Courtesy Reuters

Inequality Is No Myth

DOLLAR AND KRAAY REPLY

Is global inequality rising or falling? We argued in our article that inequality rose dramatically over the two centuries prior to 1980. Since then, inequality has stabilized, and it has even declined somewhat during the recent era of globalization. We are neither the first nor the only ones to make this point. Our observation on the long historical trend in inequality is based on work by economists Francois Bourguignon and Christian Morrison (forthcoming in the American Economic Review). Recent work by Xavier Sala-i-Martin at Columbia University shows a sharp reduction in all measures of global inequality between 1980 and 1998.

The authors of the three letters disagree, with Pitts even going so far as to claim that there is "widely accepted empirical evidence that inequality within and between countries has increased over the last 200 years." How can there be so much disagreement over such a basic and important fact? We offer three explanations.

First, there may be confusion over concepts. We reiterate that by "global inequality" we refer to the distribution of income across individuals around the world. This reflects both differences in average per capita incomes across countries and income inequalities within countries. Many poor countries have grown more slowly than rich countries in the past 20 years, and within some (although certainly not all) countries, inequality has increased. But global inequality has fallen precisely because populous poor countries (notably China and India, but also Vietnam and Bangladesh) have seen sharp accelerations in their growth rates. This acceleration in growth has helped nearly half the inhabitants of the developing world narrow the income gulf between themselves and the rich world. Large countries therefore figure prominently in measures of global inequality, rather than "distort[ing] the picture" as suggested by Pitts.

Second, the data used to measure inequality matter. There is only one comprehensive source of data on income inequality within countries: representative household surveys carried out by countries' statistical agencies. Although such data certainly have flaws, they are the best

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