Growth In Economic Inequality Between Nations Ceased Between 1960 And 1989

January 10, 2000

University Park, Pa. -- Between 1960 and 1989, the pace of economic inequality between rich and poor nations slowed to a halt, largely due to the economic resurgence of China, a Penn State researcher says.

"Careful estimates indicate that the world's per capita income, stated in constant U.S. dollars, almost doubled from 1960 to 1989 -- from $2,277 to $4,367," says Dr. Glenn Firebaugh, professor of sociology. "An increase of this size certainly has enormous potential for destabilizing the distribution of income across nations. Statistics make clear, however, that this did not happen."

"During the 1960s, 1970s and 1980s, the rich nations did in fact get richer, but not at a faster rate than the poor nations got richer," Firebaugh notes. "This observation does not mean that all poor nations are keeping up. Many small poor nations are slipping further behind -- yet, because of China, the average income in poor nations grew just as fast as the average income in rich nations."

"One important implication for U.S. business is that, when China is included, the overall market in poor nations is expanding faster than it is in rich nations, since population is growing much faster in poor nations than in rich nations while per capita incomes are growing at a similar pace overall for both groups," he adds.

Economic inequality between countries has to do with ratios, rather than gaps expressed in absolute numbers, according to Firebaugh, a research associate with Penn State's Population Research Institute. In terms of absolute wealth, the gap between rich and poor nations continued to widen between 1960 and 1989, but the income increase in percentages was about the same for rich and poor nations.

Firebaugh is the author of "Empirics of World Income Inequality," which appeared in a recent issue of the American Journal Of Sociology. Firebaugh accessed careful income estimates for 120 nations, covering more than 90 percent of the world's people. He also made use of "weighted" figures, which compared nations on the basis of their population size.

"If you 'weight' comparisons between countries on the basis of population -- with China counting nearly 3,000 times more than Luxembourg -- then you get a different view of income inequality than if you use 'unweighted' figures or count every country the same," says Firebaugh.

"No study of income inequality between rich and poor nations could be accurate without considering the vast size of China, which has 20 percent of the world's people," he notes. "Significant economic growth of China between 1960 and 1989 was a key factor in reducing income inequality between rich and poor nations."

Firebaugh's research period ended with the watershed year of 1989, marked by the sudden disintegration of the Soviet Union. This resulted in a somewhat different configuration of nations, as the various Soviet republics emerged as independent nations after 1989.

"The Industrial Revolution produced a stunning increase in the income disparity between nations," Firebaugh says. "At the beginning of the 19th century, average incomes in the richest nations were perhaps four times greater than those in the poorest nations. At the end of the 20th century, the average per capita income in the richest nations was 30 times larger -- $18,000 versus $600."

However, the centuries-long trend of rising income inequality between nations paused during the 1960s, 1970s and 1980s, adds Firebaugh, a faculty member in the College of the Liberal Arts.

"The discovery of a `great plateau' in this historical trend has important implications for our understanding of movements in world income inequality," says Firebaugh. "One implication is that, since income inequality between individuals has been increasing rapidly for the world as a whole, yet income inequality between nations has largely ceased, then the increase worldwide must be due to increases within nations.

"It is well documented, for instance, that, since the mid-1970s, income inequality within the U.S. has risen after a long period of decline, a phenomenon called `the great U-turn,' " he notes.

Firebaugh's research was funded by two grants from the National Science Foundation.

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Contacts:

Paul Blaum (814) 865-9481 (o)

Vicki Fong (814) 865-9481 (o)/ (814) 238-1221 (h)

EDITORS: Dr. Firebaugh is at (814) 865-5001 and (814) 867-1037, or at by email.