International inequality

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This article is about the inequality between nations. For inequality within nations, see economic inequality.

Per capita income ratio (purchasing power parity basis) around the world in the year 2000. Each color represents the ratio of income in the country to the world mean. Countries colored red have less than one quarter of the world mean income. Countries colored dark blue have more than four times mean world income. The remaining colors indicate incomes between these extremes: dark pink (0.25-0.75), light pink (0.75-1.25) and light blue (1.25-4). Source: UC Atlas of Global Inequality.

Log-lin graph showing an exponential pattern in the gross domestic product (GDP) per capita ranking. Countries were ranked from the richest to the poorest in the x axis. The y axis uses a logarithmic scale. (Calculation based on data from list of countries by GDP (PPP) as of May 2005).

International inequality is inequality between countries (cf. Milanovic 2002). Economic differences between rich and poor countries are considerable. According to the United Nations Human Development Report 2004, the GDP per capita in countries with high, medium and low human development (a classification based on the UN Human Development Index) was 24,806, 4,269 and 1,184 PPP$, respectively (PPP$ = purchasing power parity measured in United States dollars).^[1]

A study by the World Institute for Development Economics Research at United Nations University reports that the richest 1% of adults alone owned 40% of global assets in the year 2000, and that the richest 10% of adults accounted for 85% of the world total. The bottom half of the world adult population owned barely 1% of global wealth. Extensive statistics, many indicating the growing world disparity, are included in the available report, press releases, Excel tables and Powerpoint slides.

The major component of the world's income inequality (the global Gini coefficient) is comprised by two groups of countries (called the "twin peaks" by Quah [1997]).

The first group has 13% of the world's population and receives 45% of the world's PPP income. This group includes the United States, Japan, Germany, France and the United Kingdom, and comprises 500 million people with an annual income level over 11,500 PPP$.
The second group has 42% of the world's population and receives only 9% of the world PPP income. This group includes India, Indonesia and rural China, and comprises 2,100 million people with an income level under 1,000 PPP$. (See Milanovic 2001, p.38).

Economic inequality is generally considered to be approximately exponential as one traverses the strata of national and world societies from top-to-bottom. More sophisticated models of income distribution may apply (see Pareto distribution).

During the 20th century there was considerable divergence between the economic wealth of developed and developing countries. Richer countries like the United States and many European countries converged together towards a GDP per capita much greater than developing countries such as India and Ethiopia.

The evolution of the income gap between poor and rich countries is related to convergence. Convergence can be defined as "the tendency for poorer countries to grow faster than richer ones and, hence, for their levels of income to converge" [1]. Convergence is a matter of current research and debate, but most studies have shown lack of evidence for absolute convergence based on comparisons among countries (with regard to this debate see for instance Cole and Newmayer (2003) or [2]).

1 Comparisons
2 Causes of international inequality
3 See also
4 References
5 External links

[edit] Comparisons

Some of the economic disparities among nations can be better appreciated when rich and poor countries or societies are contrasted. For example, with regard to income inequality, according to some estimates by Branko Milanovic from the World Bank:

"An American having the average income of the bottom US decile is better-off than 2/3 of world population." (Milanovic 2002, p.50)
"The top 10 percent of the US population has an aggregate income equal to income of the poorest 43 percent of people in the world, or differently put, total income of the richest 25 million Americans is equal to total income of almost 2 billion people." (Milanovic 2002, p.50)

With regard to wealth inequality (researchers defined wealth as the value of physical and financial assets minus debts), a 2006 report with data from 2000 concluded that:

"India dominates the bottom third of the global wealth distribution, contributing a little under a third (27 per cent to be precise) of this group. The middle third of the distribution is the domain of China which supplies more than a third of those in deciles 4-8. At the top end, North America, Europe and high-income Asia monopolise the top decile, each regional group accounting for around one third of the richest wealth holders" (Davies et al. 2006, p.27)
"the top 10 per cent of adults own 85 per cent of global household wealth, so that the average member of this group has 8.5 times the global average holding. The corresponding figures for the top 5 per cent, top 2 per cent, and top 1 per cent are 71 per cent (14.2 times the average), 51 per cent (25 times the average) and 40 per cent (40 times the average), respectively. This compares with the bottom half of the distribution which collectively owns barely 1 per cent of global wealth. Thus the top 1 per cent own almost 40 times as much as the bottom 50 per cent. The contrast with the bottom decile of wealth holders is even starker. The average member of the top decile nearly 3000 times the mean wealth of the bottom decile, and the average member of the top percentile is more than 13,000 times richer." (Davies et al. 2006, p.26)
"for the world as a whole the share of the top 10 per cent was 85 per cent in the year 2000 and the Gini equalled 0.892 using official exchange rates" (Davies et al. 2006, p.32)
"only $2161 was needed in order to belong to the top half of the world wealth distribution, but to be a member of the top 10 per cent required at least $61,000 and membership of the top 1 per cent required more than $500,000 per adult." (Davies et al. 2006, p.25)

James Davies, Professor of Economics at the University of Western Ontario, and one of the authors of the report, said: "Income inequality has been rising for the past 20 to 25 years and we think that is true for inequality in the distribution of wealth." "There is a group of problems in developing countries that make it difficult for people to build assets, which are important, since life is so precarious." [3]

Other disparities can be better appreciated when rich individuals (or corporations) are compared against poor individuals. According to some estimates, for instance:

"The richest 1 percent of people in the world receive as much as the bottom 57 percent, or in other words, less than 50 million richest people receive as much as 2.7 billion poor." (Milanovic 2002, p.50)
The three richest people possess more financial assets than the poorest 10% of the world's population, combined [4].
As of May 2005, the three richest people in the world have assets that exceed the combined gross domestic product of the 47 countries with the least GDP, (calculation based on data from list of countries by GDP (PPP) and list of billionaires) (Annan, 1998)

However, the three richest individuals' wealth consists largely of stock in their own companies. The value of these assets was largely created by the economic conditions in their respective countries.

As of May 2005, the 125 richest people in the world have assets that exceed the combined gross domestic product of all the least developed countries (calculation based on data from list of countries by GDP (PPP) and list of billionaires).

[edit] Causes of international inequality

There are many hypotheses about what may cause international inequality. For example, poor countries may have been subjected in the past or present to exploitation, colonialism, neocolonialism or imperialism. In this context, the dependency theory, the Marxian point of view on imperialism and even the anti-globalization movement may be relevant. Internal national inequality may also be an important factor in underdevelopment. Many other causes may play a role, as is the case with poverty. With limited academic success, even national mean IQ differences have been proposed as hypothetical causes (see IQ and the Wealth of Nations). Several factors have been recognized as being important for a country to grow faster economically, a requirement to "converge" to the status of richer countries. One of this factors are the institutions. Some economists (for example Hernando de Soto and New institutional economist Douglass North) emphasize the role of certain institutions, like those protecting property rights, in the development of rich nations. Corruption (v.g. [5]) has an associated role which can deform economic incentives. Another factor is education, including technology and human development. A third factor is international commerce, and a fourth factor geographic advantages.

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[edit] See also

Classism
Development economics
Development geography
Economic development
Economic inequality
Income inequality metrics
International development
Global Justice
Human Development Index, of the United Nations, for a good source to make comparisons between nations. (Also includes inequality indexes for almost all countries.)
Poverty
United Nations Millennium Development Goals

[edit] References

Milanovic, Branko (World Bank), True world income distribution, 1988 and 1993: first calculation based on household surveys alone, The Economic Journal, Volume 112 Issue 476 Page 51 - January 2002. Article: [6]. Actual report on which the article is based: [7]. News coverage: [8] and [9].
Cole, Matthew A. and Neumayer, Eric. The pitfalls of convergence analysis: is the income gap really widening? Applied Economics Letters, 2003, vol. 10, issue 6, pages 355-357 [10]
Quah, Danny (1997). Empirics for growth and distribution: stratification, polarization and convergence clubs, Journal of Economic Growth, March, vol. 2, no. 1, pages 27-59. [11]
Martin Ravallion, World Bank, 5 May 2005, Policy Research Working Paper no. WPS 3579, A poverty-inequality trade-off?
Barro, Robert (2000), "Inequality and Growth in a Panel of Countries", Journal of Economic Growth 7 (1), <http://post.economics.harvard.edu/faculty/barro/papers/p_inequalitygrw.pdf>.
James B. Davies, Susanna Sandstrom, Anthony Shorrocks and Edward N. Wolff (2006). The World Distribution of Household Wealth. The World Distribution of Household Wealth. World Institute for Development Economics Research of the United Nations University (UNU-WIDER). Retrieved on 2006-12-08. News coverage: [12] [13]