The World Income Distribution of Income: Falling Poverty and…

Convergence, Period

Sala-i-Martin (2006)

Convergence literature

• Beta divergence: poor countries grow slower than rich countries

• Sigma divergence: dispersion of income per capita across countries grew over time

Changing unit of observation

• Idea: change unit of observation from country to individuals

• Results: beta and sigma convergence

Weighing by population

• Few Asian countries that converged to OECD are large

• Many diverging countries (Africa) are small

• Total population of Africa =1/2 population of China or India

Population Weights: Limits

• Assumes all individuals within a country have the same income

• Ex: income per capita in a country just above poverty line…no poors?

• Conclusion: use within country information…problematic (data)

Methodology

• Center mean at GDP/capita (National Statistics)

• Combine it with quintile income shares for every country and year

5B: trend of neighbors

329M: share of neighbors

5B: linear trend

Excluded

Then smooth the densities with a kernel

Growth

Increased inequality

Falling poverty

Growth

Population growth

Falling poverty

No poors

Growth

Reduction in inequality

Falling poverty

Sharp increase in inequality

Little reduction on poverty

Lost decade: 1980-1990 (left shift), increase in poverty

Different scale: 10-100 000

Zero or negative growth

Explosion in inequality

Average worse off, richest better off

Increase in poverty

Growth until 1990

Increased inequality in 1990

Negative growth and increased inequality 1990-2000: small increase in poverty (rich enough in 1990)

World Income Distribution

Shift to the right (higher gdp/capita)

No clear evolution of inequality

China: growth + increase in inequality

In 2000: top 1/5th of chinese distribution around 10 000 (Mexico, Poland, Russia)

Niger fills gap (China, India, Indonesia)

Gdp/capita for majority of world increases

Fall in poverty

Poverty rates: falling

• Monetary amount or caloric intake

• Consumption or income

• Position

• Baseline year

Africa: 14.5% of world poor in 1970, 74.5% today

Inequality

• Sound logic (population weights)?

Equality: convergence

Decomposition: Across and Within

• 1970: 71% across, 29% within

• Within increasing over time

• Across decreasing over time

• 2000: 61% across, 39% within

• Decline in across larger than increase in within: fall in income inequality