Global Distribution and RedistributionFrançois Bourguignon1)

16th Annual Bank Conference on Development EconomicsWashington D.C.Keynote Address

May 3rd, 2004

1) From joint work in progress with Victoria Levin and David Rosenblatt

2

MotivationPresent level of inequality of living standards and rate of absolute and relative world poverty are extremely high.

What should be done? Generate faster growth in poorer countries "Redistribute" from rich to poor countries

This paper : where do we stand on these various fronts? Ambiguous progress achieved at the bottom of the

distribution Ambiguous direction of redistribution through

international flows

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Outline

1) Global/International distribution of income

2) The evolution of the international distribution over the last two decades

3) Forms of international redistribution and their impact

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1. Global/International distribution today: Methodological issues

Problem of the consistency between household survey and National Accounts data in estimating global distribution.

This paper ignores within-country inequality; all inhabitants of a country assigned that country's GNI per capita (constant sample of 139 countries).

Focusing on 'international' distribution also simplifies the treatment of redistribution.

Exercise must be considered as rough first order approximation.

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International Distribution of income in 2002: with & without population weights

Distribution of Global GNI, PPP (Equal weights)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2002

Vintile 10B

Vintile 10A

Decile 9

Decile 8

Decile 7

Decile 6

Decile 5

Decile 4

Decile 3

Decile 2

Decile 1

Distribution of Global GNI, PPPPopulation weighted

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2002

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2. Evolution of the International Distribution: 1980-2002; (Population Weights)

….GNI in Constant 1995 PPP Dollars

Deciles (w/2 vintiles on top)

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

19

80

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

D10(2)

D10(1)

D9

D8

D7

D6

D5

D4

D3

D2

D1

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The international Growth Incidence Curve : 1980-2002 (Population weighted)

Annual Per Capita Income Growth, By Decile, 1980-2002

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

D1

D2

D3

D4

D5

D6

D7

D8

D9

D1

0(1

)

D1

0(2

)

Each decile--w/ shifting country composition

Organized by 1980 decile location

Whole sample

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Gainers and losers at the bottom : the changing composition of the poorest decile

1980Annual growth rate

(1980-2002)Malawi -0.11%Guinea-Bissau -0.26%Congo, Rep. -0.06%Mozambique 1.46%Chad 1.31%Burundi -0.95%China 8.20%Average for decile (population weighted) 8.07%

2002

Annual growth rate for each group

(1980-2002)Same countries as above, except for China 0.77%26 more countries -0.53%Average for decile (population weighted) -0.46%

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Annual Growth of GNI per capita by Decile,1980-2002, Equal Weights on Countries

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%D

1

D2

D3

D4

D5

D6

D7

D8

D9

D10

(1)

D10

(2)

World

The international Growth Incidence Curve : 1980-2002 (equal weights)

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2. Global redistribution

Redistribution = international income transfers

Direct instrument : Official Development Assistance

Indirect instruments : income equivalent of welfare changes due to changing barriers to trade of goods and services, capital, labor and knowledge flows

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Global redistribution through ODA

Official Development Assistance (ODA) as either inter-country income or asset redistribution

Grant-equivalent ODA (including bilateral grants, bilateral concessional loans, and imputed multilateral contributions) as income redistribution

What the inter-country income distribution would have been without these ODA flows is compared with actual distribution? (Assumed egalitarian allocation of ODA within countries).

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Global redistribution through ODA (population weighted)

2002

Incidence of Aid: % change in per capita income by decile

-0.50%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%D

1

D2

D3

D4

D5

D6

D7

D8

D9

D1

0(1

)

D1

0(2

)

& 1985

1985

2002

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Global redistribution through ODA (equal weights)

Incidence of Aid: % change in per capita income by decile

(equal weights)

-1.00%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%D

1

D2

D3

D4

D5

D6

D7

D8

D9

D10

(1)

D10

(2)

2002

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Global Redistribution through ODA: a dynamic view

• ODA may be viewed as permitting asset accumulation, increasing future rather than present GNI per capita

• Possible approach is to simulate the additional effect of ODA on growth. Collier-Dollar(2002):

• Problem is that a and b are very imprecisely estimated from cross-sectional data and CPIA has relatively little variance. Results are of little economic significance.

)/()..( iiii GNIODAbCPIAag

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Indirect global redistribution through market access

Change in market access (protection) has differential welfare effects on global traders that can be made equivalent to a pure income effect. Unlike aid, the corresponding redistribution is not zero-sumWe analyze the effect of trade liberalization on distribution of world GNI using World Bank’s Linkage model, based on GTAP dataset 25 country groups 1997 structure of the economy Full merchandise trade reform

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Incidence of trade reform or increased market access (population

weighted) Impact of trade reform (1997 base year)

% change in income per capita by decile

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%D

1

D2

D3

D4

D5

D6

D7

D8

D9

D10

(1)

D10

(2)

World

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Trade & AidAid & Trade Reform:

% change in income per capita by decile

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

D1

D2

D3

D4

D5

D6

D7

D8

D9

D1

0(1

)

D1

0(2

)

Aid

Trade Reform

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Indirect redistribution through other international flows

Difficult to evaluate without general equilibrium model of the type used for tradeFor instance, remittances alone cannot be considered as a good approximation of the international redistribution effect of migration. Other components include : costs for origin countries, the issue of the resident/citizen status of migrants, various types of externalities, ...Same argument for the evaluation of the redistibution effects of FDI

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ConclusionNo unambiguous increase of world social welfare in the last two decadesRedistribution through ODA presently limited, and canceled out by restrictions to market accessDirect or indirect "income" redistribution unlikely to achieve as much as growth Confirmation of priority to growth-oriented policies : improvement of investment climate, increased aid, and better mobilization of all international flows for reaching the MDGs and sustained growth.