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Monday, April 22, 2013

Has worldwide economic growth led to reduced worlwide income inequality?

I taught a unit on economic growth this week, and in preparing for it, I delved into the international economic data set maintained by the US Department of Agriculture (of all places), with data for about 190 countries.  I began to wonder, as I looked at the data, whether the worldwide growth in real GDP per capita (whichone can calculate from these data as having been 1.5% per year from 1969 to 2011) has contributed to a reduction in worldwide income inequality.  These two charts suggest--but only suggest--that perhaps it has not.

The first chart shows the relationship between real GDP per capita in 1969 and the average annual rates of growth of real GDP per capita. 

 (Click chart to expand.)

It may be a failure of imagination or vision on my part, but I really don't see any particular tendency for incomes to have grown more rapidly in countries that were poorer in 1969.  And growth would have to have been more rapid in poorer contries for inequality between countries to narrow.

Then I thought about computing something like the equivalent of a Lorenz Curve.  A Lorenz Curve shows the deviation of an actual distirbution of income from complete equality.  For incomes to have become more equal across countries then my pseudo-Lorencz Curve should have shifted up to the left.  it does not appear to have done so to any noticeable extent.

(Click chart to expand.)

I also calculated a pseudo-Gini coefficient from the data I used to construct the pseudo-Lorenz Curve.  Reduced inequality should result in a reduced Gini coefficent.  The pseudo-Gini coefficient was 55.6% in 1969 and 53.6% in 2011.  I'd call that not a significant change, either.

While this does not prove that income inequality between countries did not narrow, it certainly doesn't provide support for the proposition that income inequality between countries did narrow.



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