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The Future of Worldwide Income Distribution - YouTube
Channel: Peterson Institute for International Economics
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Rising inequality, especially between the
super-rich and the middle class in many advanced
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countries, is a source of controversy and
debate.
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This video illustrates the strong growth in
the developing countries will shift hundreds
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of millions of people worldwide from poverty
to the middle class, or to affluence, thereby
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reducing inequality in the world’s population.
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This is Paolo Mauro along with Tomas Hellebrandt
from the Peterson Institute for International
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Economics.
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The large income gap between rich and poor
economies around the world is also a longstanding
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concern.
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But although inequality is rising within the
United States and several other advanced economies,
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income distribution at the global level is
becoming more equal.
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New estimates show that the distribution of
income across all of the world’s households
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is projected to improve further during the
next twenty years.
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This more hopeful trend is revealed by combining
projections of the growth of population and
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GDP for all countries in the world over the
next twenty years, with data from household
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surveys for 140 countries accounting for most
of the world’s population.
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Household surveys are conducted country by
country, and their results are based on interviewing
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thousands of households regarding their income
and consumption levels.
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This chart shows income reported by individuals
in surveys on the horizontal axis.
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The data are expressed in a common currency
and have been adjusted for the differing purchasing
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power of that currency in each country.
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The percent of the world’s population at
each income level is reported on the vertical
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axis.
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Three and a half billion people earn somewhere
between 300 and 3,000 dollars a year.
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The share of the world’s population earning
higher income levels, moving toward the right
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hand side along the horizontal axis, is progressively
smaller.
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It is true that by US standards, most of the
world’s people live in poverty.
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The poverty line in the United States is currently
defined at 6,000 dollars per person, for a
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four-person household.
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Three quarters of the world’s population
fall below this threshold.
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But notwithstanding that fact, global income
distribution has been improving for a decade,
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primarily because of strong growth in developing
economies such as China and India, as well
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as parts of Africa.
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In 2003, global income distribution was even
more unbalanced than today—it looked like
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this.
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Not only has the distribution moved to the
right, with global economic growth, but the
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distribution has also become less unequal.
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A summary measure of inequality is the Gini
coefficient.
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It ranges from zero at perfect equality for
all members of the population to 100 in the
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extreme case in which all income in a population
goes to one person.
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The Gini coefficient for the global income
distribution declined – that is, moved toward
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greater equality - from 69 in 2003 to 65 in
2013.
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Based on the projections here, the Gini coefficient
will decline further to 61 in 2035.
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Different rates of population growth in different
parts of the world are an important factor
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affecting global income distribution.
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Sub-Saharan Africa’s population will rise
from 900 million people today to almost 1.6
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billion in 2035.
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India will increase by more than 300 million,
reaching almost 1.5 billion in 2035.
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Population will grow little in China and in
most advanced economies.
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Most economic forecasters project that income
per person will continue to be faster in poor
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economies than in richer countries.
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Put together population growth and per capita
income growth, and here are total growth projections:
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GDP growth will be fastest in Sub-Saharan
Africa, India, and East Asia.
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The next step is to combine these projections
with information on income distribution within
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each country.
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This is Tomas Hellebrandt.
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With growth, the whole distribution continues
shifting toward higher incomes between 2013
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and 2035.
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This is what the global income distribution
will look like in 2035.
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Even though the distribution becomes less
unequal, the gap between the rich and the
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poor is projected to remain large even two
decades from now.
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These trends will affect global consumption
significantly.
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They will change the size and location of
markets for the various goods and services
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around the world.
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For example, with rising incomes in developing
economies, the number of people earning between
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2,000 and 6,000 dollars will increase from
1.8 billion in 2013 to 2.9 billion in 2035.
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The group earning more than 6,000 dollars
will almost double, to 3.2 billion.
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In Sub-Saharan Africa the middle income group
will grow at the fastest rate, by 400 million
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and the top group will rise by 100 million.
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In India, the number of people in the poorest
group will decline, those in the middle group
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will increase by 400 million and those in
the top group will rise by 300 million.
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China will cut the portion of its population
in the poorest bracket by more than half.
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It will more than double the number of people
in the top bracket.
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Sizable gains are also made in the rest of
the developing world, whereas changes in the
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advanced economies are less pronounced.
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As people are lifted from abject poverty,
they will afford a more adequate and varied
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diet as well as basic consumer goods.
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If history is any guide, consumption of meat,
fish and sugary drinks will increase.
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With rising incomes, more people will afford
to drive cars and fly to faraway destinations.
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All this will present opportunities for companies
and investors, but will also increase the
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demand for roads, airports, and energy.
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There will be intense pressures on scarce
natural resources, the environment, and the
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global climate.
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Stay tuned and we’ll soon have results on
some of those issues.
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