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The Real Winners and Losers of Globalization

From the World Bank blog by Branko Milanovic:

It is generally thought that two groups are the big winners of the past two decades of globalization: the very rich, and the middle classes of emerging market economies.

The statistical evidence for this has been cobbled together from a number of disparate sources. The evidence includes high GDP growth in emerging market economies, strong income gains recorded for those at the top of the income pyramid in the United States and other advanced economies, as well as what seems to be the emergence of “a global middle class” and casual observations of the rising affluence of Chinese and Indians.

Until now, there was no single source from which these insights could be checked, confirmed, qualified or rejected.

However, thanks to a database of household surveys put together recently by the World Bank, we can actually find out for the first time, from a single and consistent data source, who the real winners and losers of globalization are. The results give us a much more finely grained picture of the effects of the two recent decades of globalization.

The new data set represents a compilation of household surveys from more than 120 countries for the period 1988-2008, “centered” at five-year intervals, at 1988, 1993, 1998, 2003 and most recently, 2008. Household surveys are nationally representative surveys of people’s income or consumption.

When household surveys are conducted in a sufficient number of countries, they can be combined to produce a true depiction of global income distribution. Of course, for them to be comparable also requires adjusting incomes that are reported in national currencies. This adjustment is  done by converting incomes into so-called dollars of equal purchasing parity (PPP dollars) such that with $PPP 1 dollar, a person can purchase the same amount of goods and services in any part of the world.

Who gained and who lost?

What parts of the global income distribution registered the largest gains between 1988 and 2008? As figure below shows, it is indeed among the very top of the income distribution and among the emerging global middle class, which includes more than a third of the world’s population, that we find most significant increases in per capita income.

 

Percentage change in real income, 1988-2008, at various percentiles of global income distribution (calculated in 2005 Purchasing Power Parity/PPP dollars)

Note: based on preliminary calculations.

 

The top 1% has seen its real income rise by more than 60% over those two decades. (All the amounts are expressed in 2005 international dollars.)

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