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Abstract:
The paper shows that the current view of globalization as an automatic and benign force is seriously flawed. It is mistaken because it focuses on only one, positive, face of globalization while entirely neglecting a malignant one. The two key historical episodes that are adduced by the supporters of the "globalization as it is" (the Halcyon days of the 1870-1913, and the record of the last two decades of development) are shown to be misinterpreted. The "Halcyon days" were never Halcyon for those who were "globalized" through colonization since colonial constraints prevented them from industrializing. And they were even less "Halcyon" for those who were taken into slavery. Even among the Western economies, the 19th century globalization, contrary to some views, failed to bring income convergence. The record of the last two decades (1978-1998) is shown to be uniformly worse than that of the previous two (1960-78). It is thus only by a serious misreading of the recent evidence that the partisans of globalization are able to argue for its unmitigated beneficence. Should globalization be abandoned and everyone retire behind protective national walls? Absolutely not. But globalization led by capitalist interests alone is likely, akin to what it accomplished a century ago, to produce a wild global capitalism with social exclusion, unbridled competition and exploitation. Global capitalism needs to be "civilized" in the same way that national capitalisms of the 19th century were "civilized" after World War II-period which then witnessed the fastest growth in history. Yet the civilizing role cannot be done by individual states, but, because of the global nature of capitalism, by global institutions.

globalization, inequality, world economic history

Abstract:
Ideology, as proxied by a country's dominant religion, seems to be related to inequality. In Judeo-Christian societies increased democratization appears to lead to lower inequality; in Muslim and Confucian societies it has an insignificant effect. One reason for this difference may be that Muslim and Confucian societies rely on informal transfers to reach the desired level of inequality, while Judeo-Christian societies, where family ties are weaker, use political action.

Standard political economy theories suggest that democratization has a moderating effect on income inequality. But the empirical literature has failed to uncover any such robust relationship. Gradstein, Milanovic, and Ying take another look at the issue.

The authors argue that prevailing ideology may be an important determinant of inequality and that the democratization effect "works through" ideology. In societies that value equality highly there is less distributional conflict among income groups, so democratization may have only a negligible effect on inequality. But in societies that value equality less, democratization reduces inequality through redistribution as the poor outvote the rich.

The authors' cross-country empirical analysis, covering 126 countries in 1960-98, confirms the hypothesis: ideology, as proxied by a country's dominant religion, seems to be related to inequality. In addition, while in Judeo-Christian societies increased democratization appears to lead to lower inequality, in Muslim and Confucian societies it has an insignificant effect. The authors hypothesize that Muslim and Confucian societies rely on informal transfers to reach the desired level of inequality, while Judeo-Christian societies, where family ties are weaker, use political action.

This paper - a product of Poverty and Human Resources, Development Research Group - is part of a larger effort in the group to study inequality and income redistribution. The study was funded by the Bank's Research Support Budget under the research projects "Democracy, Redistribution, and Inequality" (RPO 683-01) and "Deriving World Income Distribution in 1988 and 1993" (RPO 683-68). The authors may be contacted at bgumail.bgu.ac.il, bmilanovic@worldbank.org, or yvonne_ying@hotmail.com.

Abstract:
The paper derives world income or expenditure distribution of individuals for 1988 and 1993. It is the first paper to calculate world distribution for individuals based entirely on household surveys from 91 countries, and adjusted for differences in purchasing power parity between countries. Measured by the Gini index, inequality increased from 63 in 1988 to 66 in 1993. The increase was driven more by differences in mean incomes between countries than by inequalities within countries. The most important contributors were rising urban-rural differences in China, and slow growth of rural incomes in South Asia compared to several large developed economies.

Abstract:
Inequality in world income is very high, according to household surveys, more because of differences between mean country incomes than because of inequality within countries. World inequality increased between 1988 and 1993, driven by slower growth in rural per capita incomes in populous Asian countries (Bangladesh, China, and India) than in large, rich OECD countries, and by increasing income differences between urban China on the one hand and rural China and rural India on the other.

Milanovic derives the distribution of individuals` income or expenditures for two years, 1988 and 1993. His is the first paper to calculate world distribution for individuals based entirely on data from household surveys. The data, from 91 countries, are adjusted for differences in purchasing power parity between the countries.

Measured by the Gini index, inequality increased from an already high 63 in 1988 to 66 in 1993. This increase was driven more by rising differences in mean incomes between countries than by rising inequalities within countries.

Contributing most to the inequality were rising urban-rural differences in China and the slower growth of rural purchasing-power-adjusted incomes in South Asia than in several large developed market economies.

This paper - a product of Poverty and Human Resources, Development Research Group - is part of a larger effort in the group to study inequality and poverty in the world.

Also published in The Economic Journal, January 2002 pp. 51-92
The author may be contacted at bmilanovic@worldbank.org.

Abstract:
Using national income and expenditure distribution data from 119 countries, the authors decompose total income inequality between the individuals in the world, by continent and by region(countries grouped by income level). They use a Gini decomposition that allows for an exact breakdown (without a residual term) of the overall Gini by recipients. Looking first at income inequality in income between countries is more important than inequality within countries. Africa, Latin America, and Western Europe and North America are quite homogeneous continent, with small differences between countries (so that most of the inequality on these continents is explained by inequality within countries). Next the authors divide the world into three groups: the rich G7 countries (and those with similar income levels), the less developed countries (those with per capita income less than or equal to Brazil's), and the middle-income countries (those with per capita income between Brazil's and Italy's). They find little overlap between such groups - very few people in developing countries have incomes in the range of those in the rich countries.

Inequality, Poverty Impact Evaluation, Governance Indicators, Rural Poverty Reduction, Services & Transfers to Poor

Abstract:
In Asia inequality in income between countries is more important than inequality within countries. In Africa, Latin America, and Western Europe and North America, by contrast, there are only small differences between countries; inequality within countries is more important. And when countries are divided into three groups by income level, there is little overlap - very few people in developing countries have incomes in the range of those in the rich countries.

Using national income and expenditure distribution data from 119 countries, Milanovic and Yitzhaki decompose total income inequality between the individuals in the world, by continent and by "region" (countries grouped by income level). They use a Gini decomposition that allows for an exact breakdown (without a residual term) of the overall Gini by recipients.

Looking first at income inequality in income between countries is more important than inequality within countries. Africa, Latin America, and Western Europe and North America are quite homogeneous continents, with small differences between countries (so that most of the inequality on these continents is explained by inequality within countries).

Next the authors divide the world into three groups: the rich G7 countries (and those with similar income levels), the less developed countries (those with per capita income less than or equal to Brazil's), and the middle-income countries (those with per capita income between Brazil's and Italy's). They find little overlap between such groups - very few people in developing countries have incomes in the range of those in the rich countries.

This paper - a product of tPoverty and Human Resources, Development Research Group - is part of a larger effort in the group to study inequality and income redistribution. Branko Milanovic may be contacted at bmilanovic@worldbank.org.

Abstract:
The paper tries to explain the increase in inequality that occured in all transition economies by constructing a simple model of change in composition of employment during the transition. The change consists in the "hollowing-out" of the state-sector middle class as it moves either into the "rich" private sector or the "poor" unemployed. The predictions of the model are contrasted with the empirical evidence from annual household income surveys from six transition economies (Bulgaria, Hungary, Latvia, Poland, Russia and Slovenia) over the period 1987-95. We find that the most important factor driving overall inequality up was increased inequality of wage distribution. Non-wage private sector contributed strongly to inequality only in Latvia and Russia. Pensions, paradoxically, also pushed inequality up in Central Europe, while non-pension social transfers were everywhere too small and too unfocused to make much of a difference.

Abstract:
Since the beginning of transition to market economy, inequality has increased in all transition countries. The factors driving inequality up: increasing wage inequality (as workers move from a relatively egalitarian state sector to a less equal private sector), and the rising share of income from self-employment and property (both very unequally distributed). Social transfers have failed to dampen the increase in inequality because they have remained, as under socialism, unfocused.

The transition from planned to market economy has witnessed one of the biggest and fastest increases in inequality ever recorded. On average, inequality in Eastern Europe and the former Soviet Union increased from a Gini coefficient of 25?28 (below the OECD average) to 35?38 (above OECD average) in less than 10 years. In some countries, such as Bulgaria, Russia, and Ukraine, the increase in inequality has been even more dramatic, outpacing the yearly speed of Gini increase in the United Kingdom and the United States in the 1980s by three to four times.

What are the factors pushing inequality up? Milanovic constructs a simple model of transition defined as the removal of restriction on private sector development. As the private sector becomes free, it attracts workers who leave the shrinking state sector. Wage inequality in the private sector is greater than in the old, relatively egalitarian state sector. This is one of the forces pushing inequality up. The second is the growth of income from self-employment and property, both of which are fairly unequal sources of income both before the transition and now. In addition, some of the released state sector workers remain unemployed. Their incomes decline. Increased inequality is thus accompanied by the hollowing out of the middle class (where the middle class is defined as the former state sector workers). One part of state sector workers moves to higher incomes as workers in the private sector or entrepreneurs; another remains jobless.

The model is contrasted with the actual developments in six transition economies: Bulgaria (over 1989-95), Hungary (1987-93), Latvia (1989-96), Poland (1987-95), Russia (1989-94), and Slovenia (1987-95). In all countries, wage inequality has increased (in some, like Russia, dramatically); income from self-employment has remained as unequal as before but its share in total income has risen, and the importance of social transfers in total income has increased, but its focus on the poor has not improved.

This paper - a product of the Development Economics Research Group - is part of a larger effort in the group to study social issues in transition economies. The author may be contacted at bmilanovic@worldbank.org.

Abstract:
The relationship between the distribution of political rights and that of economic resources has been studied both theoretically and empirically. This paper reviews the existing literature and, in particular, the available empirical evidence. Our reading of the literature suggests that formal exclusion from the political process through restrictions on voting franchise appears to have caused a high degree of economic inequality, and democratization in the form of franchise expansion has typically led to an expansion in redistribution, at least in the small sample of episodes studied. Similarly, and more emphatically compared to the ambiguous results of the earlier research, more recent evidence indicates an inverse relationship between other measures of democracy, based on civil liberties and political rights, and inequality. The transition experience of the East European countries, however, seems to some extent to go against these conclusions. This, in turn, opens possible new vistas for research, namely the need to incorporate the length of democratic experience and the role played by ideology and social values.

Abstract:
The paper presents a nontechnical summary of the current state of debate on the measurement and implications of global inequality (inequality between citizens of the world). It discusses the relationship between globalization and global inequality. And it shows why global inequality matters and proposes a scheme for global redistribution.

Abstract:
The paper contrast three periods of globalization: the Roman-led one of the 2nd-4th century, the British-led one of the 19th century, and the current one led the United States. Each of them not only had a hegemon country but was associated with a specific ideology. However, in reaction to the dominant ideology and the effects of globalization (cultural domination, increasing awareness of ecoonomic inequities) an alternative ideology (in the first case, Christianity, in the second, Communism) sprang up. The alternative ideology uses the technological means supplied by the globalizers to subvert or attack the dominant ideological paradigm.

Globalization, inequality

Abstract:
Is inequality largely the result of the Industrial Revolution? Or, were pre-industrial incomes and life expectancies as unequal as they are today? For want of sufficient data, these questions have not yet been answered. This paper infers inequality for 14 ancient, pre-industrial societies using what are known as social tables, stretching from the Roman Empire 14 AD, to Byzantium in 1000, to England in 1688, to Nueva España around 1790, to China in 1880 and to British India in 1947. It applies two new concepts in making those assessments - what the authors call the inequality possibility frontier and the inequality extraction ratio. Rather than simply offering measures of actual inequality, the authors compare the latter with the maximum feasible inequality (or surplus) that could have been extracted by the elite. The results, especially when compared with modern poor countries, give new insights in to the connection between inequality and economic development in the very long run.

Inequality, Rural Poverty Reduction, Poverty Impact Evaluation, Services & Transfers to Poor

Abstract:
Soccer (football in the non-American terminology) is the most globalized sport. Free circulation of players has markedly increased during the last ten to fifteen years as limits on the number of foreign players in the European leagues have been lifted, and clubs have become more commercially-minded. On the other hand, the rules governing national team competition have remained restrictive: players can play only for the country where they were born. We show that, in a model where there is free circulation of labor, increasing returns to scale, and endogeneity of skills, this produces on the one hand, higher overall quality of the game and increasing inequality of results among clubs, and on the other hand, lower inequality in the national teams' performances. The empirical examples from the history of the European Champions' League and the World Cup support the implications of the model. We argue in the conclusions, that soccer's global rules allow poor countries to capture some of their "leg drain", that is the improved skills which their players have acquired playing for better foreign clubs. This provides an example as how forces of efficiency but also inequality unleashed by globalization can be harnessed by the existence of global institutions to help improve the outcome for the poor countries.

Globalization, soccer, labor

Abstract:
The paper discusses recent world income inequality calculations by Sala-i-Martin. It shows that the two main problems with which the author had to grapple (too few data to derive countries' income distributions, and sparseness of such data in time) are not solved in a satisfactory fashion. They, and several other simplifying assumptions, make Sala-i-Martin results very dubious. We argue that Sala-i-Martin has ended up by producing a population-weighted inter-national distribution of income augmented by a constant shift parameter and not a distribution of income among world citizens.

Income inequality, world inequality, globalization

Abstract:
What happens to poverty and income inequality during the early period of transition to a market economy? Poverty is on the rise, and income inequality widens. Better targeting of social assistance and pension reform are the necessary policy reforms. In examining what happens to poverty and income inequality during the early period of transition to a market economy, Milanovic covers the period up to 1993. His analysis includes almost all transition economies that were not affected by wars, blockades, or embargoes. (In economies so affected, the intrinsic issues of transition are overshadowed by more basic issues of war or quasi-war economy and survival.)

The two key issues of social policy in transition economies are pension reform and better targeting of social assistance. Pensions represent 70 to 80 percent of cash social expenditures. No reduction of current levels of social spending (which is unsustainable) can be envisaged without pension reform. Better targeting of social assistance is needed because many universally or enterprise-provided benefits have been terminated, poverty has increased, and social programs lack funding. If poverty is on the rise and money is scarce, better targeting is the only option.

This paper - a product of the Transition Economics Division, Policy Research Department - is part of a larger effort in the department to study social effects of transition.

Abstract:
This note is motivated by recent arguments made by Martin Feldstein in which the relevance of inequality is dismissed (if everybody's income goes up, who cares if inequality is up too?), and the argument is made that only poverty alleviation should matter. This note shows that we all do care about inequality, and to hold that we should be concerned with poverty solely and not with inequality is internally inconsistent.

inequality, poverty

Abstract:
The effects of globalization on income distribution in rich and poor countries are a matter of controversy. While international trade theory in its most abstract formulation implies that increased trade and foreign investment should make income distribution more equal in poor countries and less equal in rich countries, finding these effects has proved elusive. Milanovic presents another attempt to discern the effects of globalization by using data from household budget surveys and looking at the impact of openness and foreign direct investment on relative income shares of low and high deciles. The author finds some evidence that at very low average income levels, it is the rich who benefit from openness. As income levels rise to those of countries such as Chile, Colombia, or Czech Republic, for example, the situation changes, and it is the relative income of the poor and the middle class that rises compared with the rich. It seems that openness makes income distribution worse before making it better - or differently in that the effect of openness on a country's income distribution depends on the country's initial income level.

This paper - a product of the Poverty Team, Development Research Group - is part of a larger effort in the group to study the effects of globalization. The study was funded by the Bank's Research Support Budget under the research project "World Income Distribution" (RPO 684-84).

Abstract:
The gains from the transition in post-communist Russia were captured by the new managerial class, which won rents from the state in the form of privatized enterprises, state subsidies, credits, and opportunities for tax evasion. Those rents reduced state revenues that could have supported social policy - including pension reform, which in turn could have fueled industrial restructuring. With neither pension reform nor industrial restructuring, Russia's economy has continued to shrink.

Kapstein and Milanovic present a political economy model in which policy is the outcome of an interaction between three actors: government (G), managers and workers (W), and transfer recipients (P).

The government's objective is to stay in power, for which it needs the support of either P or W. It can choose slow privatization with little asset stripping and significant taxation, thus protecting the fiscal base out of which it pays pensioners relatively well (as in Poland). Or it can give away assets and tax exemptions to managers and workers, who then bankroll it and deliver the vote, but it thereby loses taxes and pays little to pensioners (as in Russia).

The authors apply this model to Russia for the period 1992-96. An empirical analysis of electoral behavior in the 1996 presidential election shows that the likelihood of someone voting for Yeltsin did not depend on that person's socioeconomic group per se.

Those who tended to vote for Yeltsin were richer, younger, and better educated and had more favorable expectations of the future. Entrepreneurs, who had more of these characteristics, tended to vote for Yeltsin as a result, while pensioners, who had almost none, tended to vote against Yeltsin.

Unlike Poland, Russia failed to create pluralist politics in the early years of the transition, so no effective counterbalance emerged to offset managerial rent-seeking and the state was easily captured by well-organized industrial interests. The political elite were reelected because industrial interests bankrolled their campaign in return for promises that government largesse would continue to flow.

Russia shows vividly how political economy affects policymaking, because of how openly and flagrantly government granted favors in return for electoral support. But special interests, venal bureaucrats, and the exchange of favors tend to be the rule, not the exception, elsewhere as well.

This paper - a product of Poverty and Human Resources, Development Research Group - is part of a larger effort in the group to study the political economy of reform in transition countries. This study was funded by the Bank's Research Support Budget under the research project The Political Economy of Fiscal Policy in Transition Countries (RPO 682-52). The authors may be contacted at ekapstein@hhh.umn.edu and bmilanovic@worldbank.org.

Abstract:
Has the economic transition in Eastern Europe and the countries of the former Soviet Union been harder on pensioner households or on households containing children? Do per capita measures of welfare give a misleading picture?

Much attention has been paid to the relative vulnerability of two well-defined household groups during the transition. Some observers argue that old-age pensioner households have been relatively protected because of a less steep decline in real pensions compared with wages in most transition economies. By contrast, households with young children are believed to have experienced a substantial decline in living standards under reform and show strikingly higher rates of measured poverty than pensioner households.

But others argue that the elderly have suffered more than the young during the transition. Can these conflicting viewpoints about the relative poverty of old and young households be arbitrated?

Lanjouw, Milanovic, and Paternostro show that strong (though implicit) assumptions underpin certain poverty comparisons. Notably, using a per capita measure of individual welfare assumes that there are no economies of scale in household consumption, in the sense that the per capita cost of reaching a specific level of welfare does not fall as household size increases. Relaxing that assumption could affect comparisons, showing higher poverty rates among the elderly because their households tend to be smaller than the households containing children.

Even the nature of the transition has implications for economies of scale. The relative cost of housing and other goods and services with at least some public-good characteristics has risen rapidly. These relative price shifts hit small households particularly hard, because a greater share of their expenditures goes to public and quasi-public goods.

But transition economies have also experienced big increases in the relative prices of goods and services consumed largely by children, such as kindergarten and other education services. These increases affect younger households more. Since there is no accepted way to establish the true extent of economies of scale in a given country, the question can't be answered exactly. But clearly a small departure from a per capita measure may be enough in some cases to overturn the conventional relative ranking of poverty headcounts: poverty among the elderly may then turn out to be worse than among children.

This paper - a product of Poverty and Human Resources, Development Research Group - is part of a larger effort in the group to study changes in welfare and inequality during the transition. The authors may be contacted at planjouw@worldbank.org or bmilanovic@worldbank.org.

Poverty, Transition Economies

Abstract:
The median voter hypothesis plays an important role in endogenous growth theories. It provides the political mechanism through which voters in more unequal countries redistribute a larger proportion of income and thus, it is argued, by blunting incentives reduce country's growth rate. However, due to the lack of data on factor income (i.e. pre-tax and transfer) distribution across households, and thus on the exact amount of gain by the poorest half of households (the poor), the hypothesis was never properly tested. We test it here on 79 observations drawn from household budget surveys from 24 democracies. We find that the data strongly support the hypothesis that countries with more unequal distribution of factor income redistribute more in favor of the poor - even when we control for the share of the elderly in the population, or for pension transfers. But the evidence on the exact mechanism whereby this takes place - the median voter hypothesis - is much weaker. We do find that the middle income groups gain more/or lose less through redistribution in countries where initial (factor) income distribution is more unequal, but this regularity evaporates only we drop pensions from social transfers and focus solely on the more redistributive social transfers. Furthermore, we cannot show that the middle income groups are always net beneficiaries of redistribution nor that the existing tax and transfer system are optimal from their perspective (in the sense that all alternative tax rates would yield lower net benefits to the middle income groups).

Abstract:
Global inequality between world citizens, using the new PPP data (just published as part of the 2005 ICP), is estimated to be about 70 Gini points. This is some 4-5 Gini points higher than previously thought. The increases are even greater if one uses the Theil index.

Global inequaliy, Purchasing power parity

Abstract:
Suppose that all people in the world are allocated only two characteristics: country where they live and income class within that country. Assume further that there is no migration. This paper shows that 90 percent of variability in people's global income position (percentile in world income distribution) is explained by only these two pieces of information. Mean country income (circumstance) explains 60 percent, and income class (both circumstance and effort) 30 percent of global income position. The author finds that about two-thirds of the latter number is due to circumstance (approximated by the estimated parental income class under various social mobility assumptions), which makes the overall share of circumstance unlikely to be less than 75-80 percent. On average, drawing one-notch higher income class (on a twenty-class scale) is equivalent to living in a 12 percent richer country. Once people are allocated their income class, it becomes important, not only whether the country they are allocated to is rich or poor, but whether it is egalitarian or not. This is particularly important for the people who draw low or high classes; for the middle classes, the country's income distribution is much less important than mean country income.

Inequality, Poverty Impact Evaluation, Economic Theory & Research, Income, Poverty Diagnostics

Abstract:
Suppose that all people in the world are allocated only two characteristics: country where they live and social class within that country. Assume further that there is no migration. We show that 90 percent of variability in people's global income position (percentile in world income distribution) is explained by only these two pieces of information. Mean country income (circumstance) explains 60 percent, and social class (both circumstance and effort) 30 percent of global income position. But as at least 1/3 of the latter number is due to circumstance as well, the overall part of circumstance is unlikely to be under 70 percent. On average, "drawing" one-notch higher social class (on a twenty-class scale) is equivalent to living in a twelve-percent richer country. Once people are allocated their social class, it becomes important, not only whether the country they are allocated to is rich or poor, but whether it is egalitarian or not. This is particularly important for the people who "draw" low or high social classes; for the middle classes, income distribution is much less important than mean country income.

Global inequality, income distribution, migration

Abstract:
The paper uses the recently available data on growth rates, democracy, protectionism, and wars over the period 1820 to 2000 to look at the determinants of economic growth over the long-term. It is motivated by the following questions: what is the effect of democracy on growth, was colonialism economically bad for colonies, does protectionism affect growth negatively, what is the effect of wars? We find that own democracy has a significant positive impact on growth which increases as country's income goes up. (Overall level of democracy in the world however has no effect on growth.) The effect of colonialism is not statistically significant. Lower average level of protection in the world helps growth. Wars, whether civil or between the states, are strongly detrimental to economic growth.

Democracy, protectionism, war, colonialism, communism

Abstract:
The paper studies regional (spatial) inequality in five most populous countries in the world: China, India, the United States of America, Indonesia and Brazil in the period 1980-2000. They are all federations or quasi-federations composed of entities with substantial economic autonomy. Two types of regional inequalities are considered: Concept 1 inequality which is inequality between mean incomes (GDPs per capita) of states/provinces and Concert 2 inequality which is inequality between population-weighted regional mean incomes. The first inequality speaks to the issue of regional convergence, the second, to the issue of overall inequality as perceived by citizens within a nation. All three Asian countries, show rising inequality in terms of both concepts in the decade of the 1990's. Divergence in income outcomes is particularly noticeable or the most populous states/provinces in India and China. United States, where regional inequality is the least, shows further convergence. Brazil, with the highest level of regional inequality, displays no trend. A regression analysis fails to establish robust association between the usual macro variables and the two types of regional inequality.

China, India, USA, Brazil, Indonesia, regional inequality, world inequality

Abstract:
The objective of the paper is to answer an often-asked question: if tariff rates are reduced, what will happen to wage inequality? We consider two types of wage inequality: between occupations (skills premium) and between industries. We use two large databases of wage inequality that have become recently available and a large data set of average tariff rates all covering the period between 1980 and 2000. We find that tariff reduction is associated with higher inter-occupational and inter-industry inequality in poorer countries (those below the world median income) and the reverse in richer countries. However, the results for inter-occupational inequality though must be treated with caution.

tariffs, trade, liberalization, wages, inequality

Abstract:
The objective of the paper is to answer an often-asked question: if tariff rates are reduced, what will happen to wage inequality? We consider two types of wage inequality: between occupations (skills premium), and between industries. We use two large data bases of wage inequality that have become recently available and a large dataset of average tariff rates all covering the period between 1980 and 2000. We find that tariff reduction is associated with higher inter-occupational and inter-industry inequality in poorer countries (those below the world median income) and the reverse in richer countries. The results for inter-occupational inequality though must be treated with caution.

Abstract:
Using for the first time household survey data from 26 post-Communist countries, covering the period 1990-2005, this paper examines correlates of unprecedented increases in inequality registered by most of the economies. The analysis shows, after controlling for country fixed effects and type of survey used, that economic reform is strongly negatively associated with the income share of the bottom decile, and positively with the income shares of the top two deciles. However, breaking economic reform into its component parts, the picture is more nuanced. Large-scale privatization and infrastructure reform (mostly consisting of privatization and higher fees) are responsible for the pro-inequality effect; small-scale privatization tends to raise the income shares of the bottom deciles. Acceleration in growth is also pro-rich. But democratization is strongly pro-poor, as is lower inflation. Somewhat surprisingly, the analysis finds no evidence that greater government spending as share of gross domestic income reduces inequality.

Emerging Markets, Inequality, Poverty Impact Evaluation, Economic Theory & Research, Access to Finance

Abstract:
Using for the first time survey data from 26 post-Communist countries, covering the period 1990-2005, the paper examines correlates of unprecedented increases in inequality registered by most of these economies. We find that, after controlling for country-fixed effects and type of survey used, economic reform (measured by the EBRD index) is strongly negatively associated with bottom deciles' income shares and positively with income shares of the top two deciles. However, once economic reform is broken into its different component parts, the picture is more nuanced: large-scale privatization and infrastructure reform (mostly consisting of privatization and higher fees) are responsible for this pro-inequality effect while small-scale privatization tends to raise income shares of the bottom deciles. Acceleration in growth is also pro-rich. On the other hand, democratization (measured by the Polity measure) is strongly pro-poor, as is lower inflation. Somewhat surprisingly, we find no evidence that higher government spending as share of GDI reduces inequality.

Global inequaliy, Purchasing power parity

Abstract:
Some economists have argued that the process of disintegration of world economy between the two World Wars has led to increased income divergence between the countries. This is in keeping with the view that economic integration leads to income convergence, and consequently that income divergence should follow upon economic disintegration. The paper shows that, empirically, the view that the period 1919-39 was associated with divergence of incomes among the rich countries, is wrong. On the contrary, convergence of their incomes continued and even accelerated. Since the mid-19th century, rich countries' incomes always tended to converge in peacetime regardless of whether their economies were more or less integrated. This, in turn, implies that it may not be trade, and capital and labor flows that matter for income convergence but some other, less easily observable, forces like diffusion of information and technology.

Globalization, inequality, world, inter-war history

Abstract:
Using recent economic statistics from the peak period of Byzantine political and economic influence, we estimate the average income around the year 1000 to have been about 6 nomismata per capita per annum. This is then translated into current prices using two independent methods. They both yield an estimate around $PPP 640-680 in 1990 international prices. It is argued that this amount is some 20 percent below an average estimate of Roman incomes at the time of Augustus (around year one). Assuming that most of income differences in Byzantium were due to the differences in average incomes between social classes, we estimate the Gini coefficient to have been in the range between 40 and 45.

Abstract:
Using recent economic statistics from the peak period of Byzantine political and economic influence, we estimate the average income around the year 1000 to have been about 6 nomismata per capita per annum. This is then translated into current prices using two independent methods. They both yield an estimate around $PPP 640-720 in 1990 international prices. It is argued that this amount is some 20 percent below an average estimate of Roman incomes at the time of Augustus (around year one). Assuming that most of income differences in Byzantium were due to the differences in average incomes between social classes, we estimate the Gini coefficient to have been in the range between 40 and 45.

Byzantium, Rome, income, inequality, agricultural societies

Abstract:
A non-technical review of the current status of the debate on the extent and trend of global inequality, its future evolution, and whether global inequality matters or not. Proposes a new scheme for distribution of cash aid directly to the poor citizens in poor countries.

global inequality, redistribution

Abstract:
Economic transition in Russia was accompanied by a precipitous decline in real income for most of the population. How was people's perception of a minimum income level needed to survive affected by such a rapid decline in their incomes? Based on individual-level data collected from repeated surveys over the period March 1993-September 1996, we find that the subjective estimate of a minimum income for an adult Russian decreased by about 1.7 percent each month. This sharp reduction of people's subjective poverty line in face of a decrease in real income meant that the percentage of the population feeling poor went down, even if it remained at a very high level (over 60 percent) throughout the entire period. This is in marked contrast with a simultaneous increase in the percentage of the "objectively" poor--that is those whose income was less than a given real poverty line.

Abstract:
Using the large nationally-representative Malaysian Household Income Surveys from 1984, 1989 and 1997, the paper studies earnings inequality and determinants of earnings. During the period 1984-97, Malaysia's real per capita GDP increased by about 70 percent, participation rates for both men and women went up among all age groups and the average number of years of schooling increased by 1.2 years. Inequality of earnings, measured by the Gini coefficient, remained stable, but other measures of inequality (like decile ratios) show a significant relative wage improvement among the bottom deciles, and relative wage decrease on the top. The inter-state earning differences shrunk between 1984 and 1989 (a period of slow growth which includes the 1985-86 recession) and increased in the latter period. The rate of return to an additional year of schooling remained high (at 10 percent) despite the huge increase in the supply of the highly educated. The stable overall rate though masks an increased rate of return on women's education, and a decreased rate for men. Women wage "discrimination" nevertheless amounts to 16-20 percent, and the bias has recently increased. The pro-Chinese earning ethnic bias is estimated at 31 percent.

Labor, inequality, education, Malaysia

Abstract:
High inequality in Africa is something of a paradox: Africa should be a low-inequality continent according to the Kuznets hypothesis (because African countries are poor and agriculture-based), and also because land (the main asset) is widely shared. Milanovic's hypothesis is that African inequality is politically determined. Yet in the empirical analysis, despite the introduction of several political variables, there is still an inequality-increasing "Africa effect" linked to ethnic fractionalization. The politics, however, may work through ethnic fractionalization, which provides an easy and secure basis for the formation of political groups. Although this is a plausible explanation, it is not fully satisfactory, and the author criticizes it in the concluding section.

This paper - a product of the Poverty Team, Development Research Group - is part of a larger effort in the group to study inequality in the world.

Abstract:
The paper contrasts Lipset's modernization hypothesis and Przeworski-Limongi hypothesis that entries into democracy are random with respect to income. We use data on income and democracy going back to 1820, multiple definitions of democracy, and non-parametric testing focusing on the distribution of entrants' incomes. We find that income matters for entry into higher levels of democracy; but if we control for the previously achieved level of democracy, the income effect vanishes. This means that countries that enter into higher levels of democracy are not a random draw from the universe of all country incomes but are a random draw from the joint distribution of previous level of democracy and income. These results are compatible with the presence of a subgroup of (low) income and (low) democracy countries from which recruitment into democracy is seldom made. But for other countries, accession to higher levels of democracy is income-random. Income seems therefore both to matter (probably explaining why poor countries cannot improve their democracy levels) and not matter (explaining why for other countries improvements in democracy are income-random).

Democracy, income, modernization

Abstract:
The results of new direct price level comparisons across 148 countries in 2005 have led to large revisions of purchasing power parity exchanges rates, particularly for China and India. The recalculation of international and global inequalities, using the new purchasing power parity rates, shows that inequalities are substantially higher than previously thought. Inequality between global citizens is estimated at 70 Gini points rather than 65 as before. The richest decile receives 57 percent of global income rather than 50 percent.

Inequality, Poverty Impact Evaluation, Emerging Markets, Equity and Development, Economic Theory & Research

Abstract:
The authors develop and implement a method for measuring the frequency of changes in power among distinct leaders and ideologically distinct parties that is comparable across political systems. The authors find that more frequent alternation in power is associated with the emergence of better governance in post communist countries. The results are consistent with the hypothesis that firms seek durable protection from the state, which implies that expected political alternation is relevant to the decision whether to invest in influence with the governing party or, alternatively, to demand institutions that apply predictable rules, with equality of treatment, regardless of the party in power.

National Governance, Governance Indicators, Public Sector Corruption & Anticorruption Measures, Parliamentary Government, Emerging Markets

Abstract:
We develop and implement a method for measuring the frequency of changes in power among distinct leaders and ideologically distinct parties that is comparable across political systems. We find that more frequent alternation in power is associated with the emergence of better governance in postcommunist countries. The results are consistent with the hypothesis that firms seek durable protection from the state, which implies that expected political alternation is relevant to the decision whether to invest in influence with the governing party or, alternatively, to demand institutions that apply predictable rules, with equality of treatment, regardless of the party in power.

Governance, transition, political alternation

Abstract:
Why, after the breakup of such multinational states as the Soviet Union, Czechoslovakia, and Yugoslavia - whose republics justified their decision by claiming that they wanted to regain their sovereignty - did the new states express strong desire to join the European Union, thus dissipating the very sovereignty they had sought?

One of the apparent inconsistencies in the breakup of such multinational states as the Soviet Union, Czechoslovakia, and Yugoslavia is that while the republics justified their decision by claiming that they wanted to increase (regain) their sovereignty, the new states' strong desire to join the European Union shows their intention to dissipate the very same newly acquired sovereignty. How can the two desires be reconciled? Why would someone go through the ordeal of secession in order to quickly get rid of the very sovereignty that justified the secession? Or was sovereignty not the real (or sole) goal behind the secessionist drive?Milanovic explains that full sovereignty (like the individual's full freedom) is neither reachable for most countries nor desirable - because greater sovereignty is often traded for reduced income. Economic sovereignty is normally limited in key areas: Exchange rate policy (by rules stemming from IMF membership, for example, or participation in regional currency systems), trade policy (by GATT rules, for example), labor and banking regulations, accounting practices, and so on.

There is a tradeoff curve between sovereignty and income. Countries do not choose maximum sovereignty, but an optimal one. They choose a combination of income and sovereignty that allows them to maximize welfare. But that combination is not the same for all countries.

Larger countries (measured by their GDP) have the luxury of choosing more sovereignty per unit of income, simply because for them domestic markets are more important than for small countries.

Countries with abundant natural resources or very skilled labor (that is, with high per capita human and natural wealth) tend to be more integrated internationally. For them, economic sovereignty is less important because they need to export their resources and the returns to their labor increase with international integration.

More democratic countries also tend to be better integrated because in democracies the power of the political elite - who may often prefer not to be bound by international rules - is lessened. Testing these hypotheses on the 1993­94 data for 165 countries, Milanovic finds a statistically strong impact of per capita wealth and democracy on international integration. The effect of country size is weaker.

Milanovic discusses why different countries may wish to form conglomerates, defined as looser or tighter unions that imply shared sovereignty and redistribution from richer to poorer members. He finds that the willingness to join conglomerates (free trade associations) is greater for countries that are relatively poor (compared with the average income of the target conglomerate), and for democracies. The country size effect is U-shaped: The willingness to join conglomerates is high for small countries (whose sovereignty might actually increase in a conglomerate because of the conglomerate's sovereignty-sharing features) and for very large countries that may expect to play the role of core states. The key gain from independence for the relatively rich republics that were former members of the Communist conglomerates was not economic sovereignty in itself but the ability to switch from a poor to a rich conglomerate.

This paper - a product of the Poverty and Human Resources Division, Policy Research Department - is part of a larger effort in the department to study transition economies.

Abstract:
When income is redistributed at national level, the minimum requirement is that the transfers should be progressive, that is flow from richer to poorer individuals. The same rule should hold at the global level: it is not sufficient that transfers be from a richer to a poorer country. But normally we do not know who are the taxpayers who finance international aid nor who are the beneficiaries. We can nevertheless establish the rules such that the likelihood of a globally regressive transfer is minimized. This implies taking into account countries' national income distributions, that is penalizing countries with highly unequal distributions since there exists a non-trivial probability that the transfers may be received by people richer than rich countries' taxpayers who finance such transfers. Some rules for changing eligibility criteria for aid are proposed.

Aid, redistribution, global income distribution

Abstract:
The effect of the distribution of political rights on income inequality has been studied both theoretically and empirically. Gradstein and Milanovic review the existing literature and, in particular, the available empirical evidence. The literature suggests that formal exclusion from the political process through restrictions on the voting franchise appears to have caused a high degree of economic inequality. And democratization in the form of franchise expansion has typically led to an expansion in redistribution, at least in the small sample of episodes studied. In a less pronounced way, albeit more emphatically compared with the ambiguous results of earlier research, recent evidence indicates an inverse relationship between other measures of democracy, based on civil liberties and political rights, and inequality.

The transition experience of Eastern European countries, however, seems to some extent go against these conclusions. This opens possible new vistas for research, namely the need to incorporate the length of democratic experience and the role played by ideology and social values.

This paper - a product of the Poverty Team, Development Research Group - is part of a larger effort in the group to study the effects of inequality and poverty in the world. The study was funded by the Bank's Research Support Budget under the research project "Democracy and Redistribution" (RPO 683-01).

Abstract:
Why are social transfers from rich to poor people conducted only within countries? Is there a case for cross-country transfers? Would the basis for such transfers lie in compensation for past injustices; current economic and political interdependence between people in rich and poor countries; or the application of the global difference principle (as the cosmopolitans would argue)? The paper sees global non-state actors as key factors in fostering some modest redistribution at the global scale.

global redistribution, global inequality

Abstract:
In Latvia, only 1.5 percent of households receive social assistance, which for those households represents 20 percent of income. The allocation of social assistance is unequal. Urban households outside the capital (Riga) and those headed by male adults are systematically discriminated against. Because social assistance is locally financed, poor households in different parts of the country are treated unequally. Milanovic assesses the performance of Latvia's system of social transfers, in three ways:

First, he analyzes the incidence (who receives transfers) of pensions, family allowances, unemployment benefits, and social assistance. Per capita analysis shows pensions tending to be pro-rich and families allowances pro-poor (a finding typical in poverty analyses). Introducing an equivalence scale alters the results and shows all individual cash transfers performing about the same: mildly pro-poor.

Next, he examines the performance of social assistance, which is, by definition, directed to the poor. He shows that Latvia's current system is concentrated - meaning that social assistance is disbursed to few households (only 1.5 percent of all households receive it) but among those that do receive it, it represents a relatively high share (20 percent) of income. Households that are systematically discriminated against in the allocation of social assistance are urban households living outside the capital (Riga) and those headed by male adults. Third, he looks at the regional allocation of social assistance. The results confirm earlier findings of large horizontal inequalities - that people with the same income from different parts of the country are treated unequally, because the existing system is based on local financing of social assistance.

This paper - a product of Poverty and Human Resources, Development Research Group - is part of the Latvia Poverty Assistance Report (February 2000). The author may be contacted at bmilanovic@worldbank.org.

Abstract:
Some economists have argued that the process of disintegration of the world economy between the two world wars led to income divergence between the countries. This is in keeping with the view that economic integration leads to income convergence. The paper shows that the view that the period 1919-39 was associated with divergence of incomes among the rich countries is wrong. On the contrary, income convergence continued and even accelerated. Since the mid-19th century, incomes of rich countries tended to converge in peacetime regardless of whether their economies were more or less integrated. This, in turn, implies that it may not be trade and capital and labor flows that matter for income convergence but some other, less easily observable, forces like diffusion of information and technology.

This paper - a product of the Poverty Team, Development Research Group - is part of a larger effort in the group to study global inequality.

Abstract:
Using social tables, the author makes an estimate of global inequality (inequality among world citizens) in the early 19th century. The analysis shows that the level and composition of global inequality have changed over the past two centuries. The level has increased, reaching a high plateau around the 1950s, and the main determinants of global inequality have become differences in mean country incomes rather than inequalities within nations. The inequality extraction ratio (the percentage of total inequality that was extracted by global elites) has remained surprisingly stable, at around 70 percent of the maximum global Gini, during the past 100 years.

Inequality, Poverty Impact Evaluation, Equity and Development, Services & Transfers to Poor, Access to Finance

Abstract:
Using household surveys from Yemen and Djibouti, the paper analyses determinants of qat consumptions in two countries. The results confirm huge importance of qat in daily life: with between one-half (in Djibouti) and 70% (in Yemen) of all households reporting at least one user. But in Yemen, qat consumption is remarkably flat across income groups, age, and between rural and urban areas. Qat is a normal good and there is no indication that its use substitutes for food. In Djibouti, however, qat consumption increases with income, and appears to act as a substitute for food consumption. In both countries however there is a strong gender bias in the use: men are much more likely to use qat than women.

D12, I12

Abstract:
Using household surveys from Yemen and Djibouti, the paper analyzes determinants of qat consumptions in two countries. The results confirm huge importance of qat in daily life: with between one-half (in Djibouti) and 70 percent (in Yemen) of all households reporting at least one user. But in Yemen, qat consumption is remarkably flat across income groups, age, and between rural and urban areas. Qat is a normal good and there is no indication that its use substitutes for food. In Djibouti, however, qat consumption increases with income, and appears to act as a substitute for food consumption. In both countries however there is a strong gender bias in the use: men are much more likely to use qat than women.

qat, Horn of Africa, consumption

Abstract:
The results of new direct price level comparisons across 146 countries in 2005 have led to large revisions of PPP (purchasing power parity) exchanges rates, particularly for China and India. The recalculation of international and global inequalities, using the new PPPs, shows that inequalities are substantially higher than previously thought. Inequality between global citizens is estimated at 70 Gini points rather than 65 as before. The richest decile receives 57 percent of global income rather than 50 percent.

Global inequality, Purchasing power parity

Abstract:
Is inequality largely the result of the Industrial Revolution? Or, were pre-industrial incomes and life expectancies as unequal as they are today? For want of sufficient data, these questions have not yet been answered. This paper infers inequality for 14 ancient, pre-industrial societies using what are known as social tables, stretching from the Roman Empire 14 AD, to Byzantium in 1000, to England in 1688, to Nueva España around 1790, to China in 1880 and to British India in 1947. It applies two new concepts in making those assessments -- what we call the inequality possibility frontier and the inequality extraction ratio. Rather than simply offering measures of actual inequality, we compare the latter with the maximum feasible inequality (or surplus) that could have been extracted by the elite. The results, especially when compared with modern poor countries, give new insights in to the connection between inequality and economic development in the very long run.

Abstract:
Using social tables, we make an estimate of global inequality (inequality among world citizens) in early 19th century. We then show that the level and composition of global inequality have changed over the last two centuries. The level has increased reaching a high plateau around 1950s, and the main determinants of global inequality have become differences in mean country incomes rather than inequalities within nations. The inequality extraction ratio (the percentage of total inequality that was extracted by global elites) has remained surprisingly stable, at around 70 percent of the maximum global Gini, during the last 100 years.

global inequality, history, inequality extraction ratio

Abstract:
Economic transition is associated with significant shifts in relative prices between private and public goods. If, as a result, public goods claim a larger share of total expenditures, economies of scale in consumption increase. We show how relative price changes might alter the welfare of different-sized households in the short run and over time. We illustrate, for a selection of transition economies, that conventional poverty profiles are quite sensitive to assumptions made about economies of scale in consumption. In particular, the common view that large households with many children are poor relative to small households (such as those comprising the elderly) is shown to be highly non-robust.

Abstract:
The effect of the distribution of political rights on income inequality has been studied both theoretically and empirically. This paper reviews the existing literature and, in particular, the available empirical evidence. Our reading of the literature suggests that formal exclusion from the political process through restrictions on the voting franchise appears to have caused a high degree of economic inequality, and democratization in the form of franchise expansion especially for women, has more often than not led to an expansion in redistribution, at least in the small sample of episodes studied. In a less pronounced way, albeit more emphatically compared to the ambiguous results of the earlier research, the recent evidence indicates an inverse relationship between other measures of democracy, based on civil liberties and political rights, and inequality. The transition experience of the East European countries, however, seems to some extent to go against these conclusions. This, in turn, opens possible new vistas for research, namely the need to incorporate the length of democratic experience and the role played by ideology and social values.