|
|
|
|
|
|
|
|
|
|
  |
 |
  |
This is an archived USAID document retained on this web site as a matter of public record.
New thinking on drivers of growth
>> Foreign Aid in the National Interest >> >> Chapter 2 Jump to Chapter 2 Sections:
>> New thinking on drivers of growth >> Income inequality is declining >> More trade and investment mean faster growth >> Increasing U.S. imports through the African Growth and Opportunity Act >> A microeconomic agenda for development >> How can the U.S. support growth in developing countries >> Background papers >> References
Income inequality is declining - thanks to the global economy (Box 2.1)
In recent decades the main concern about global economic growth has been that the international distribution of income is worsening often interpreted to mean that the rich are getting richer and the poor are getting poorer. Economic growth can produce this result, but it is empirically unusual. More often, a worsening income distribution means that poor people’s incomes rise slower than rich people’s.
This issue is important, because an unequal income distribution can create class conflict. But it is also a complex issue, because an increase in inequality is not necessarily undesirable. The important issue is the source of the inequality whether it is wealth creation or exploitation by the rich.
Growth in Western Europe illustrates the issue. A thousand years ago the global distribution of income was much more equal: almost everyone was poor. Then Western Europe began developing institutions and technology that resulted in steadily increasing per capita incomes. (The timing of the region’s rise is the subject of debate, with its average income moving ahead of the rest of the world sometime between 1000 and 1750.) From about 1500 onward this wealth creation caused the world income distribution to become increasingly unequal. Bourguignon and Morrisson (2001) estimate that world income inequality increased steadily between 1820 and 1970, then fell. Dollar and Kraay (2002) conclude that world income inequality peaked around 1975 and has been declining since. (The largest factor in this decline has been rapid growth in China and India, which Dollar and Kraay attribute to these countries’ increased participation in the global economy.)
Beyond the issue of wealth creation is the issue of the proper measure of inequality. A broader measure of inequality one that takes into account life expectancy and access to education would be preferable and would show more favorable trends than one that relies solely on income.
Finally, the focus on income distribution is often a diversion from a more important question: what is happening to the real incomes of poor people? This issue is more relevant for reducing deep poverty.
Source: Maddison 2001; Bourguignon and Morrisson 2001; Dollar and Kraay 2002.
page 2
 |
|||
Last Updated on: October 07, 2009 |
