Since the late 1980s, global income inequality has fallen by most common definitions, largely due to the changing economic relationships between nations, including the rapid rise of China and India as economic centres. Specifically, the Gini coefficient reflecting global inequality of consumption per capita – as if all individuals belonged to a single country – declined by about 0.41 per cent each year between 1988 and 2013, with the largest decline coming after 2003. Studies find that most of this reduction was due not to lower inequality among people within a single nation, but by falling differences between nations.
In a recent paper, LML Fellow Ravi Kanbur and colleagues consider how this trend may change in the near future. They argue that the economic growth of China and other rapidly developing countries such as India will, at some point, begin to diminish. As a consequence, global inequality will again resume a movement upwards. When will this happen? To seek answer, the researchers reconstruct the full household per capita income (or consumption) distributions from household surveys of more than 160 countries over the period 1981–2019 and consider what can be said about the plausible evolution of income inequality between countries in the aftermath of the COVID-19 pandemic, up to 2040.
Based on analysis of this data, they argue that prevailing ideas of inequality and its future evolution are unrealistically optimistic. The decline in global income inequality over the last decades has spurred an unwarranted narrative, as the trend of falling inequality is likely to be temporary. They predict a reverse – a startling global inequality ‘boomerang’ – to occur most likely in the mid-to-late 2020s.
The paper is available as a preprint at https://ideas.repec.org/p/unu/wpaper/wp-2022-27.html