Global Distribution and Redistribution François Bourguignon 1)

1. Global Distribution and Redistribution François Bourguignon1) 16th Annual Bank Conference on Development Economics Washington D.C. Keynote Address May 3rd, 2004 1) From joint work in progress with Victoria Levin and David Rosenblatt

2. Motivation • Present 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

3. Outline • Global/International distribution of income • The evolution of the international distribution over the last two decades • Forms of international redistribution and their impact

4. 1. Global/International distribution today: Methodological issues • Problem of theconsistency 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.

5. International Distribution of income in 2002: with & without population weights Distribution of Global GNI, PPP Distribution of Global GNI, PPP Population weighted (Equal weights) 100% 100% Vintile 10B 90% 90% Vintile 10A 80% 80% Decile 9 70% 70% Decile 8 60% 60% Decile 7 50% 50% Decile 6 Decile 5 40% 40% Decile 4 30% 30% Decile 3 20% 20% Decile 2 10% 10% Decile 1 0% 0% 2002 2002

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

7. Organized by 1980 decile location The international Growth Incidence Curve : 1980-2002 (Population weighted) Annual Per Capita Income Growth, By Decile, 1980-2002 9.0% 8.0% 7.0% 6.0% Each decile--w/ shifting country 5.0% composition 4.0% 3.0% 2.0% 1.0% Whole sample 0.0% D1 D2 D3 D4 D5 D6 D7 D8 D9 -1.0% D10(1) D10(2) -2.0%

8. Gainers and losers at the bottom : the changing composition of the poorest decile Annual growth rate (1980-2002) 1980 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% Annual growth rate for each group (1980-2002) 2002 Same countries as above, except for China 0.77% 26 more countries -0.53% Average for decile (population weighted) -0.46%

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

10. 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

11. Global redistribution through ODA Official Development Assistance (ODA) as either inter-country incomeor assetredistribution 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).

12. & 1985 1985 Global redistribution through ODA (population weighted) 2002 Incidence of Aid: % change in per capita income by decile 3.50% 3.00% 2002 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% D1 D2 D3 D4 D5 D6 D7 D8 D9 -0.50% D10(1) D10(2)

13. Global redistribution through ODA (equal weights) 2002

14. 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 arevery imprecisely estimated from cross-sectional data and CPIA has relatively little variance. Results are of little economic significance.

15. 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-sum • We 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

16. Incidence of trade reform or increased market access (population weighted)

17. Trade Reform Aid Trade & Aid Aid & Trade Reform: % change in income per capita by decile 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% D1 D2 D3 D4 D5 D6 D7 D8 D9 -0.5% D10(1) D10(2)

18. Indirect redistribution through other international flows • Difficult to evaluate without general equilibrium model of the type used for trade • For 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

19. Conclusion • No unambiguous increase of world social welfare in the last two decades • Redistribution through ODA presently limited, and canceled out by restrictions to market access • Direct 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.