Is China’s growth now increasing rather than reducing global inequality?

Here is an interesting tidbit from Branko Milanovic’s latest book, Global Inequality: A New Approach for the Age of Globalization. Much of the book is about the recent, unusual combination of a trend for inequality to rise within countries (as the upper classes take a larger share of each nation’s income) and a trend for inequality between countries to fall (as rising incomes in developing countries narrow the gap between the haves and have-nots on a global basis). China has been the main driver of the latter dynamic, but we may already be at a turning point in that trend–one that will require India to keep growing if global inequality is to keep falling:

Population-weighted intercountry inequality has been uniformly decreasing since the late 1970s, since about the time when China introduced the “[household] responsibility system” (de facto private ownership of land) in rural areas and growth picked up. Moreover, convergence (the decrease in intercountry, population-weighted Gini values) has been remarkable and has accelerated in the first decade of the twenty-first century. We have already seen that this movement was the key factor behind the decrease in global inequality and the broadening of the global middle class. …

China’s role as the main engine driving the reduction in global inequality becomes less important as the country gets richer. In 2011, China’s mean per capita income, calculated from household surveys and expressed in international dollars, was 22 percent below the global mean and was greater than the mean incomes of 49 percent of the people in the world (assumed to have the mean incomes of their countries).

The world will very soon be in the position where China’s high growth rate begins to add to global inequality, not detract from it. India’s mean income is currently ahead of only 7 percent of the world population, and India cannot be expected to “turn the corner,” that is, to become, in average per capita terms, richer than more than 50 percent of the world population, in the next twenty years. Thus it will, if it grows fast, take over from China as the main engine of global income equalization.

The technicalities are interesting and worth citing in full:

Footnote 16: In the case of the Gini coefficient (with which we work here), the point at which a unit begins to add to inequality depends on its rank (let’s call it the “turning point rank”), that is, the number of units from which it has a higher income, but also on the initial Gini. The turning point rank formula is i > ½ (G + 1)( n + 1) which for a large n simplifies to i > ½ (G + 1) n, where i = the turning point rank (the rank i runs from 1 to n), n = total number of units, G = Gini coefficient. Note that the turning point is n/ 2 (i.e., the median) only when the Gini is zero. For the derivation of the formula, see Milanovic (1994).

With the current level of population-weighted global Gini being around 0.54, the turning point rank is 0.77n. That means that China’s mean income has to be such that, when all individuals in the world are ranked by the mean incomes of their countries, 77 percent of the world population is left behind China. But because China’s population is 20 percent of world population, for a Chinese person to be at that (“turning”) point, he or she needs to leave behind only 57 percent (77 − 20) of the world population. Currently, as we have seen, China’s mean income exceeds the mean income of 49 percent of world population. This means that China needs to leave behind just an additional 8 percent of people in the world to begin adding to global population-weighted inequality. This could already be happening by the time this text is being read.


One Comment

  1. Great post (at least for the terminally wonky). It will be interesting to see if anyone addresses this dynamic at Hangzhou next month. In the meantime, there is not the slightest sign that India will ever significantly influence the global economy. Zero infrastructure, massive malnutrition, staggering illiteracy and its adoption of ‘democracy’ ensures the status quo


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