World Income Distribution Research Articles

Cross-Country Income Levels over Time: Did the Developing World Suddenly Become Much Richer?

The latest global survey on relative prices and income levels, for the year 2011, showed changes to relative income levels that were larger in lower income countries, thereby narrowing the world income distribution compared to estimates based on the previous, 2005, survey. This paper examines whether changes in measurement methodology between the 2005 and 2011 survey can explain these large differences. We construct a counterfactual set of relative prices for 2005 that harmonizes measurement, and we no longer find systematic differences across income levels, implying that international income inequality based on the 2005 survey was overstated. (JEL C82, D31, E01, E23, E31, O11)

Self-Enforcing Agreements under Unequal Nationally Determined Contributions

For a large global economy with normal goods, and an unequal world income distribution, we consider the endogenous formation and stability of an international environmental agreement (IEA) under nationally determined contributions (NDCs). Nations share green R&D efforts and enjoy R&D spillovers if they join an IEA. Nonmembers do not enjoy R&D spillovers. We show that the Grand Coalition is stable under NDCs if all nations are active carbon abatement and R&D contributors. If some nations are inactive, because they lack sufficient income to provide carbon abatement and R&D, the stable coalition under NDCs is the coalition of all active (wealthier) nations.

How Can Globalization Affect Income Distribution? Evidence from Developing Countries

ABSTRACTThe standard Hecksher-Ohlin-Samuelson framework claimed that foreign trade benefits developing countries, but many empirical studies suggest otherwise. After analyzing data on income deciles from the World Income Distribution Database for 66 developing countries, we found that trade openness benefits underprivileged people in affluent countries but not in developing countries. Also, external financial flows and democracy in conjunction do not exert significant effects, suggesting that these variables might affect income distribution through different channels. Finally, we reinforce the Kuznets inverted-U hypothesis; namely, the presence of an economic development threshold beyond which low-income deciles would increase.

Institutional transformation and the origins of world income distribution

This paper presents an attempt to quantify institutional changes and examine the respective effects of de jure and de facto political institutions on the path of long-run economic growth and development for a large panel of countries in the period 1810–2000. Using factor analysis, latent indices of de jure and de facto political institutions are constructed by exploiting several existing institutional datasets. The empirical evidence consistently suggests that societies with more extractive political institutions in Latin America, South Asia, Middle East and Eastern Europe have achieved systematically slower long-run economic growth and failed to catch-up with the West. The evidence confirms the primacy of de facto institutional differences over de jure institutions in causing differential growth and development outcomes over time. It also explains why highly concentrated political power and extractive political regimes inhibited the path of economic growth by setting persistent barriers to the engagement in collective action. In the long run, institutional differences account for up to two thirds of within-country development path and up to 83% of between-country development gaps.

Migration Policy, African Population Growth and Global Inequality

AbstractAccording to recent UN projections, more than 50 per cent of the growth in world population over the next half century will be due to population growth in Africa. Given this, any policy that influences African demography will have a significant impact on the world distribution of income. In this study, we discuss the potential for migration policies to affect fertility and education decisions, and hence, population growth in Africa. We present the results from different scenarios for more or less restrictive/selective migration policies and derive their implications for the evolution of world inequality.

Does Preferential Trade Benefit Poor Countries? A General Equilibrium Assessment with Nonhomothetic Preferences

AbstractWe develop a Ricardian model of trade with nonhomothetic preferences to analyze preferential trade agreements (PTAs) among countries of different stages of economic development. The richer a country is, the more likely will PTAs improve its terms of trade, also when it is a non‐member. Rich non‐member countries are also less likely to incur welfare losses from PTAs. PTA membership only guarantees welfare gains for countries that are too poor to import the goods rich countries produce. For all other countries, the welfare effects of joining PTAs depend on the world income distribution and on the strength of comparative advantages.

Innovation, Product-Cycle Trade, and the Cross-Country Distribution of Income

This paper develops a quantitative, multi-country model of endogenous growth, international trade, and international knowledge flows in order to understand how access to both foreign products and technologies, together, influences innovation incentives and the world distribution of income. An endogenous product cycle arises in equilibrium, in which innovative countries engage in both horizontal and vertical research, while others far from the technological frontier specialize in learning about and applying research previously conducted abroad. The effect of trade barriers on the level and dispersion of income across countries is found to be larger than would be predicted by a static trade model, and the effect of access to international knowledge flows is also quantitatively important and dependent on trade flows. For instance, halving the cost of learning reduces income dispersion by 23%, while doing so after eliminating asymmetric international trade barriers reduces income dispersion by only 10%.

The Dynamic Implications of Liberalizing Global Migration

This paper quantitatively investigates the short- and long-run effects of liberalizing global migration on the world distribution of income. We develop and parametrize a dynamic model of the world economy with endogenous migration, fertility and education decisions. We identify bilateral migration costs and their legal component for each pair of countries and two classes of worker. Our analysis reveals that the effects of a on human capital ac- cumulation, income and inequality are gradual and cumulative. In case of a complete liberalization, the world average level of GDP per worker increases by 20 percent in the short- run, and by more than 55 percent after 50 years. The world average index of inequality decreases and the path has stochastic dominance over the Baseline-As-Usual. These results are very robust to our identifying assumptions. We also analyze partial shocks: efficiency and inequality effects are roughly proportional to the liberalization rate.

Migration Policy, African Population Growth and Global Inequality

According to recent UN projections more than 50 percent of the growth in world population over the next half century will be due to population growth in Africa. Given this, any policy that influences African demography will have a significant impact on the world distribution of income. In this paper we discuss the potential for migration policies to affect fertility and education decisions, and hence, population growth in Africa. We present the results from different scenarios for more or less restrictive/selective migration policies and derive their implications for the evolution of world inequality.

The World Distribution of Income And Its Inequality, 1970–2009

This paper provides a full decomposition of world inequality, as measured by the Gini coefficient, in the period 1970–2009. In particular, using the Analysis of Gini (ANOGI), the paper describes the evolution of between inequality, within inequality, and the impact of overlapping on both factors. While there is evidence that between inequality in the last decade significantly declined due to the rapid Chinese growth, within inequality and overlapping went in the opposite direction. Furthermore, with the exception of some Asian countries, the rest of the world has not moved significantly. As a result, world inequality remains high by any standard.

The environmental Kuznets curve (EKC) theory. Part B: Critical issues

According to the environmental Kuznets curve (EKC) theory, the process of economic growth is expected to limit the environmental degradation created in the early stages of development. The first article of this study reviews the empirical studies examining various factors, other than income, that may lead to an EKC-pattern. The current article reviews in the first part the major critiques on the EKC-speculation which relate to the following issues: the normal distribution of world income, the feedback from environmental degradation to economic growth, the characteristics of the pollutant in question, various econometric issues, the evolution of consumption when income rises and the assumption about a common developmental pattern in all countries. The second part discusses additional matters reported indirectly in the literature and/or must be further examined. There are doubts whether the GDP-series captures the transition of production to the three productive sectors in empirical estimations and whether services are less polluting compared to industry activities. Finally, the original Kuznets-theory, which laid the groundwork for the EKC-concept, does not seem to solve income inequality problems.

If Technology Has Arrived Everywhere, Why Has Income Diverged?

We study the cross-country evolution of technology diffusion over the last two centuries. We document that adoption lags between poor and rich countries have converged, while the intensity of use of adopted technologies of poor countries relative to rich countries has diverged. The evolution of aggregate productivity implied by these trends in technology diffusion resembles the actual evolution of the world income distribution in the last two centuries. Cross-country differences in adoption lags account for a significant part of the cross-country income divergence in the nineteenth century. The divergence in intensity of use accounts for the divergence during the twentieth century. (JEL N10, N70, O14, O33, O41, O47)

Globalization and individual gains from trade

We analyze the impact of globalization on individual gains from trade in a general equilibrium model of monopolistic competition featuring product diversity, pro-competitive effects and income heterogeneity between and within countries. Although trade reduces markups in both countries in our framework, its impact on variety depends on their relative position in the world income distribution: product diversity in the lower income country always expands, while that in the higher income country may shrink. When the latter occurs, the richer consumers in the higher income country may lose from trade because the relative importance of variety versus quantity increases with income. Using data on GDP per capita and population, as well as on the U.S. income distribution, our theoretical results are illustrated in two different contexts: the hypothetical bilateral trade liberalization between the U.S. and 188 countries; and the historical sequence of U.S. free trade agreements since 1985.

The Luck of the Development Draw: Environmental Volatility and the Takeoff to Modern Economic Growth

This paper tests the implications of the model developed by Acemoglu and Zilibotti [Daron Acemoglu and Fabrizio Zilibotti, 1997. Was Prometheus unbound by chance? Risk, diversification and growth. Journal of Political Economy 41, 709-51.] which demonstrated a central role for luck - in the form of good vs bad draws - in determining which countries or regions developed first, and which have lagged behind. An obvious potential source of “good vs bad draws” is environmental volatility, particularly in the context of developing economies that - in addition to being undiversified - tend to be heavily dependent on agricultural output.We use climate data and a finite mixture model - taking account of the bi-modality of the world income distribution - to test the effect of environmental volatility on comparative economic development. Using this approach, we find that climate variables exert a direct influence on income, even when institutions have been controlled for. Our results show that poorer countries are vulnerable to environmental volatility, which appears to delay their “takeoff” to modern economic growth. The paper also includes a revised definition of the “takeoff” concept.

The Reversal of Fortune Thesis Reconsidered

Acemoglu, Johnson, and Robinson have claimed that the world income distribution underwent a ‘Reversal of Fortune’ from 1500 to the present, whereby formerly rich countries in what is now the developing world became poor while poor ones grew rich. We question their analysis with regard to both of their proxies for pre-modern income, namely urbanisation and population density. More specifically, an alternative measure of urbanisation with more observations generates a positive (but not significant) correlation between pre-modern and contemporary income, while a better measure of population density on arable land no longer produces a robust relationship.

Maritime Operation "Atalanta" – the Example of the Effectiveness of the European Union Activities in Solving Problems of Think Failing States

A very rapid technological development at the turn of the 20th and 21th century, and the transition from an industrial society to an IT society marked even more the division of the “rich North” and “poor South”. Drastic differences in the distribution of world income have caused intensifi cation of old problems such as illegal immigration in many parts of the world, smuggling weapons, drugs, organised crime and terrorism as well as the emergence of new challenges related to the rapid development of so called “falling or failed states” especially in some parts of the world. Among the categories of countries in international political relations, increasingly often it can be found the category of “falling or failed state”, which is not in a position to operate internally as well as on the international scene. Problems that are related to the status of the bankruptcy of a state unfortunately are not problems of such a state only, but this is a challenge for the entire international community and international organizations. For this reason the European Union, as a signifi cant participant in world policies, cannot remain passive against these challenges and threats so it should and shall take actions to help in the stabilization of the situation in such countries. The primary question to be asked is whether this aid and other activities are effective with respect to the future of those countries or whether it is only the ad hoc attempt trying to control the situation.

The Road Not Taken: Pre-Revolutionary Cuban Living Standards in Comparative Perspective

We examine Cuban GDP over time and across space. We find that Cuba was once a prosperous middle-income economy. On the eve of the revolution, incomes were 50 to 60 percent of European levels. They were among the highest in Latin America at about 30 percent of the United States. In relative terms, Cuba was richer earlier on. Income per capita during the 1920s was in striking distance of Western Europe and the Southern United States. After the revolution, Cuba slipped down the world income distribution. Current levels of income per capita appear below their pre-revolutionary peaks.

Trends in World Income Inequality and the ‘Emerging Middle’

The contribution in this volume by Matthias vom Hau, James Scott and David Hulme offers an important point of departure for evaluating the rise of emerging powers and their potential impact on global poverty reduction. This article seeks to further specify (i) the salient cases of rapid economic growth that have come to constitute the ‘emerging middle’ phenomenon; (ii) the relationship between this ‘emerging middle’ and recent patterns of change and continuity in world income inequality; and (iii) the relationship between these changes and possible future patterns in world poverty. The article argues that China and India constitute the two most salient instances of rapid economic growth. For most countries in the world, on the other hand, there has been considerable stability in the relative distribution of world income. Moreover, the very success of China and India might translate into constraints for economic growth in both wealthy and middle-income countries.

Technology Intensity and the World Distribution of Income

This paper presents a simple model of monopolistic competition in a North-South world. The North introduces new goods that the South takes over when the goods become old. The new goods are more technology-intensive than the old goods because innovation requires more efforts than imitation. In the literature, the world distribution of income favors the country that produces a greater range of variety. However, in this model, the South’s catching up in terms of the range of variety is not a threat to the North’s status quo. It is the difference in technology intensity that determines their relative wage.

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