistic: Ratio of Extremes 8. Adding Another Indicator: Life Expectancy 9. Adding Even More Indicators: The HDI 10.Summing Up the Evidence 11.Inequality and Globalization 12.A Globalization Index? 13.Questions/Comments 1. Introduction 2. Three Approaches 3. Data Alternatives 4. Inter-Country Distribution 5. Global Distribution 6. Another Method: True Distribution 7. Using a Different Statistic: Ratio of Extremes 8. Adding Another Indicator: Life Expectancy 9. Adding Even More Indicators: The HDI 10.Summing Up the Evidence 11.Inequality and Globalization 12.A Globalization Index? 13.Questions/Comments

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2. Approaches & 3. Data Types Three Approaches 1.Distribution of income alone 2.Measure world distribution of a more complex indicator than income 3.Examine ratios between income groups Three Approaches 1.Distribution of income alone 2.Measure world distribution of a more complex indicator than income 3.Examine ratios between income groups Data Alternatives 1.How to compare incomes (exchange rate v. PPP) 2.Weighted or un-weighted figures 3.Inter-country or global 4.Poverty or Distribution Data Alternatives 1.How to compare incomes (exchange rate v. PPP) 2.Weighted or un-weighted figures 3.Inter-country or global 4.Poverty or Distribution

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4. Inter-Country Distribution Convergence and Divergence of Country Averages Population-Weighted Convergence and Divergence Converging and Diverging Blocs Convergence and Divergence of Country Averages Population-Weighted Convergence and Divergence Converging and Diverging Blocs

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Only exception to the pattern. Slow convergenceRapid divergence

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Strong convergenceStationary… Slow divergenceSlight convergence (population weighted)

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Two Limitations of Inter-Country Comparisons -Within country distribution unaccounted -Assumes national income is equivalent to welfare

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5. Global Distribution Historical Recent Up to 1980, within-country contribution toward inequality falls and inter-country contribution rises. After 1980, within-country contribution toward inequality rises and inter-country contribution falls.

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6. True Distribution via Household Surveys (Milanovic) Eliminates the problems of national income estimates BUT: It doesnt account for amounts received from social spending on free services that contribute to welfare. Calculations for 1988 (.63) & 1993 (.66) very close to nat income Gini calculations –The world has a level of inequality scarcely encountered in national economies. –The calculation that differs (1993) implies there is a rise between 88-93. This is attributed to increasing urban-rural inequality. Eliminates the problems of national income estimates BUT: It doesnt account for amounts received from social spending on free services that contribute to welfare. Calculations for 1988 (.63) & 1993 (.66) very close to nat income Gini calculations –The world has a level of inequality scarcely encountered in national economies. –The calculation that differs (1993) implies there is a rise between 88-93. This is attributed to increasing urban-rural inequality.

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7. Ratios of Extremes

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WDI is not strictly comparable to 2 sets above because they lack earlier distribution estimates, but they are the most recent and complete picture (92.5% worlds population, WB, 125 countries). Most Striking: ratio of richest to poorest 1% rises in both datasets.

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8. Adding Life Expectancy Problems: Quality does not necessarily rise with quantity. Since 1990, life exp. in 42 countries steady or fell due to AIDS.

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There is a tendency for greater loss of healthy life years in countries with lower life expectancy. Thus, the distribution of healthy life expectancy is more unequal than the distribution of life expectancies as a whole.

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9.The HDI Three indicators: 1.Log income/head 2.Life expectancy 3.Education - Divergence nearly impossible - Index of welfare is not an index of growth Countries worse-off in 1975 had the greatest % increase by 2001

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Inequality has increased more or declined less: –Use unweighted national GDPph –Compare national values using exchange rates (but not since 95) –When using PPP, use Maddison instead of PWT 6.1 or WDI –Use data directly derived from household studies rather than processed GDP ph figures –Compare ratios of extremes rather than (or at least as well as) integral measures Inequality has increased more or declined less: –Use unweighted national GDPph –Compare national values using exchange rates (but not since 95) –When using PPP, use Maddison instead of PWT 6.1 or WDI –Use data directly derived from household studies rather than processed GDP ph figures –Compare ratios of extremes rather than (or at least as well as) integral measures Inequality has declined more or increased less: –Use population-weighted national GDPph –Compare national values using PPP estimates (but not since 1995) –When using PPP data, use WDI or PWT 6.1 instead of Maddison –Use GDPph figures processed by distribution figures –If comparing ratio extremes, look at the less extreme (50/50, 20/20) –Add another variable, especially life expectancy Inequality has declined more or increased less: –Use population-weighted national GDPph –Compare national values using PPP estimates (but not since 1995) –When using PPP data, use WDI or PWT 6.1 instead of Maddison –Use GDPph figures processed by distribution figures –If comparing ratio extremes, look at the less extreme (50/50, 20/20) –Add another variable, especially life expectancy 10. Summing up the Evidence

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11. Inequality and Globalization Since 1950, there has been a large increase in movement of goods, services and capital, though not so much people (i.e. labor). BUT if the answer of what globalization is cannot be summed up with a single variable (just as there cannot be just one variable to define inequality). Kevin ORourke points to the individual endowments of countries, which means individual cases are more instructive. Disaggregation is needed to consider either incomes or inequalities. Shape of global inequality still unclear (i.e. uni- modal - one big capitalistic world, OR bi-modal - imperialism is still alive!) Since 1950, there has been a large increase in movement of goods, services and capital, though not so much people (i.e. labor). BUT if the answer of what globalization is cannot be summed up with a single variable (just as there cannot be just one variable to define inequality). Kevin ORourke points to the individual endowments of countries, which means individual cases are more instructive. Disaggregation is needed to consider either incomes or inequalities. Shape of global inequality still unclear (i.e. uni- modal - one big capitalistic world, OR bi-modal - imperialism is still alive!)

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12. A Globalization Index? A.T. Kearney Measuring Globalization: Whos up? Whos down? (2003) (62 countries, by the Carnegie Endowment for International Peace) -Argues that causes of globalization are confused with its effects -Nevertheless, technological and personal integration continue even if a countrys overall economic integration is minimal -Argues that causes of globalization are confused with its effects -Nevertheless, technological and personal integration continue even if a countrys overall economic integration is minimal

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Ireland!

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Green: Globalization Index Yellow: Manufacturing labor cost/worker (1995-1999)

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Questions/Comments The jurys still out on a single over-arching pattern between globalization and welfare or income How do we define globalization? Is it a cause or an effect? Should it be tied to existing or new definitions of welfare, security, income, political stability… etc? The jurys still out on a single over-arching pattern between globalization and welfare or income How do we define globalization? Is it a cause or an effect? Should it be tied to existing or new definitions of welfare, security, income, political stability… etc?

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