Friday, February 17, 2012

The World’s Gini Coefficient: It Grows

There is an interesting book on the history and the future of migration: Exceptional People: How Migration Shaped Our World and Will Define Our Future by Ian Goldin, Geoffrey Cameron, and Meera Balarajan. These authors tell us just about anything we might wish to know on the subject of migration. In the process they provided some interesting data on income inequality between countries. There has been much discussion of the effect income inequality can have within a society. The authors remind us that wage differentials between countries have provided powerful motivations to migrate.
"Millions of Europeans left for the Americas in the late nineteenth century to seek, among other things, wages that were two to four times higher than those at home. Today, migrants stand to earn as much as fifteen times more by moving to another country to work."

Given the sensitivity to immigration in wealthy countries, it would seem to be a good thing if this wage inequality was trending downward. But it isn’t.

"Today the wage disparities between countries are larger than ever before, and the processes of globalization appear to be exacerbating inter-country inequality....The income gap between the richest country and the poorest country in the world about 250 years ago was about 5 to 1, whereas today it is about 400 to 1."

How are we doing in recent times, particularly in the age of globalization? Branko Milanovic, a World Bank economist, computed the GDP per capita over time for 144 countries, and applied the standard formulation to determine a Gini coefficient for the world. In this formulation, all countries, no matter the size, are a single data point. His results are presented below.

What might have been a slight downward trend reversed course and was followed by a rapid rise that coincided with the growth of globalization in the world economy.

So globalization not only leads to income inequality within countries, it apparently leads to income inequality between countries. We are told that globalization is good for us, but sometimes it is hard to remember why.

The authors of the migration book use this data to issue a warning. The wealthy countries need to come to grips with the issue of migration. History has shown that people will move in great numbers to find higher wages and a better life, and it will not be possible to stop them.

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