Courtesy Reuters

Having It Both Ways

ANDREW WELLS-DANG is Washington Representative of the Fund for Reconciliation and Development.

David Dollar and Aart Kraay's claim that "globalization ... has actually promoted economic equality and reduced poverty" is based on a selective use of data and dubious assumptions about causality. Indeed, their evidence remains far short of convincing.

To defend their views, Dollar and Kraay play fast and loose with the economics of inequality. The "mean log deviation" measure they use to claim a global reduction in inequality since 1975 is not a particularly good indicator. All it measures is the relative difference in distribution among the rich compared to the poor. To take an extreme example, a society with half of its members earning $50,000 and half earning $500 would have a mean log deviation of zero. Surely this is not what Dollar and Kraay mean by perfect equality.

The authors then proceed to confuse the issue of inequality with poverty reduction. It is indisputable that absolute poverty has declined dramatically in countries such as China and Vietnam following market reforms, and that millions of people are better off as a result. Nevertheless, relative inequality has risen just as dramatically, creating a host of social problems.

Dollar and Kraay admit from the outset that China and India have a huge effect on global aggregate statistics. In fact, the skew comes primarily from China, as India resembles other developing economies much more than China does. For this reason, other economists, such as the authors of the un Human Development Report, routinely exclude China from aggregate data covering developing nations. Dollar and Kraay, however, include China in their statistics when it suits their purposes -- for instance, to show rising global economic growth in the 1990s. Since China had the highest growth rates in the world during the past decade, emerged unscathed by the Asian financial crisis, and contains nearly 25 percent of the world's population, including it obscures what was actually a quite average decade for most developing countries.

When addressing inequality within nations,

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