Two important books on global inequality appeared in the last year, one by Francois Bourguignon, The Globalization of Inequality, and the other by Branko Milanovic, Global Inequality: A New Approach for the Age of Globalization. Here is my extended review of both, with a discussion of what they have to say and whether we should believe them: Review essay on Bourguignon and Milanovic.
Some key points from my review:
Current global inequality measures, such as used by Bourguignon and Milanovic (and many others), assume that national-mean income does not matter to economic welfare at given household income, as measured in surveys. My paper, “Global inequality when unequal countries create unequal people,” questions that assumption on theoretical and empirical grounds and finds that prominent stylized facts about global inequality are not robust. The paper offers a new approach to measuring global inequality that maintains the essence of global cosmopolitanism but recognizes that one’s view of global inequality, and the implications one draws for assessing global economic developments and policies, depends on how one values national income in assessing individual economic welfare.
At one extreme, theories of relative deprivation yield a nationalistic measure whereby global inequality is average within-country inequality, which is rising. Other theories and evidence point instead to an intrinsic value to living in a richer country. However, there can also be positive external effects of living in a wealthier country. The contextual factors are transmitted via better institutions, better public services, greater security and greater opportunities for economic gain, leisure and social protection, all of which can be expected to depend positively on mean income in the country of residence. And these positive effects could well dominate the negative effects associated with relative deprivation. To the extent that those living in richer countries are intrinsically better off there is even greater inequality in the world than suggested by current measures using survey-based own-incomes.
While further research is clearly needed, the paper finds that parameter values consistent with past studies of global subjective wellbeing suggest far higher global inequality than prevailing measures, though falling since 1990.
This presentation on inequality I made in December 2018 at a conference of the Agence Française de Développement provides an overview of the issues (as I see them) for both measuring income inequality and for thinking about policy going forward.