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India or China: whose household is wealthier?

India or China: whose household is wealthier?
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First Published: Fri, Nov 20 2009. 09 40 PM IST

Updated: Fri, Nov 20 2009. 09 40 PM IST
Plenty of research has been done on the inequality of per capita income between countries and also on income inequality within a country. The Gini coefficient is often used to measure the level of inequality, with a low number indicating low inequality while a high number indicates a high degree of inequality.
The index lies between 0 and 100 with 0 denoting absolute equality and 100 absolute inequality. The United Nation’s latest Human Development Report, for instance, puts the Gini index for India in 2007 at 36.8, better than China’s 41.5. The richest 10% of the Indian population gets 31.1% of the country’s income, while the poorest 10% get 3.6%. But economists such as Pranab Bardhan, professor at the University of California at Berkeley, have for long pointed out that while income inequality may be comparatively low in India, inequalities in wealth are far harsher. But data on wealth are much harder to get.
Graphics: Naveen Kumar Saini / Mint
Economists James B. Davies of the University of Western Ontario, Edward N. Wolff of New York University and Susanna Sandstrom and Anthony B. Shorrocks, both of World Institute for Development Economics Research of the United Nations University at Helsinki, have now tried to fill in this huge hole in research, by taking on the daunting task of estimating the level and distribution of global household wealth.
They used data on national wealth distribution available for 20 rich countries, accounting for 59% of the world’s population. For countries on which no direct data are available, the researchers used national household balance sheet data, survey data and what they call “regression-based imputations”. They agree that there are significant gaps in the data and data quality in many countries leaves a lot to be desired. But then, that’s entirely to be expected given the magnitude of the task.
Illustration: Jayachandran / Mint
What do they find? Unsurprisingly, the US is the world’s richest nation with wealth per adult of $201,319 in the year 2000, in purchasing power parity (PPP) terms. According to the authors’ calculations, mean wealth per Indian adult in 2000 was $12,021 in PPP terms.
For China, wealth per adult was estimated at $19,056 in 2000. That makes an average Chinese one a half times as wealthy as an average Indian. But if we take gross domestic product (GDP) per adult instead of per adult wealth, then the income of an average Chinese was only 1.18 times as much as that of an average Indian in 2000. The study says that India’s share of global GDP was 5.9% in 2000, while its share of global wealth was 4.2%.
Even more interesting are the estimates of wealth inequalities within countries. In India, for example, the top 10% of the population had 52.9% of the country’s wealth in 2002-03, while the top 1% had 15.7%. China was more egalitarian, with the top 10% owning 41.4% of the nation’s wealth. The Gini coefficient for wealth in India is 0.669, against 0.550 for China. Wealth is distributed very unevenly in the US, with the top 10% getting 69.8% of the country’s wealth and the top 1% own 32.7%. The Gini index for the US is a very high 0.801.
In contrast, the very poor own very little. In India, for instance, the bottom 10% of the population own a meagre 0.2% of the country’s wealth and the bottom 20% own just 1%. Despite China’s pretensions to communism, it is only marginally better, with the bottom 10% getting a mere 0.7% of the country’s wealth.
The researchers find that the top 10% of households in the world own 71% of global wealth. The inequality in wealth distribution is much higher than for income distribution. North America, with 5.2% of the world population, owns 26.8% of the world’s wealth and Europe, with 12% of the world’s people, owns 28.2% of global wealth.
Aren’t more people from the emerging countries joining the global rich? The researchers say “The popular press sometimes suggests that high wealth individuals from emerging market economies—especially China, India and Russia—are already strongly represented among the world’s rich. Our figures indicate that at least as of the year 2000 the emerging market economies did not supply a significant share of the top 1% of global wealthholders. With the possible exception of China they appear unlikely to do so for some time.”
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First Published: Fri, Nov 20 2009. 09 40 PM IST