Measuring and Explaining Global Inequality

Global inequality can be decomposed analytically into two components: inequality between countries, reflecting gaps in average income across nations, and inequality within countries, reflecting the gap between rich and poor individuals inside a single nation. For roughly two centuries following the Industrial Revolution, between-country inequality was the dominant driver of overall global inequality, as Western Europe, North America, and later Japan pulled sharply ahead of the rest of the world — a divergence the economic historian Lant Pritchett termed "divergence, big time" in a 1997 paper documenting how the ratio between the richest and poorest countries' per capita incomes widened roughly fivefold between 1870 and 1990. Since around 1990, however, this pattern has partially reversed: rapid growth in China, India, and other populous emerging economies has caused between-country inequality to decline for the first time in generations, even as within-country inequality has risen sharply in many places, including the United States, China, and India. This shift means that for someone's income, birth country still matters enormously — Branko Milanovic has estimated that roughly half to two-thirds of the variation in individual incomes worldwide is explained simply by the country a person is born in, more than by their class or occupation within that country.