Is globalisation a process that creates winners and losers, and thus leads to greater inequality? Such arguments are frequently heard in the public debate, and they are supported by some reports published by, among others, the UNDP (United Nations Development Programme). In this study, we examine whether global inequality has increased or decreased during the period from the 1960s until 1998. Our conclusion is that on the whole, global inequality between countries has decreased during this period. This applies to the analysis of income gaps, and the analysis of some indicators of living standards.
In spite of this, there is considerable variation among regions. While countries in East and South East Asia have experienced strong growth in income and living standards and reduced their gap vis-à-vis richer nations, the development is weaker in other developing regions. After 1980, the development has been particularly weak in parts of Eastern Europe and Sub-Saharan Africa. The reduction in inequality between countries over time is partly caused by income growth at intermediate income levels; the gap between the few richest and the few poorest countries has in fact increased.
The conclusion on reduced income inequality between countries is based on figures for income per capita that are adjusted for differences in purchasing power. Some of UNDP’s statements about increased inequality are based on income data that are not adjusted for price differences. Using such figures, one finds that inequality between countries increased during the period we study, except for the years after 1993 when inequality declined. There is, however, widespread agreement that if the purpose is to compare welfare or living standards, adjusted figures reflecting purchasing power should be applied.
The result on reduced inequality does not take into account the extent of inequality inside countries. Within-country inequality has been reduced in half the countries and increased in the other half. While rich countries have less inequality, the relationship between economic growth and inequality over time is unclear. There is little support for statements telling that economic growth is biased against the poor.
China is a populous country that strongly influences the global average; if we remove China from our sample, international inequality between countries has not changed substantially from 1965 to 1997. Due to the influence of China on the results, the development if inequality inside China is of special interest: Has the strong economic growth in China benefited the poor or not? The answer is yes; even if inequality in China has increased, economic growth has undoubtedly also benefited the poor.
The report shows, contrary to statements frequently heard in the public debate, that international inequality has on the whole been reduced since the 1960s. The analysis does not, however, render simple or final answers concerning how globalisation affects the extent of inequality. Globalisation is a complex process where some mechanisms may promote equality, and others not. Furthermore, this process occurs simultaneously with changes in technology and political conditions that affect inequality. Even if we have found that inequality has been reduced, we cannot conclude that “globalisation promotes equality”. This requires research beyond the scope of this project. The report outlines some important issues for such research.
In spite of our conclusion about reduced global inequality, gaps in income and living standards between rich and poor countries remain huge, and some of the poorest countries lag behind. The fact that almost a quarter of the world’s population still lives in poverty, is yet another reminder that the challenges related to inequality and poverty are still enormous.
