India lifting global income inequality: Oxford-UN study

LONDON : The “extraordinary” economic growth in India and China had lifted income differences in relative terms, but inequality continued to rise in absolute terms, a new study reveals.

The study on global inequality between 1975 and 2010 by the University of Oxford and the United Nations University World Institute for Development Economics Research is based on distinction between relative and absolute income inequalities.

“Over the past 40 years, over one billion people around the world have been lifted out of poverty, driven largely by very substantial growth in income in countries such as China and India,” said Oxford’s Laurence Roope, co-author of the study.

“This growth has been accompanied by a striking rise in absolute inequality, but it has changed the lives of many people. It is inconceivable that such growth, and the associated poverty reduction, could have occurred without an increase in absolute inequality,” he added.

The study published in ‘Review of Income and Wealth’ says inequality – both relative and absolute – increased between 1975 and 2010 in North America, Europe and Central Asia, South Asia and sub-Saharan Africa. Within regions, there was considerable variation with respect to levels of, and changes in, domestic inequality; in South Asia, Bangladesh experienced an increase of 60%, while Nepal saw a reduction of 38%.

On the difference between “relative” and “absolute” measures, and on which trend is more important, Finn Tarp, one of the authors of the study, says: “Take the case of two people in Vietnam in 1986. One person had an income of US$1 a day and the other had an income of US$10.”

“With the kind of economic growth that Vietnam has seen over the past 30 years, the first person would have now in 2016 US$8 a day while the second person, US$80 a day. So if we focus on "absolute" differences, inequality has gone up, but if you focus on "relative" differences, inequality between these two people would have remained the same.”

The study says that the divergent nature of the trends in inequality obtained from relative and absolute inequality measures poses important questions for policy makers.