The raging debate on inequality spurred by the publication of the French economist Thomas Piketty’s magnum opus on the subject, Capital in the Twenty-First Century, has so far focused largely on inequality within countries. But new data on the distribution of global incomes shows that inequality between countries is by far the greatest driver of inequality in the world.

A recent research paper by Branko Milanovic, one of the foremost global experts on inequality, shows that where you stand in the world distribution of incomes is determined largely by where you live, or even by where you are born (given that less than 3% of the world’s population migrate to another country). As the chart below shows, the average income gap between emerging markets such as China and India and a developed market such as Germany is staggering.

The chart plots the proportion of people from individual countries in each global income percentile. It shows how different income classes of countries rank internationally when their incomes are expressed in purchasing power parity terms. The chart shows that even the bottom income percentile class in Germany earns more than what the average citizen of the world (or the global median class) earns. To be more precise, even the bottom 1% of Germany ranks above the 60th global income percentile.

The contrast between a developed and relatively equal economy such as Germany and a developing and relatively unequal economy such as India is stark. Income distribution in India is relatively unequal. But despite such inequalities, most Indians rank very low in the global distribution of income. Thus, 97% of Indians find themselves in the bottom 60% of the world’s population when ranked according to incomes. In other words, only the top 3% of Indians rank above the 60th global income percentile. Barely 10% of Indians earn more than what the average citizen of the world (or the global median class) earns.

Income data for India is based on consumption expenditure surveys and hence is likely to underestimate the incomes of the rich. Nonetheless, the income gap between an average Indian and a poor German is strikingly large even if one accounts for the under-estimation bias in case of India. Even in case of the emerging global superpower, China, roughly 60% earn less than what the bottom 1% earns in Germany.

As Milanovic points out , such large inter-country differences have profound implications for determining policies against inequality.

“The mere existence of a large citizenship premium implies that there is no such a thing as global equality of opportunity because a lot of our income depends on the accident of birth," writes Milanovic.

While individually, one cannot do much about the accident of birth other than migrate to a high-income country, national policies can play a part in mitigating global inequalities. Policies geared towards raising growth and per capita incomes in developing countries such as India can contribute in a big way to reduce global inequality. As income levels across countries converge, the accident of birth will cease to be as important as it is today.

To be sure, within-country inequality also plays a role in determining one’s position in the global income distribution. But its impact is less than that of between-country differences on a global scale.

The gap between the developing and developed world is so large that even a century of high growth will not eradicate the citizenship premium, writes Milanovic. But the premium is likely to reduce, thanks largely to the growth of Asian economies.

“As it does, it will also reduce overall global inequality," writes Milanovic. “This might then lead us to a world not dissimilar to the mid-19th century, in which class is again more important for one’s global income position than location."

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