Inequality can be both good and bad for growth, depending on what inequality and whose growth. Unequal societies may be holding back one segment of the population while helping another. Similarly, high levels of inequality may be due to a variety of factors; some good, some bad for growth.
Long one of the world’s most unequal countries, Brazil surprised pundits by recording a massive reduction in household income inequality in the last couple of decades. Between 1995 and 2012, the country’s Gini coefficient for household incomes fell by seven points, from 0.59 to 0.52. (For comparison, all of the inequality increase in the United States between 1967 and 2011 amounted to eight Gini points – according to this study.)
In the ongoing debate about the benefits of trade, we must not lose sight of a vital fact. Trade and global integration have raised incomes across the world, while dramatically cutting poverty and global inequality.
Within some countries, trade has contributed to rising inequality, but that unfortunate result ultimately reflects the need for stronger safety nets and better social and labor programs, not trade protection.
Goma is a girl, born in rural Kalikot. Her parents are illiterate, belong to the Dalit community and are in the bottom 20 percent of Nepal’s wealth distribution. Champa is also a girl born to a household very similar to Goma’s, but her parents are from a village in Siraha. Avidit is a boy born to an upper caste household in urban Kathmandu. Both his parents have a university education and come from affluent backgrounds.
In a society where opportunities are equally available for children of all socio-economic backgrounds, Goma, Avidit and Champa would all have equal odds of becoming doctors, or engineers or successful entrepreneurs. But in Nepal, the life trajectory of these children begins to diverge very early in life.
In 2003, Meiko Nishimizu, the World Bank Vice President for South Asia at the time, referred to Kathmandu as “an island of prosperity in a sea of poverty that is Nepal”. This was a time when the country was besieged with a violent conflict, with the state struggling to keep control of urban areas while rebels and security forces locked horns in the countryside. Her invocation of Martin Luther King Jr’s quote that “injustice anywhere is a threat to justice everywhere” must have resonated deeply with those in Kathmandu, especially those that may have associated inequality with the rise of the conflict.
Thirteen years on, as we think about Nepal’s progress on poverty reduction since then, it is appropriate to reflect on inequality and how it has evolved during this period. Has every Nepali benefitted from the living standards improvements that have been realized in the country? Or have some been left behind?
This is the third of three blog posts on recent trends in national inequality.
In earlier blogposts on recent trends in inequality, we had referred to measurement issues that make this exercise challenging. In this blogpost we discuss two such issues: the underlying welfare measure (income or consumption) used to quantify the extent of inequality within a country, and the fact that estimates of inequality based on data from household surveys are likely to underreport incomes of the richest households. There are a number of other measurement challenges, such as those related to survey comparability, which are discussed in Poverty and Shared Prosperity 2016 – for a focus on Africa, also see Poverty in a Rising Africa, published earlier in 2016.
The previous blog post in this series described the trend in the global and regional averages of national inequality for the period 1988-2013. Now we dig deeper into the trends in inequality at the country level. We describe changes in national inequality during two periods – around 1993 to 2008 and around 2008 to 2013. The long-run spells include all countries for which we have data on inequality around 1993 and 2008, and that data is computed using the same welfare measure (income or consumption). The short-run spells include countries for which we have inequality data around 2008 to 2013; this list is based on the World Bank’s Global Database of Shared Prosperity.
A museum is probably not the most obvious place to examine global inequality, but something is happening at Cooper Hewitt, Smithsonian Design Museum in New York City that deserves a good look.
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This is the first of three blog posts on recent trends in national inequality.
Inequality has featured prominently in the public debate in recent times. Media outlets highlight the apparent surge in the incomes of the richest, many books have been written on this issue, and numerous academic studies have attempted to assess the nature and magnitude of inequality over time. Most studies of inequality focus on the extent of inequality within a country; this makes sense since most policies operate at this level, too. Despite the attention this issue has received, it has been constrained by the quality of data on inequality. Household surveys collected by national authorities around the world are the most readily available source of data on inequality. However, compiling and harmonizing household surveys from different countries is extremely difficult as they are not always collected consistently or frequently enough. It is also well-known that household surveys often fail to capture the top tail of the distribution, as we will discuss in more detail in a future blog.
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As we worked on a new World Bank flagship report that provides the latest and most accurate estimates on trends in global poverty and shared prosperity, it became apparent as to what we wanted for the title - Poverty and Shared Prosperity 2016: Taking on Inequality.
Because in our minds it became clear that inequality is becoming increasingly critical to meeting the World Bank’s goals of ending poverty and sharing prosperity. In fact, we find that tackling inequality will make or break the goal of ending poverty by 2030.