L32) Globalization & Inequality

Question 1

Define Income Inequality:

Answer 1

measures disparity between % of population & % of income received by that population

more income disparity <=> more inequality

Maximum & Minimum inequality:

Question 2

What is Maximum Income Inequality?

Answer 2

PERFECTLY UNEQUAL because one person holds all income

Question 3

What is Minimum Income Inequality?

Answer 3

PERFECT EQUALITY because all persons hold the same % of income

Question 4

Differentiate between the types of Income Inequalities

Answer 4

Min: one person holds all income (perfectly unequal)
Max: everyone has same % (perfectly equal)

Question 5

According to Amartya Sen, why is income inequality relevant to globalization?

Answer 5

“The centric economic issue related to globalization is that of inequality”

• interest in the topic resurges since 1990s

Question 6

Describe the consequences of Income Inequality at a (sub-) national level (consequences of G)

Answer 6

• negative effects on economic growth
• political instability
• negative health & social outcomes
• inequality-averse

(4 impacts)

Question 7

Describe Income Inequality at a global level (due to globalization)

Answer 7

• Increased awareness of differences in incomes -> media & tech make conflict/info more accessible

–> In turn, leads to more Migration

Question 8

Define International Inequality?

Answer 8

average income differences/inequality between nations (compares GDP/capita)

• considers whether they are shrinking or increasing over time

Question 9

Define Global (or world) Inequality?

Answer 9

inequality between individuals in the world regardless of their nation’s borders

• looks at where they live

Question 10

Differentiate International Inequality & Global Inequality:

Answer 10

International Inequality looks at income differences between countries

Global Inequality looks at at income differences within countries

Question 11

Who is Milanovic? What did he do?

Answer 11

created Key Concepts to explore International vs Global Patterns of Inequality: (3)

1) Unweighted International Inequality
2) Weighted International Inequality
3) Global Inequality

Question 12

Unweighted International Inequality

Answer 12

first of Milanovic’s Inequality Concepts

UII: looks at average income differences between countries
* does not account for each country’s population size
* uses national data accounts (GDP, GNI, GDI)
* PPP as currency conversion to regulation price fluctuations between countries

Issues with UII: ignores within-country inequality

Question 13

Weighted International Inequality

Answer 13

second of Milanovic’s Inequality Concepts

WII: distribution if income weighted by country’s population size (now considers a country’s population size)
* Ex: China’s weight is approx. 20% (very large)
* uses national data accounts
* PPP as currency conversion, like UII

Issues with WII: ignores within-country inequality as well

Question 14

Global Inequality

Answer 14

third of Milanovic’s Inequality Concepts

GI: regulatory measure of inequality (makes up for U/WII gaps)
* measures disposable incomes at the individual level
* uses household surveys & Microdata to include socioeconomic examinations
* also PPP

Controls for within-country inequality

Question 15

What are the two most common measures of inequality?

Answer 15

Gini coefficient (G):
* 0: all individuals have the same income
* 1: one individual has all income
(closer to zero, more equal income)
=> Income inequality is more sensitive to transfers of income in the middle of distribution

Theil Index: measure of entropy
* 0: perfect equality
* unlike Gini, Theil has no upper bound (larger values mean greater inequality)
=> Income inequality is more sensitive to tails of distribution (top1%)
* decomposed to look at differences within-groups & between-groups

Question 16

Describe historical patterns of inequality (in relation to Milanovic’s three concepts)

Answer 16

UII:

WII:

GI:

Question 17

The ‘Inequality Transition’

Answer 17

Steady, upward rates of inequality until 1950s, but between-country inequality levels taper off afterwards (WII)

Describes how the 19thC Boom (IR) led to increased inequality across nations
* late 20thC saw several emerging economies industrializing faster than rich countries

UII & WII increase even without China

Question 18

What is the Elephant Curve? Describe its parts. What does it inform us in terms of global distributions of income?

Answer 18

‘Elephant’ Curve: considers where incomes are growing the most by measuring real growth income % vs % of global income distribution. Parts:
* (Poverty Trap)
* (Back of elephant)
* (Bottom)
* (Trunk)

Essentially, explains how global distributions of income are growing fastest in developing countries, not so much in middle class ones (income inequality)

Question 20

China*