Levels of Inequality in the Global Economy: The Policy Challenge

Inequality in the world economy – measured by GDP per capita (PENN tables and World Bank databank) – decreased in the period 1995 to 2013, measured by sigma convergence (Young, Higgins and Levy (2008). This could be explained by the thesis of Alice Amsden in her book “The Rise of the Rest” (2003) where some developing economies in East Asia were able to build a catch up pathway for development through industrialization.  Other regions were able to get into value chains for light manufacturing, and some other became benefitted from raw materials exports (Latin America). The poorest regions were able to set up measures to improve their basic industries and their basic standards of living, supported by the United Nations Millennium Goals.

This global trend disaggregated by regions shows a heterogeneous performance that varies by regions and among regions. Africa and Latin America has the lowest per capita income, Asia has become a mid-income economy, and Europe and North America (US and Canada) have the highest per capita income. Within each region, inequality has taken different paths: Asia has the highest inequality among countries, followed by Africa, Europe and Latin America. Inside the countries (as measured by Gini coefficient) shows that Western Europe remains the more egalitarian society, while Latin America and Africa are the more unequal regions. North America and East Asia and Asia are in the middle.

The paper will give and overview of unequal socio economic development at three levels: world, regional and within countries, trying to find patterns of development and a typology of policies that has supported inequality reduction. The hypothesis is that inequality decreases at a faster pace if countries decide to maintain a high ratio of gross fixed capital investment, which enables national governments to foster socio economic development through generalized public goods and employment. Data that would support the analysis includes Penn World Tables, World Bank, ILO statistics and United Nations indicators published for the Millennium Development Goals.