China’s role in reducing wealth inequalities around the world is subject to debate – Quartz
Global income inequality, as measured by the Gini coefficient, has steadily declined over the years.
What drove this trend? Much of the drop can be attributed to rising incomes in India and China, according to economists.
This assessment may no longer be as true as the world’s most populous country, China, has seen its income increase significantly, argues economist Branko Milanovic, senior researcher at the Stone Center on Socioeconomic Inequality of the City University of New York. He noted in a recent analysis: “As China’s income (GDP per capita) is now slightly above the world average, it no longer contributes to reducing global inequalities. In addition, China’s faster growth (relative to the rest of the world) will begin to contribute positively to global inequalities, first modestly, then more strongly.
Not so fast, says Zsolts Darvas, economist and senior researcher at Brussels-based think tank Bruegel who has done extensive research on global inequalities. “There are caveats,” he warns. “… China itself is a very unequal country, so if somehow China is able to reduce inequalities in China, then it can help reduce global inequalities. Now the question is, what is the likelihood of this happening? “
It is certainly an issue at the top of the list of priorities of Chinese officials, who in recent months have trumpeted “common prosperity” with great vigor. But it remains to be seen whether this actually translates into distributed wealth and reduced inequality, or turns into downward mobility.
The impact of the pandemic on global inequalities
A working paper (pdf) published by Darvas in March, titled “The Unequal Inequality Impact of Covid-19,” further complicates the narrative. Because China has responded so aggressively to the coronavirus, it was able to avoid a recession in 2020, unlike most other countries. Drawing on his data analysis, Darvas argues that China’s economic growth in 2020 has actually helped curb rising income inequality around the world. He also argues that the likely small increase in income inequality in China has also helped slow the increase in income inequality around the world.
This contrasts with the argument made by Nobel Prize-winning economist Angus Deaton in a separate working paper (pdf) published in January. He explains that there are two main ways of measuring global inequalities: unweighted country by country and weighted by population. Deaton argues that at the country-to-country level, global income inequality has declined in the wake of the pandemic, as rich countries have seen more Covid deaths per capita, leading to a larger drop per capita incomes in higher income countries than their poorer counterparts.
However, Deaton notes, when weighted by population, global income inequality increase. Why?
He writes: “This was largely because Indian incomes fell, and because the unequal effect of declining Indian incomes was not offset by rising incomes in China, which is no longer. an overall poor country. But here, Deaton also adds a caveat: China was the only major economy to record growth in 2020, and if it had been excluded from the calculations, “the rise in weighted inequalities would have been higher.”
Still, Deaton seems to agree with Milanovic’s point about China’s future contributions to global inequality.
“Because 4.4 billion of the world’s 7.8 billion people now live in countries poorer than China, China’s rapid growth will eventually be unbalanced, but that was not the case during the pandemic, ”he wrote.