Friday, 19 February 2016

Chinese growth and global inequality

Last year I wrote a series of posts on global inequality (see here, here, here, and here). I've been meaning to come back to this topic since reading this recent Branko Milanovic blog post about China.

China (along with India) has been the biggest contributor to the reduction in global "Concept 2" inequality (a term coined by Milanovic - this is inequality between countries in terms of average incomes, weighted by population size). However, China has been growing faster than western countries for a long time. Eventually it may catch up or pass some of them and at that point, will China start to contribute to an increase global inequality? And what about inequality within China - how important is that?

Milanovic explains (though I encourage you to read his whole post):
...rising internal inequality in China added some 2 Gini points to global inequality [between 1988 and 2011]. Luckily, however China’s fast growth more than compensated for that.
But the question can be asked next, what happens if China continues growing fast? Will its inequality reducing effects wane, and eventually reverse? The intuition is helpful here: if China were to become the richest country in the world, surely its further faster growth than the world mean, will be inequality-augmenting. Therefore, there must be a point when China becomes so rich that its further growth adds to global inequality...
Now, with global Gini around 0.7, the percentile rank at which countries begin to add to global inequality is around 0.85 (that is, only if they are mean-richer than 85% of other countries). China’s mean income is still far from that point. In 2011, it is around the 60th percentile with urban China around the 70th percentile and rural China around the 35th percentile...
Thus, while growth in urban China’s income will, by 2020, be close to contributing to increasing global inequality, its rural mean will be far from that position.
In other words, growth in urban China will start to contribute to an increase in global inequality from about 2020 (at projected growth rates). Rural China is some way behind, along with India. However, if both rural China and India also catch up, then we might expect a rapid reversal of the recent pattern of decline in global inequality.

Although, with Chinese growth looking much lower than previously, maybe we don't have to worry just yet?

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