World Bank: ‘The world has become more equal’

AEI - James Pethokoukis: World Bank: 'The world has become more equal'

Lots of attention being given to a new World Bank study suggesting China may overtake the United States this year as the world's largest economy, adjusted for living costs. But this other World Bank finding, noted by the Financial Times, is also interesting:

When looking at the actual consumption per head, the report found the new methodology as well as faster growth in poor countries have “greatly reduced” the gap between rich and poor, “suggesting that the world has become more equal”.

As the above chart shows, high-income countries in 2005 had 16.4% of global population and 60.4% of global GDP vs. 16.8% of population and 50.3% of GDP  in 2011. Although income inequality within nations may be on the rise, global economic inequality between nations is collapsing.

But here's what is really amazing: Back in 2005, low-income countries represented 7.1% of global GDP vs. 1.5% today. Now it's not as if these nations became poorer. Rather they moved up the income ladder. In 2005, 35.4% of global population lived in "low-income countries." Now that number is just 11.1% as more than 1 billion humans "moved" into middle-income nations which now represent 72.1% of global population vs. 48.2% in 2005. ...

I've seen the graph below, but it points to an interesting dynamic. It seems to suggest as economic growth happens in developing nations, the distance between the top and bottom of the income ladder widens considerably, leading to increased inequality in the nation. But economic growth also seems to move the very bottom of the distribution away from zero. It brings the income distribution more in line with developed nations, thus reducing the inequality between nations.