CityReads | How Has COVID-19 Changed Global Income Inequality?

Angus Deaton 城读 2022-07-13

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How Has COVID-19 Changed Global Income Inequality?

The pandemic reduced global unweighted inequality, and increased global population-weighted inequality.

Source: https://scholar.princeton.edu/sites/default/files/international_income_inequality_and_the_covid_v2_assembled_0.pdf

Picture source: https://www.arcgis.com/apps/opsdashboard/index.html#/bda7594740fd40299423467b48e9ecf6

To date, more than 100 million people worldwide have contracted COVID-19, causing 2.19 million deaths. The advent of vaccines has brought light, although globally COVID-19 is still not effectively contained. Research on the impact of the COVID-19 is and will be an important topic for the coming future.

Angus Deaton, an economist at Princeton University, analyzes how COVID-19 has changed the global income inequality using data on total deaths per million from Our World in Data, as of December 31st, 2020 (except for Hong Kong where the last date is December 15th, 2020). Data on real national income per capita, expressed in 2017 international (PPP) dollars are taken from the IMF World Economic Outlook of October 2020, from the World Bank’s Global Economic Outlook of January 2021, and from the World Development Indicators database.

How has COVID-19 changed global income inequality?

The answer to this question depends on how global income inequality is defined and measured.

Deaton uses two methods to measure global income inequality: one is to calculate the dispersion of per capita income between countries, using each country as a unit of observation, and the other is to calculate the dispersion of per capita income between countries, weighting each country by population.

Global inequality—defined as the dispersion of per capita income between countries taking each country as a unit—has not increased but decreased, and that it has done so because of the pandemic.

Alternatively, if global inequality is measured with each country weighted by its population, between-country income inequality has increased, not because poor countries have seen more rapidly falling incomes than rich countries, but because China has done so well.

The rapid growth of China has, for decades, decreased population-weighted between-country inequality, because it has lifted more than billion people up from the bottom of the world income distribution. But China is no longer a poor country in global terms, so that when it grows more rapidly than other countries, as it did in 2020 during the pandemic, it no longer decreases global inequality, but increases it.

For reasons that are only partially understood, and may include measurement error, poorer countries have so far suffered fewer COVID deaths per capita than have richer countries. Moreover, each country’s loss in per capita national income between 2019 and 2020 was strongly related to its per capita COVID death count. These two facts together mean that per capita incomes have, on average, fallen more in countries with higher per capita incomes in 2019; poorer countries have done relatively well. As a matter of logic, this need not narrow international income inequality, but it has in fact done so. Country by country, per capita incomes are closer to one another now than in 2019.

How has China's economy growth changed global income inequality?

China (but not India) had few deaths and experienced positive economic growth in 2020. Before the pandemic, China's rapid growth had lifted more than a billion people up from the bottom of the global income distribution, and has long been responsible for a reduction in global income inequality when each country is weighted by its population. But this effect has been attenuating as China's income has risen. Today, out of the world’s population of 7.8 billion, 4.4 billion live in countries whose per capita income is lower than China, while only 2.0 billion live in countries whose per capita income is higher than China.

During the pandemic, the Chinese economy grew while most other economies shrank, the reversal happened, and population-weighted global inequality increased. Contrary to pre-existing trends, the pandemic reduced global unweighted inequality, and increased global population-weighted inequality.

In recent years, largely because of the rapid growth in per capita incomes in India and China, population-weighted between-country inequality has fallen, while unweighted inequality, which rose until around 2000, has fallen since then. At the same time, before the pandemic, the fall in weighted between-country inequality has been accompanied by rising inequality within many countries, with the net effect that the global distribution of income between all the people in the world has become more equal. But the enrichment of China has diminished the size of the contribution that its high growth (and large population) has made to narrowing the global distribution of income among all persons.

Deaton uses three graphs to show the relationships between national income per capita before the pandemic (2017), COVID-19 deaths per million, and the predicted economic growth rate in 2019-2020.

Figure 1 shows the scatterplot across countries of the logarithm of deaths per million against the logarithm of income per head in 2019. The areas of the circles are proportional to population. The circles are shown in black for the OECD countries and in red for the countries not in the OECD.

Figure 1 shows the small number of deaths in China, as well as in other East Asian countries, whether in the OECD or not. The very low numbers of deaths in Burundi and Tanzania are most likely due to undercounts. Perhaps the most surprising result in the figure is the relatively high number of deaths among the highest-income countries.

Deaths in the US are above the regression line of logarithm of deaths per million on the logarithm of income per capita, but by that measure the US did about as well as Sweden, and better than Hungary, Spain, Poland, Portugal, Italy, the United Kingdom, and France. (Belgium is the worst of all, likely because of its more comprehensive measure of COVID-19 deaths. Troesken (2015) argues that the US has long been prone to infectious disease; in 1900, after a safe and effective vaccine had been available for more than a century, and in spite of already being the world's richest country, the US did worse than other rich countries in preventing smallpox deaths. Troesken argues (p 176) that this was "not despite being rich and free, but precisely because it was rich and free."

The second part of the story is the relationship between pandemic deaths and growth in per capita GDP in 2020. Countries with greater death rate per million are also likely to have had lower growth in 2019-20.

Figure 2 shows the IMF's predicted growth rates from 2019 to 2020 plotted against deaths per million. China, with few deaths, shows positive growth; the US, with many deaths, shows negative predicted growth. Weighted by population, the regression—shown as the dotted line—has a slope of -1.5 (t=11), so that predicted growth decreases by one and a half percentage points for every unit increase in the logarithm of deaths per million.

It is perhaps not surprising that deaths from COVID-19 should bring economic destruction, nor that the relationship should be much tighter than the relationship between deaths and income in 2019. But, once again, that there should be this relationship was not obvious before the pandemic. Indeed, in the early days, there was much discussion of the value of life and about a supposed trade- off between deaths and income, that lockdowns would save lives but destroy economies. As previous noted by Wolf (2020) for the advanced countries plus India and China, there is no evidence in these data for the existence of any such trade-off. Instead, the route to growth lies through stopping deaths. It is not a matter of your money or your life, but your money and your life.

For global inequality, the key is the relationship within the "triangle" USA, China and India. China's growth makes it closer to the rich world (reducing inequality), but further apart from India (increasing inequality).

Figure 3 closes the circle. It plots the income changes from Figure 2 against the 2019 levels of income in Figure 1; it shows that richer countries had slower (or more negative) growth in 2020 than did poorer countries. The slope of the weighted regression line in the Figure is -0.44 (t=1.1), and is larger without population weights, -1.6 (t=5.3); both to be expected given the disparate experience of the two largest countries. China is growing because, in spite of its relatively high income, it has seen few deaths while India, with more deaths per million than other countries at its income level, shows a 10.2 percent decline in income. Each country is an outlier, but in opposite directions.

Ignoring population size, the negative relationship between growth in 2020 and income in 2019 exists for the world as a whole, and within the non-OECD countries.

China's 1.4 billion people experienced few deaths and a growth in per capita income, which takes them further away from most of the people in the world and increases global inequality.

Conclusion

Per capita income losses were generally larger for the countries that were better off in 2019, because they saw more deaths per unit of population. This has brought countries closer together, not further apart. When countries are weighted by their population, there was a slight increase in inequality in 2020, but this is not because poor countries are falling further behind rich countries because of the pandemic, but because China saw few deaths and experienced positive growth. One (more or less accurate) way of saying this is that the pandemic increased global inequality, because it pulled 1.4 billion (richer) Chinese further ahead of 1.4 billion (poorer) Indians. Because 4.4 billion of the world's 7.8 billion population now live in countries poorer than China, when China grows faster, it increases population-weighted global income inequality, rather than decreasing it, as has been the case for the last 40 years.

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