• By The Financial District

Global Inequality Is Rising, And China, India Share Blame

COVID-19 was never going to be good for the poor. At first, however, the disease was not associated with rising inequality.

Photo Insert: The lion’s share of the reduction in global inequality over that time was attributable to the rapid economic growth of China and India.

Richer economies tended to suffer larger declines in GDP per person than many poor ones in 2020—and within those countries hefty stimulus packages protected the poorest from penury, The Economist stressed in an analysis.

As the pandemic wore on, though, its effects on global inequality shifted. Richer countries enjoyed better access to vaccines than poorer ones, and were able to sustain spending on programs to support incomes and bolster recoveries.

The pandemic raised inequality between countries, back to the levels of the early 2010s. Thus, the long decline in global inequality that began around 1990 has come to an end—and gaps between rich and poor now look likely to widen, as poor countries take longer to recover from COVID.

Developing countries now face gloomier economic prospects. Scarring effects of the pandemic, including forgone schooling and investment, stand to constrain growth, as do heavy debt burdens and the challenges posed by Russia’s war in Ukraine.

All the news: Business man in suit and tie smiling and reading a newspaper near the financial district.

The IMF reckons that by 2024, output across the emerging world will probably remain more than 5% below the pre-pandemic trend, while that in rich economies will be less than 1% below trend (and output in America will be above it).

Yet, higher global inequality is also the outcome of a happier development. Recent work by Ravi Kanbur of Cornell University and Eduardo Ortiz-Juarez and Andy Sumner of King’s College London suggests that measured global inequality may rise in steady fashion in the years ahead for much the same reason it fell in recent decades.

Market & economy: Market economist in suit and tie reading reports and analysing charts in the office located in the financial district.

While the emerging world as a whole has gained ground on rich countries since the 1980s, the lion’s share of the reduction in global inequality over that time was attributable to the rapid economic growth of China and India.

GDP per person in China now stands at roughly the global average—a milestone India may reach in the 2030s. As incomes in those countries cross that threshold, their continued growth will become a source of increasing, rather than decreasing, inequality.

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