Global inequality: from class to location, from proletarians to migrants

Global inequality Milanovic in his paper titled Global inequality: from class to location, from proletarians to migrants discusses the important points related to global inequality. In this article, I am going to discuss more on global inequality or inequality among countries by constructing inequality indicators. Let’s discuss. 
The movement of capital across countries is important not only for individual countries but also for the global distribution of the capital. Theoretically, capital must be transferred from the rich country to the poor country as the marginal productivity of the capital must be higher in the poor countries but doesn’t happen. The capital transfers from rich countries to the poor countries are offset by the increase in the poor countries’ invest abroad (Lucas, R. E. (1990)). Broadly speaking, there is no global convergence of the income level. The poor countries are unable to catch up. The neoclassical suggests that the poor countries will grow faster than the wealthy countries but poor countries couldn’t accelerate their economy. The poor countries are falling back, creating the divergence between the wealthy and poor countries (Keefer, P., & Knack, S. (1997)). Therefore it is important to measure the global disparity in the wealth and understand the reasons behind unequal distribution of the wealth global. Shachar, A. (2009) suggests that citizenship is an inherent property and that determines the political membership which affects the standards of living. On the same line, Milanovic, B. (2016) points out that the people born in the wealthier countries hold the citizenship rent. This encourages the phenomenon of migration for higher income. The global inequality represents inequality between all individual in the world. The easy movement of the factors of production across the countries as well as the impact of the foreigners’ standard of living makes global inequality more relevant (Milanovic, B. (2013)). Milanovic, B. (2011) finds that the difference in mean incomes between countries is the main determinant of global income inequality. Therefore to analyze the global inequality, the per capita GDP can be used. In this article, I am assuming that the countries existed in the world are different individuals and their per capita GDP is their own income. To construct the Gini coefficient, Generalized Entropy Index (for α equal to 0 as well as 1), the per capita GDP i.e. income is weighted by the population of that country. For given analysis, I have used data from 2002 to 2017 (for 201 countries) as data related to the per capita GDP for most of the countries is available from 2002. More countries mean less biased inequality analysis because the Lorenz curve (i.e. Gini coefficient) is very sensitive to the under-coverage of the data points. The per capita GDP (in 2010 constant US$) is used to minimize the requirement required for the adjustment. In this analysis, I assume that 201 countries are nothing but 201 individuals! 

Graph no.1: Absolute Changes in per capita GDP between 2002 and 2017 

















Data source: Created by Authors, based on data from the World Bank Data Indicator. 

Graph no.1 shows that the change in the per capita GDP experienced by poor countries is very low compared to the countries in the middle. Countries between 90 and 95 have experienced major changes in their per capita GDP from 2002 to 2017. 

Graph no.2: Poverty Incidence Curve 
Data source: Created by Authors, based on data from the World Bank Data Indicator. 

Graph no.2 shows the growth experienced by the poor to rich countries. Interestingly, poor countries have witnessed high growth compared to rich countries. But this cant’ be interpreted in the usual way. If both graphs are analyzed simultaneously then one can say that the high growth rate for poor is because of the low-level income for the initial year (level effect). 

For detail, the third graph will be helpful. 
Graph no.3: Changes in the divergence of other countries from the top 5% rich countries 



















Data source: Created by Authors, based on data from the World Bank Data Indicator. 

The third graph shows the change in the difference between countries and the top rich countries. The change is positive for poorest countries. That means the divergence is increased while it is becoming negative once income is increasing which means the divergence is reducing. The middle-income countries have experienced good growth and that growth is actually reducing the distance from the rich countries. 

Graph no. 4: Generalized Lorenz Curve 




















Data source: Created by Authors, based on data from the World Bank Data Indicator. 

The Generalized Lorenz Curve is shifted inward which shows the reduction in the disparity. 

Graph no. 5: Gini, GE(0) and GE(1) 




















Data source: Created by Authors, based on data from the World Bank Data Indicator. 

All indicators are showing the reduction in the disparity. All indicators are calculated by giving the per capita GDP a weight equivalent to the population. First of all, these graphs are not reflecting the perfect picture of global inequality. Milanovic, B. (2006) proposed a few modifications in Gini as well as Theil indicator to calculate the Gini coefficient. But due to data restriction, these modifications are difficult to use in the analysis. But the above graphs can help to draw the rough picture of the disparity. The disparity is reducing but for middle-income countries for poor countries, it is difficult to say so as the changes in the divergence are positive. No doubt, global inequality is an interesting topic to study and discuss. It can be viewed as the driving force behind the migration across countries. The poor in rich countries can belong to the above poverty line in poor countries. Citizenship can work as a premium for the people in a rich country. 


References: 
Keefer, P., & Knack, S. (1997). Why don't poor countries catch up? A cross‐national test of an institutional explanation. Economic inquiry, 35(3), 590-602. 

Lucas, R. E. (1990). Why doesn't capital flow from rich to poor countries?. The American Economic Review, 80(2), 92-96. 

Milanovic, B. (2006). Global income inequality: What it is and why it matters. The World Bank.

Milanovic, B. (2011). Global inequality: from class to location, from proletarians to migrants. The World Bank. 

Milanovic, B. (2013). Global income inequality in numbers: In history and now. Global policy, 4(2), 198-208. 

Milanovic, B. (2016). Global inequality: A new approach for the age of globalization. Harvard University Press. 

Shachar, A. (2009). The birthright lottery: Citizenship and global inequality. Harvard University Press.

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