Globalization and Inequality: Comments on Ravallion
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Two points
• Current “globalization” talk is, and is bound to be, nonsense.
• Most economists do not, and should not, believe in PWPL (Poverty with low poverty lines) as a social objective—and this is a defensible value judgment—an array of poverty lines is appropriate
Globalization and Inequality
• Real globalization—which included mobility of people--would reduce inequality in well being across spatial regions: full stop.
• We don’t have anything like globalization:– Nation-states have proliferated (more
sovereigns, more borders, more monies)– Movement of people has been off the agenda.
Number of new countries added per year(Source: Braun, Hausmann and Pritchett, “The Proliferation
of Sovereigns”)
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ssa mena
eca lac
eap other
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
1800 1820 1840 1860 1880 1900 1920 1940 1960 1980 2000
Years
Fra
ctio
n o
f T
ota
l In
equ
alit
y D
ue
to
Acr
oss
Co
un
trie
s
Theil coefficient
Mean ln deviation
Fraction of inequality due to across versus within countries
(Source: Bourguignon and Morrison)
2.33.6
4.1 4.4
2.4
6.17.2 7.6
9.0 9.1
0.01.02.03.04.05.06.07.08.09.0
10.0
USA/Ireland 1870
USA/Norway 1870
USA/Sweden 1870
USA/Italy 1870
Spain/Morocco 1990s
USA/Guatemala 1990s
UK/Kenya
Italy/Ethiopia 1990s
NLD/Indonesia 1990s
Japan/Vietnam 1990s
Rat
io o
f w
ages
in
PP
P
With negative region specific shocks of “desired” populations one either gets large changes in growth of populations (ghosts) or growth of
income per head (zombies)
Zombies
Ghosts
Population
Wages
Large movements of population within (large) countries, large differences in income per head
across countries
Why is this graph so facetious?
0
20
40
60
80
100
120
Gai
ns
as %
of
wo
rld
GD
P
All remaining goodsliberalization
3% increase in hostcountry labor force
Full Liberalization oflabor markets
X and inequality
“Does the set of processes called X in which
(a) the number of nation-states rises, but (b) transport costs (including of information) and (c) some nation-states pursue modestly more
liberal policies of some types towards the movement of goods and (perhaps) capital but not labor lead to
Increase or decrease inequality across nations/individuals?
“Globalization” and Y
• It is not clear “globalization” is the key phenomena of the 20th century—nationalism which is deeply anti-global is.
• It cannot be the case that we have an answer as to the impact of “globalization” on Y (where Y=growth, inequality, the environment)—an ill-posed question.
PWLPL vs. SWF
• Does X affect “poverty”?
• FGT(α,PL) requires a poverty line
• Gains to income/expenditure above the PL count zero towards reduction in poverty.
-1.5
-1
-0.5
0
0 0.2 0.4 0.6 0.8 1
Percentile
Headcount
Poverty Gap
Squared Poverty Gap
(to minus infinity)
Watts
EDEI
Contribution of income gains at various points in the income distribution to welfare measures
(Source: Kraay 2004)
Value judgments and poverty
• I personally do not have an objective function in which income/consumption gains count for zero above 1$/day or 2$/day.
• The question is: where can the poverty line be drawn such that zero is even a reasonable approximation?
Arguments against low poverty line
• Non-paternalism—there is no evidence of a sharp reduction in increases in subjective well-being w.r.t. expenditures around 1 or 2 $/day.
• Non-money metric indicators—relationship between income/expenditures and mortality/health/education does not get lower anywhere near 1 or 2 $/day
• Non-money metric indicators indicate the “rich” (upper 20 percent) in poor countries are enormously worse off than the “poor” in rich countries.
Arguments against low poverty line
• Non-paternalism—there is no evidence of a sharp reduction in increases in subjective well-being w.r.t. expenditures around 1 or 2 $/day.
• Non-money metric indicators—relationship between income/expenditures and mortality/health/education does not get lower anywhere near 1 or 2 $/day
• Non-money metric indicators indicate the “rich” (upper 20 percent) in poor countries are enormously worse off than the “poor” in rich countries.
World Values Survey Data on income and “happiness”
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0 5000 10000 15000 20000 25000 30000
GDP per capita, P$1990
Ind
ex o
f su
bje
ctiv
e w
ell-
bei
ng
Arguments against low poverty line
• Non-paternalism—there is no evidence of a sharp reduction in increases in subjective well-being w.r.t. expenditures around 1 or 2 $/day.
• Non-money metric indicators—relationship between income/expenditures and mortality/health/education does not get lower anywhere near 1 or 2 $/day
• Non-money metric indicators indicate the “rich” (upper 20 percent) in poor countries are enormously worse off than the “poor” in rich countries.
Infant mortality has (roughly) the same elasticity w.r.t. GDP per capita over a large range of (average) incomes
1
2
3
4
5
6
4 5 6 7 8 9 10 11
GDP per capita 1990s average (log scale, 1995US$)
Under-
5 m
ort
alty
rate
2000 (
log s
cale
)
Draw the poverty line where MDGs are achieved
Pre
d P
rob
co
mp
letin
g g
rad
e 5
(a
g
Nepal 1995Relative ranking (pc hh expendit
0 .9985181
0
.1
.2
.3
.4
.5
.6
.7
.8
.9
1
Arguments against low poverty line
• Non-paternalism—there is no evidence of a sharp reduction in increases in subjective well-being w.r.t. expenditures around 1 or 2 $/day.
• Non-money metric indicators—relationship between income/expenditures and mortality/health/education does not get lower anywhere near 1 or 2 $/day
• Non-money metric indicators indicate the “rich” (upper 20 percent) in poor countries are enormously worse off than the “poor” in rich countries.
Infant mortality of the richest 20 percent in selected countries
0
20
40
60
80
100
120
140
Brazil
,1996
Philipp
ines(
Cebu)
,91
Vietnam
,92-
93
Nepal,9
6
Nicara
gua,
93
South
Africa
,93
CIV,8
7-88
Ghana
,87-
88
Pakist
an,91
IMR
per
'000
Malnutrition of the richest 20 percent in selected countries
0
5
10
15
20
25
30
35
Brazil
,96
Nicara
gua,
97/9
8
Ghana
,93
CIV,9
4
India
,92/
93
Nepal,9
6
Niger
ia,90
Pakist
an,90
/91
Pro
po
rtio
n s
tun
ted
Arguments against low poverty lines (con’t)
• Revealed preference within and across countries– Poverty lines rise with income both within countries
and over time• There is absolutely no compelling factual or
value argument for low poverty lines.– LPL are not “biologically” based, e(p,Upov)
• Use of LPL is fine, but let us not confuse type I and type II error—almost certainly no one below a LPL is “not poor” but many (billions) are above LPL and are poor by reasonable definitions.
A proposal
• For 1$/day poverty we use the term “destitution”• For 2$/day we use the term “extreme poverty”• Each country uses its own ‘national” poverty line• We use the capital weighted average of the
World Bank shareholder poverty lines—something like 15$/day—to define “global poverty”
World Distribution of Income and “Poverty”
Destitution
Extreme Poverty
National poverty lines
Global Poverty
Poverty is a social construct
• This is not about having a “poverty focus” or not having a “poverty focus” this is about choosing a poverty line.
• For global discussions there is no reason to insist on a low poverty line as the only or even the major metric for success.
• I come not to bury poverty but to raise it.