World inequality
A summary statistic that captures one aspect of all these growth stories is
inequality between countries, and which indicates whether country income
levels are tending to converge or diverge over time. A fuller measure of world
inequality would also have to consider how the internal income distributions
are changing over time but as most inequality in world income distribution
reflects inequality between the country averages rather than inequality within
countries (Wade, 2001) country-level growth rates are the crucial variable driv-
ing international patterns of inequality so are a good place to start. There is
considerable debate as to how between-country inequality should be meas-
ured. First, how to measure income: whether GDP per capita should be
converted to US dollars using market exchange rates or be adjusted for PPP
across countries. Second, whether each country is weighted as one unit or by
population (any results weighted by population tend to be dominated by what
is happening in India and China),and third, which measure of inequality
should be used. Some of the widely used measures of inequality include the
Gini coefficient and the ratio of the income of the richest decile of world popu-
lation to that of the poorest decile (Wade, 2002). The only method consistently
showing declining between-country inequality uses population-weighted
country per capita PPP-adjusted income (Jha, 2000; Dollar and Kraay, 2002).
However, this method does not account for the rising inequality within many
countries.
This focus on trends in inequality can distract our attention from the enor-
mous scale of poverty and inequality. Roughly 85 per cent of world income
(measured at market exchange rates) goes to 20 per cent of the world’s popula-
tion (Wade, 2002). More than a billion people live on incomes that are not
sufficient to purchase the basic goods and services necessary to properly
survive as human beings. The introduction to the book noted just how many
decades it will take even those countries converging with developed-country
living standards to close a significant portion of existing income gaps.
Introduction to the proximate causes of economic growth
The proximate causes of economic growth are the accumulation of factors of
production (land, labour and capital) and the efficiency with which those
factors are utilized – the total factor productivity (TFP). Methodologies used
by scholars to explore their relationship with economic growth include cross-
country regression analysis, growth accounting and case studies.
Cross-country growth regressions
Robert Barro’s 1991 paper (see the Introduction) is a famous example of a
cross-country growth regression. This method involves finding data on those
Growth in the Modern World Economy since 1950 49