Measuring Global and International Inequality

ing from what seem to be the transitory phenomena, like the post-Communist and East Asian crises, we seem to be in the presence of an interesting situation where world inequality is driven by what happens to the relative incomes of the three large areas: (1) the rich countries of the West, (2) urban incomes in China and India, and (3) rural incomes in these two countries. The ratio between (2) and (3) has been rising, and is unlikely to moderate. Moreover, while China and India are the most important examples of the trend, the urban-rural gap is rising in several other Asian countries (Bangladesh, Indonesia, Thailand). But as (2) catches on (1), world inequality is reduced. The crucial “swing” factor then becomes the ratio between (3) and (1): what happens to rural incomes in China and India vs. incomes of the rich world. If the former catch up, world inequality goes down; if they do not, world inequality tends to rise. This is exactly what drove the increase in inequality between 1988 and 1993, and its reversal between 1993 and 1998.