January/February 2016 François Bourguignon Is Professor Of

January/February 2016 11françois Bourguignon Is Professor Of Economic

François Bourguignon, Professor of Economics at the Paris School of Economics and former Chief Economist of the World Bank, explores the complex nature of global and domestic inequality, its historical trends, and implications for policy. He highlights that, contrary to the long-term rise in income inequality observed since the Industrial Revolution, recent decades have seen a notable decline in global inequality, primarily driven by the rapid economic growth of developing countries like China and India. However, within-country inequality has increased, offsetting some of the gains made at the global level.

Bourguignon discusses how inequality is measured using the Gini coefficient, with countries like France exhibiting lower levels (~0.25-0.30) compared to the U.S. (~0.40) and South Africa (>0.60). When aggregated across nations, the global Gini coefficient approaches 0.70, indicating very high inequality, largely due to disparities between rich and poor countries. This high level results from the enormous wealth gaps between the world’s poorest and richest nations, which overshadow intra-country inequalities.

The decline in global inequality since the early 2000s has been substantial, driven by the convergence of emerging economies toward the levels of Western nations, especially China and India. This convergence has been propelled by economic reforms, globalization, and increased demand for commodities, among other factors. Despite the slowdown of global economic growth, the large domestic markets in these nations suggest that inequality may continue to decline modestly over the coming decades.

Nevertheless, within-country inequality has risen significantly, particularly in developed economies such as the United States, China, and India. Bourguignon attributes this to structural changes such as technological progress, globalization, deregulation, and tax policies favoring the wealthy. Additionally, the mobility of capital allows the rich to shift assets across borders, complicating efforts at redistribution and tax enforcement. The underreporting of high incomes further suggests that inequality within countries is even more pronounced than official data indicate.

Globalization has played a dual role—reducing inequality between nations but exacerbating it within them. Outsourcing and technological advancements have benefited skilled workers more than unskilled labor, leading to increased income polarization. Policy responses including progressive taxation, strengthening labor protections, regulating financial markets, and international cooperation on tax transparency are essential strategies for mitigating within-country inequality.

Looking ahead, the greatest potential for further reduction in global inequality lies in Africa, where economic growth has been modest but sustained, and where the population is soon to represent a larger share of the world’s total. To sustain progress, countries must strengthen efforts to reduce domestic inequality—through eliminating discrimination, improving access to education, and implementing fair economic policies. Global integration, if managed properly, can continue to benefit everyone by fostering economic opportunities worldwide.

Paper For Above instruction

Global inequality has experienced a significant transformation over the last century, transitioning from a prolonged period of increase to a noteworthy decline since the turn of the millennium. This shift is largely attributable to the rapid economic growth experienced by developing nations such as China and India, which has substantially narrowed the income gaps between these countries and wealthier nations. François Bourguignon’s comprehensive analysis emphasizes that, although convergence among nations is reducing global disparities, inequality within individual countries is rising and presents a complex challenge for policymakers.

Measuring inequality typically involves the Gini coefficient, a statistical tool that captures income distribution disparities. Bourguignon notes that in many European countries, the Gini coefficient hovers around 0.25 to 0.30, indicating relatively moderate inequality. In contrast, the United States exhibits a higher level (~0.40), with some African nations like South Africa surpassing 0.60. When the entire world is considered as a single entity, the global Gini coefficient approximates 0.70, revealing an extremely high level of inequality—largely driven by the stark differences in income and wealth between the richest and poorest countries.

The decline in global inequality is primarily driven by economic convergence, as developing nations adopt reforms and integrate into the global economy. China and India’s reforms in the 1980s and 1990s, including market liberalization and opening to foreign investment, have played crucial roles. Additionally, the boom in Latin America and sub-Saharan Africa’s economies during the early 2000s further accelerated this trend. Nevertheless, the growth in these countries, particularly China and India, remains above that of advanced economies, thus maintaining downward pressure on global inequality. These trends suggest a sustained, albeit gradual, decline in global disparities, contingent on continued growth and reforms in developing regions.

Despite the benefits of convergence across nations, intra-country inequality has escalated, especially in major economies like the United States, China, and India. Bourguignon discusses the multifaceted causes: technological innovation favoring skilled over unskilled workers, globalization enabling companies to outsource and relocate operations, and policy shifts toward deregulation and tax cuts that benefit the wealthy. For example, the United States saw its Gini coefficient rise by approximately five percentage points from 1990 to 2013. This widening gap within countries threatens social cohesion and undermines the potential for equitable growth.

The issue of underreporting and data limitations complicates estimations of inequality. Studies suggest that traditional surveys underestimate the incomes of the very wealthy, which implies that real within-country inequality could be even higher than official figures indicate. Consequently, global inequality might have remained more stable than some estimates suggest, but the key point remains: domestic inequality has grown considerably and offsets the decline in differences among nations (Anand & Segal, 2008).

Globalization is the central driver of these contrasting trends. While it has fostered economic growth and reduced disparities between countries, it has also contributed to domestic polarization. Outsourcing has reduced the bargaining power of unskilled workers, and technological progress has favored higher-skilled individuals, widening income disparities. The resultant increase in inequality calls for targeted policy actions, including progressive taxation, social safety nets, and international cooperation on tax transparency and financial regulation.

International efforts, such as sharing financial information through organizations like the OECD and G-20, aim to combat tax evasion and curb illicit financial flows. These measures are vital because capital mobility diminishes the effectiveness of national tax policies by enabling the wealthy to shift assets abroad. Strengthening domestic policies—such as improving access to quality education, promoting inclusive growth, and eliminating discrimination—are indispensable for addressing within-country inequality.

Looking forward, Africa is poised to become the primary battleground for reducing global inequality, as its population growth and economic development accelerate. While current growth rates are modest, sustained progress can significantly impact global disparities given Africa’s population share. For this to happen, countries in Africa must focus on building resilient institutions, investing in human capital, and harnessing regional integration.

In conclusion, a dual approach is essential: continuing the convergence of developing economies to reduce global disparities while simultaneously addressing soaring domestic inequalities through inclusive policies. The success of these efforts hinges on international cooperation and a commitment to fairness, transparency, and sustainable development. Only then can globalization serve as a truly inclusive force that benefits all nations and their citizens.

References

• Anand, S., & Segal, P. (2008). The Global Distribution of Income. Handbook of Income Distribution, 2, 149-210.
• Bourguignon, F. (2015). The Globalization of Inequality. World Bank Policy Research Working Paper. https://doi.org/10.1596/1813-9450-7298
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