World Institute for Research

No. 2/2006

WIDER Conference 2006 WIDER Annual Lecture Advancing Health Equity Global Patterns of Income and Health by Angus Deaton Inequalities in income and inequalities in health

lobal inequality takes many dimensions. Not only is there great inequality across Gthe peoples of the world in material standards of living, but there are also dramatic

ehtikuva / Reuters /Supri 2002 IMAP 2002 /Supri Reuters / ehtikuva inequalities in health. The inhabitants of poor L countries not only have lower real incomes, but they are also more often sick, and they live shorter lives. These international correlations between income and health should affect the way that we think about the level and distribution of global WIDER recently launched its research on health with an wellbeing. They also need to be understood if international conference entitled Advancing Health Equity, we are to be effective in reducing global , held on 29–30 September 2006. Health is increasingly in incomes, or in health. Wellbeing should never recognized as an important indicator of a country’s be thought of only in terms of income, or only in standard of living as well as a measure of the wellbeing terms of health. Health scientists and economists of its citizens. Substantial and widespread improvement in need to come together if we are to fully understand health outcomes has taken place during the past century, yet global poverty and inequality and if we are to this progress has been highly uneven both within and across design policies that will be effective in making countries. This has resulted in health outcomes in many the world a better place, particularly for its most countries falling far short of commonly accepted levels. deprived inhabitants. For instance, in sub-Saharan Africa significant numbers of children now face more risk of dying than those ten years Income, life expectancy, and ago. Though these are important issues very little has been global wellbeing done to understand the root causes of the widening gap in health outcomes and even less has been done to address In a justly celebrated paper, Samuel Preston them through appropriate policies. drew a graph of life expectancy against national income, showing that, in the poorest countries, The conference, attended by over 100 experts, focused on small changes in average income were associated issues of health inequality and deprivation, specifically with large improvements in life-expectancy, in the context of developing countries. Papers presented while among the rich countries, the protective at the conference examined the causes and consequences effects of income, although still present, were less of this inequality, analyzed the patterns and trends in the pronounced. Figure 1 shows the relationship for outcomes, and evaluated policies with a particular focus the year 2000. Life expectancy is on the vertical on public health programmes. axis, and per capita national income in purchasing power parity dollars is on the horizontal axis; Papers presented at the conference and other details: the diameter of each circle is proportional to the www.wider.unu.edu population of each country. The point at which the slope flattens out, at an income per capita

United Nations University of around $5,000 in 2000, is the ‘epidemiological transition’, where deaths from the ‘diseases of the bowels and lungs of children’ are replaced by deaths from ‘diseases of the arteries of the elderly’. Preston also showed that income is not the only factor at work. Even countries with stagnant incomes typically have increases in life expectancy, which he attributed to the adoption of new methods of public health, or more precisely in most cases, to the new adoption of old methods of public health.

If we were to make an adjustment to income to take into account life chances, scaling down for those with poor health, and scaling up for those with good health, the and, after the Second World War, countries are mostly the lives of world distribution of this compound were rapidly brought to the rest of babies, and these reductions in of income and health would be the world. As a result of this diffusion infant mortality have a dramatic much more unequal than the world of health knowledge, cross national effect on increasing life expectancy. distribution of either health or inequality in life expectancies fell Indeed, in the years immediately income taken separately. The case quite sharply in the years after 1950. after the Second World War, in the for humanitarian action to improve If, for example, we take a simple heyday of malaria eradication and the lot of the world poorest is compound measure of income and child vaccination, some countries stronger once we recognize that the health by multiplying income by increased their life expectancies poor are doubly deprived, not only life-expectancy, then inequality by several years each year. By in material living standards, but also over countries declined for most of contrast, the current increase in in lower chances of living a long and the post-war period, driven not by life expectancy in rich countries healthy life. any reduction in income inequality is largely driven by reductions in between countries, but by the the mortality rates of the middle- The joint distribution of global convergence of life-expectancy. aged and elderly, partly through health and income has undergone reductions in smoking, partly remarkable changes over time. Things fell apart after 1990. HIV/ through improvements in medical Before the industrial revolution, AIDS in sub-Saharan Africa undid prevention and treatment, particularly there was relatively little inequality almost all of the increases in life- for cardiovascular disease, and between countries in either health or expectancy of the previous 40 years partly from improvements in the income, although there was a great and there was a significant, although health and nutritional standards deal of inequality within countries. smaller, reduction in life expectancy of children 50 years ago. It is far As the material living standards of in the countries of the former Soviet from clear how we should compare the countries of northwest Europe, Union. Huge gaps in life expectancy the value of mortality reductions particularly Britain, began to pull opened up again between many at different ages. Focusing on the away from the rest of the world, so African countries and the rich, effects on life expectancy is one did their life expectancy rates. This healthy countries of the world, way of comparing the two, but this growth in cross-country inequality of and health (and total) inequality essentially arbitrary ‘solution’ gives incomes that began in the eighteenth increased once again. If, as we much higher weight to reductions century shows no sign of reversal might hope, the AIDS pandemic is in infant and child mortality, and to this day, but the same is not a historical anomaly, international requires a better justification than true of health. The sanitary and health convergence will resume. habit and the convenient availability preventive measures associated with of information on life expectancy. an understanding of the germ theory The cross-country convergence in of disease spread to the countries of health is arguably overstated by One important consideration is that southern and eastern Europe in the focusing on life expectancy. The fertility falls with infant mortality, early years of the twentieth century lives that are being saved in poor albeit with a lag. If parents adjust

 their fertility so that the number of In the ‘high income’ countries, less which is more important surviving children is the same after than 1 per cent of deaths are deaths for child mortality and health than is the reduction in infant mortality as it of children. Worldwide, there are either or poverty was before, the new age structure of around four million deaths a year reduction. Better educated women the population will eventually settle from acute respiratory infections, are better caregivers to their children, down to the previous one, except for nearly two million from diarrheal as well as more effective users of and the absence of those young children disease, and more than a million lobbyists for better health services. who were previously destined to die. from diseases that are preventable In the new demographic equilibrium, by childhood immunization. How Economic growth is much to be the babies who used to cease to exist to prevent or cure these diseases is desired because it relieves the very soon after they were born, well-known, and often long known, grinding material poverty of much of because of lack of vaccinations or so that these deaths come not from the world’s population. But economic clean water, are now not born at all lack of knowledge, but because of growth, by itself, will not be enough or, to use parallel language, now some other factor, among which to improve population health, at cease to exist immediately before poverty is clearly a leading suspect. least in any acceptable time. Instead, they are born. Before the health In further support of the poverty governments must tackle the often improvement, these now unborn hypothesis, it has long been known difficult task of increasing education, children would have been born, and that countries whose economies and of providing better public health most would have led lives beyond have grown faster have had the and health services, particularly in infancy. These possibly good lives are largest (proportionate) reductions the poorest and least served areas. lost. While not everyone accepts the in infant and child mortality. (What As far as health is concerned, the legitimacy of including the potential happens to adult mortality is not market, by itself, is not a substitute lives of unborn children in welfare something that we know with any for collective action. calculations, the example should at certainty, given the dearth of vital least make clear the illegitimacy of registration systems in the poorest assuming that mortality reductions countries of the world.) at different ages are of the same value if they have the same effects But the correlation between growth on life expectancy. In any case, the and child mortality is not all that it calculus of life expectancy takes no seems. Perhaps surprisingly, there account of the benefits to mothers’ is no correlation at all between the lives of not having to bear so many absolute rate of mortality reduction children and of having to watch so and economic growth, even over the many of them die. 40 year period from 1960 to 2000. Countries that grow faster have Growth as a means lower levels of infant mortality so to better health? that, even though their reductions in infant mortality are on average

The correlation between health and no higher, the proportional declines Kekkonen Susanna income opens up the possibility that are larger. This correlation between economic growth is one route to economic growth and the level of improving global health. If this is infant mortality cannot come from a true, then economic growth would causal link from poverty to mortality, be twice blessed, because it would which would lead to a relationship simultaneously reduce both income of changes with changes, and almost and health poverty. certainly reflects omitted third factors that influence both. Indeed, That low incomes are a primary the literature on economic growth cause of ill-health is plausible presents a number of immediately enough. The vast majority of deaths appealing candidates, such as the in poor countries are from diseases quality of governance, which not from which almost no one dies only creates the environment for Angus Deaton is Dwight in rich countries. In the countries economic growth, but also helps D. Eisenhower Professor of that the World Bank classifies as states provide an effective system of Economics and International ‘low income’, nearly one-third of public health and healthcare delivery. Affairs at Princeton all deaths are among children who Even more important is the level of University. have not reached their fifth birthday. education, particularly women’s

 The Global Distribution of Household Wealth by James Davies, Susanna Sandström, Anthony Shorrocks, and Edward N. Wolff

hile the richest 10% of both human and non-human. Our of the determinants of wealth levels adults in the world own study assigns wealth its long- in these countries allows imputations W85% of global household established meaning of net worth: the to be made for countries without wealth, the bottom half collectively value of physical and financial assets data. owns barely 1%. Even more less debts. In this respect, wealth strikingly, the average person in the represents the ownership of capital. Our estimates of wealth distribution top 10% owns nearly 3,000 times Although capital is only one part are based on household asset the wealth of the average person of personal resources, it is widely distribution data for 20 countries. in the bottom 10%. These are some believed to have a disproportionate For countries without this type of of the results that emerge from a impact on household wellbeing direct information, the degree of study of the distribution of household and economic success, and more wealth concentration was estimated wealth undertaken for the UNU- broadly on economic development from income distribution data (where WIDER project on Personal Assets and growth. available), using the relationship from a Global Perspective. observed between income and Our estimates of wealth levels wealth inequality in countries with We estimate the level and distribution are based on household balance both kinds of data. The remaining of wealth across all countries in sheets and wealth survey data countries, covering only a few the world using a comprehensive which are available for 38 countries. percent of world population, were concept of household wealth. In Fortunately, these include many assigned the average wealth everyday conversation the term of the rich OECD countries as distribution pattern for their region ‘wealth’ often signifies little more well as the three most populous and income class. than ‘money income’. On other developing countries, China, India occasions economists interpret the and Indonesia; so the data cover 56% No use was made of lists of the term broadly and define wealth to be of the world’s population and 80% of world’s billionaires, or of the the value of all household resources, household wealth. Careful analysis wealthiest individuals and families

 The regional pattern of asset holdings shows wealth to be heavily concentrated in North America, Europe, and high income Asia- Pacific countries which together account for almost 90% of global wealth (Figure 2). Although North America has only 6% of the world adult population, it accounts for 34% of household assets. Europe and high income Asia-Pacific countries also own disproportionate amounts of wealth. In contrast, the overall share of wealth owned by people in Africa, China, India, and other lower income countries in Asia is considerably less than their population share, within various countries, provided dollars, the corresponding world sometimes by a factor of more than by Forbes magazine and other value was PPP$26,000 per capita, ten (Figure 3). journalistic sources. Incorporating roughly the same as the average such evidence would boost estimated level in Poland or Turkey. Comparing per capita wealth and per global wealth inequality somewhat capita GDP across countries shows —increasing the share of world As illustrated in the world map that wealth is distributed even more wealth held by the top 1% by a (Figure 1), wealth levels vary unequally than income. High income couple of percentage points, for widely across nations. Among the countries tend have a higher share example — but would otherwise richest countries, mean wealth was of world wealth than of world GDP alter our story little. $144,000 per person in the USA because their wealth to income ratios and $181,000 in Japan. Lower down are above the world average. The Globally, household wealth is more among countries with wealth data reverse is true of middle and low concentrated, both in size distribution are India, with per capita assets of income nations. and geographically, when official $1,100, and Indonesia with $1,400 exchange rates are employed per capita. Even within the group Wealth to income ratios are rather than PPP valuations. Thus of high-income OECD nations the especially high in the UK, Italy, a somewhat different perspective range includes $37,000 for New and rich Asian nations. Lower than emerges depending on whether Zealand, $70,000 for Denmark and expected values are recorded for one is interested in the power that $127,000 for the UK. eastern European countries like wealth conveys in terms of local consumption options or the power to have influence on the world financial stage. Since a large share of global wealth is owned by people who can readily travel and invest internationally, it is more appropriate to use official exchange rates when studying the global distribution of wealth than when looking at the global distribution of income or poverty.

Wealth levels across countries

Using official exchange rates, global household wealth in the year 2000 amounted to $125 trillion, equivalent to roughly three times global GDP or to $20,500 per citizen of the world. In terms of purchasing power parity

 Our results show that the top wealth decile owned 85% of global wealth in the year 2000. The richest 2% of adults in the world held more than half global wealth, and the richest 1% of adults alone accounted for 40% of all household assets. In contrast, the bottom half of the world adult population owned barely 1% of global wealth. The Gini value for global wealth is estimated to be 89%; the same Gini value would be obtained if $100 shared amongst 100 people in such a way that one person receives $90 and the remaining 99 get 10 cents each.

North America, Europe, and the Czech Republic and Poland, two high wealth economies, Japan rich Asia-Pacific monopolize along with the Nordic countries and and the USA, exhibit very different the top wealth decile South Africa. Eastern European patterns of wealth distribution, countries are a heterogeneous group with Japan recording a wealth Gini Given the high concentration of with many different features. In of 0.55 while that of the USA is wealth in North America, Europe, this region, private wealth is on around 0.80. and rich Asia-Pacific countries, it the rise, but has still not reached is not surprising to discover that very high levels. Assets like private Wealth inequality for the world as almost all of the world’s richest pensions and life insurance are held a whole is higher still. Expressed in individuals live in these countries. by relatively few households. In the terms of the adult population of the The breakdown of the global wealth Nordic countries, the social security world, we estimate that net assets distribution in Figure 4 shows that system provides generous public of $2,160 per adult in the year 2000 each of the regional groupings pensions that may depress wealth was sufficient to place a household contribute about one third of the accumulation. South Africa is rich in the top half of the world wealth members of the world’s wealthiest in resources and has well-developed distribution. At least $61,000 per decile. China occupies much of the financial institutions; but the fact that adult was needed to belong to the the middle third of the global wealth the country has a large low-income richest 10% of households, while distribution while India, Africa population and exhibits some of the membership of the top 1% required and low-income Asian countries characteristics of less-developed a little over $500,000 per adult. The dominate the bottom third. As shown countries, may account for the low latter figure indicates that a family in Figure 3, for all developing regions wealth-income ratio. need only be moderately wealthy in of the world, the share of population Western terms to be among the top exceeds the share of global wealth, Global wealth inequality percentile of world wealth-holders. which in turn exceeds the share of members of the wealthiest groups. Estimation of the world distribution of wealth requires information to be combined on wealth differences between countries and within countries. The concentration of wealth within countries varies significantly, but is generally high. The share of the top decile ranges from around 40% in China to 70% and beyond in the United States and certain other countries. Typical Gini coefficients for wealth lie in the range 0.65-0.75, and some are above 0.8. In contrast, the mid-range of income Ginis is 0.35 to 0.45. Interestingly,

 Other types of financial assets are more prominent in countries like the UK and USA which have well developed financial sectors and which rely heavily on private pensions.

Finally, and perhaps surprisingly, household debt is relatively unimportant in poor countries. While many poor people in poor countries are in debt, their debts are relatively small in total. This is mainly due to the absence of financial institutions that allow households to incur large mortgage and consumer debts, as is increasingly the situation The representation of any given real assets, particularly land and farm in rich countries. Many people nation in the world’s richest 10% assets, are more important in less in high-income countries have depends on three factors: the size of developed countries. This reflects negative net worth and—somewhat the population, average wealth, and not only the greater importance paradoxically—are among the wealth inequality within the country. of agriculture, but also immature poorest people in the world in terms Countries that account for more than financial institutions. of household wealth. 1% of the top wealth decile comprise a rather exclusive group. Figures 5 The types of financial assets that are and 6 show that the USA is in first owned also show striking differences James Davies is a Professor, place with 25% of the members of across countries. A breakdown and the RBC Financial Group the global top decile and 37% of between savings accounts, shares and the top percentile. Japan features equities, and other financial assets, Fellow, in the Department of strongly in second place with 20% shows that savings accounts feature Economics at the University of the top decile and 27% of the top strongly in transition economies and of Western Ontario. He is percentile. in some rich Asian countries, while the Director of the WIDER share-holdings and other types of project on Personal Assets Differences in wealth financial assets are more evident in from a Global Perspective. composition rich countries in the West. Part of the explanation is poorly developed Susanna Sandström is Major differences are observed financial markets in transition a Research Associate at across countries in the composition countries, while savings accounts WIDER. She has previously of asset holdings, a result of different are favoured in Asian countries held positions at the influences on household behaviour, because there appears to be a strong Luxemburg Income Study such as market structure, regulation preference for liquidity and a lack and culture. As indicated in Figure 7, of confidence in financial markets. and Statistics Finland.

Anthony Shorrocks is the Director of WIDER and has previously held positions at the LSE and .

Edward Wolff is Professor of Economics, New York University, Senior Scholar, Levy Economics Institute of Bard College, and Research Associate, National Bureau of Economic Research.

 The Risk of Imbalanced Economic Growth in China by Zhang Jun

f there were one sentence that monopolizes. Increasing regional to be a major exporter of high-end can be used to describe China’s disparity as well as an urban–rural products [Business Week, 22-29 Igrowth, it must be: ‘China’s divide stagnate the consumption August 2005, pp. 88-89]. growth hinges on the rest of the boom. This increases the existing world’. The remarkable growth dependence of economic growth on Well, it is fascinating to the Chinese of China in recent decades has exports promotion and encourages indeed. This conjecture seemingly substantially changed the picture of foreign direct investment-related and implicitly suggests a need for the global production chain, and is infusion. the global trading system to make now challenging the global trading system; though the world—the US for short—isn’t ready for China’s ascension in the global economic system. Assuming China continues to maintain its growth momentum over the next two decades, at the rate it is currently developing, the global economic system faces a lot of big challenges. But the fundamental question worth raising is not whether we can avoid a global imbalance as such, but how serious the imbalance would develop to be.

Much of the growing concern in the past few years over the US imbalanced current account and fiscal budget focused on the dollar peg of Chinese currency, and the US exerted considerable pressure An article in a recent special issue more room for a rising China (if on Beijing to make its currency edition of Business Week on China not including India or others). But float. China sees a stable exchange and India believes that the Chinese at the same time we must bear in regime favorable to its current need to mind that China has enormous inner source of growth, and may definitely structural issues to overcome before not want to make a big leap forward … get ready for the next industrial making such export-led growth even after the decision of a 2.1 per leap. For years, China has been really sustainable. cent revaluation which was finally the cheap assembly shop for came on 21 July 2006. China also the world’s shoes, clothing, and The rapid investment-driven growth sees the transition to a flexible microwave ovens. Now, it is laying in the past decade has produced regime contingent on its alleviation the groundwork to become a global the stockpile of excessive capacity, of structural problems for which power in much more sophisticated, as evidenced by soaring non- it is extremely difficult to set a technology-intensive industries that performance loans in the banking timetable. also demand tons of capital. Billions sector and the zero growth of CPIs of dollars are flowing into auto, steel, [consumer price index]. Excessive The past decade has seen a slow- chemical, and high-tech electronics capacity is both due to and a benefit down of structural adjustments for plants. Driving this massive spending of the structural problem. Excessive China’s inner sectors, mainly due push is voracious domestic demand capacity of production leads to price to political constraints. The banking for all manner of goods as well wars, squeezes the profitability for system is still unhealthy and fragile, as a big shift by multinationals to manufacturers, and activates the capital markets are dying. The manufacture in China. As a result, asset sector, real estate. growth of a dynamic private sector China is rapidly becoming more is largely hindered by its inability to self-sufficient in key materials and Delaying structural reforms will invest in what the government still components, and setting the stage eventually slow down the economy.

 Undoubtedly, with China’s rise, global imbalance as such can take longer to change and to adjust collectively, simply because the US welcomes the economic rise of China and sees its growth in its own interest. China needs and can continue its rapid growth with a careful manipulation of its domestic- based policies. The timely shifting of China’s focus upon, and the effective working with its serious structural problems within, satisfy both Chinese and global long term interests.

See also the following WIDER Research Papers related to this topic: The Japanese experience in both to domestic structural complexity the 1980s and 1990s suggests a key and becoming a rebalancing tactic RP2006/146 ‘Gender Wage lesson: the existence of a structural for the Chinese in the next decade Differentials in China’s Urban problem contains growth in the long to participate in the global economy. Labour Market’, by Meiyan Wang run. China has similar problems. But this strategy will cost, as it did in and Fang Cai The investment–growth nexus in Japan twenty years ago. Embarking the short run has helped create the on an aggressive overseas buying RP2006/136 ‘Gender Earnings monetary overhaul and threatened spree upsets established international Differentials and Regional Economic macro stability, as manifested by balances of interests, creates much Development in Urban China, 1988- recent overheating in the year 2003– more friction with the rest of the 97’, by Ying Chu Ng 04. In this regard, China faces world, and hides the seriousness of tremendous challenges in managing structural problems. RP2006/129 ‘Development its macroeconomic stability under Strategies and Regional Income the export-led growth regime. So a strong argument could perhaps Disparities in China’, by Justin Yifu Given the size and rising share of be made for a focus on the structural Lin and Peilin Liu China’s purchasing power in the issues. First, this would allay some global market, macro instability in of the fears of the rest of the world RP2006/90 ‘Financial Development, China exacerbates the fluctuation about China’s rise; second, this Growth, and Regional Disparity in of global equilibrium prices of basic would win much applause from the Post-Reform China’, by Zhicheng commodities and raw materials. international business community Liang who will smell the profit to be made But given the nature of this issue in biding on contracts to improve RP2006/65 ‘Development of and political reality China, however, the structural issues. Thus, rather Financial Intermediation and the faces a dilemma between structural than scaring these corporations and Dynamics of Rural-Urban Inequality: reforms and rapid growth in the short their respective states, China will China, 1978-98’, by Yiu Por Chen, run. Structural reforms call for fiscal retain a strong outside lobbying Mingxing Liu, and Qi Zhang consolidation and abrupt closure or force and financing for its continued restructuring of inefficient banking development. And, third, China and state enterprises, which create must effectively solve the structural short term downturn pressure on obstacles before it can carry out its growth, and of course destabilize rapid growth into another decade or society. two. Truly secure and sustainable Professor Zhang Jun is economic development in China has Director, China Center for This may explain why there has been to build a large consumer driven base Economic Studies, Fudan an increasing necessity for Chinese if it is ever to have some degree of University. He was a enterprises to ‘go global’ in recent independent operation in the world Sabbatical Fellow at WIDER years. It is apparent that going global economy. in 2004–2005. is increasingly seen as an alternative

 Corruption, Poverty Traps, and Credit Market Imperfection by Indranil Dutta and Ajit Mishra

n many developing countries same World Bank study, Vares from upfront. Hence it is usually not corruption is pervasive and is Bosnia-Herzegovina states that, the case that the poor receives the Ioften cited in policy discussions ‘[previously] everyone could get benefit and then pays the bribe. Had as a major stumbling block for healthcare, but now everyone just such been the case, corruption would development. The local media in prays to God that they don’t get sick not give rise to poverty traps. To these countries frequently report because everywhere they just ask for illustrate this point consider a poor serious cases of corruption, typically money’. The implications of this are person with health problems who involving siphoning of money quite clear. When the poor cannot cannot obtain medical care because from government projects. For get medical care, when they are they cannot afford the bribes. This instance, roads built this year may excluded from potential jobs, when implies that the person continues to be washed out by the next, village they are not paid their due social suffer from ill health and is unable to wells may only be built on drawing assistance, simply because being earn a higher income, thus remaining boards, and schools may only poor they cannot afford to pay the poor. On the other hand, if the poor provide midday meals in official bribes then they would remain poor. person could get medical care on a documents. This type of corruption In other words, corruption becomes promise of paying the bribe later, and has broad macroeconomic effects a crucial factor in reinforcing the then fund the requisite amount from through poor infrastructure and poverty trap. By keeping the poor the extra income made after getting reduced investment, leading to lower in their place and providing the rich well, they would not be trapped in economic growth. with greater benefits, corruption poverty. The issue, however, is that can and does, in effect, exacerbate once the person gets well, what is Corruption also affects day to inequality. there to stop them from reneging on day life in the developing world. their promise to pay the bribe since, Whether it is obtaining a driving There are various questions one can given its illegal nature, they cannot license or receiving subsidized raise about exactly how corruption be enforced in a court of law. Thus credit, there is a certain amount of is able to exclude the poor. First, the upfront payment of the bribe is corruption to contend with. Yet, to why don’t corrupt officials actually crucial in maintaining the poverty an extent, the effect of corruption reduce their cut and charge the poor traps. is not classless; the rich are able to the maximum possible bribe that get away with more compared to the they can pay? Although there may The other important question one poor. An industrialist may be able to be several reasons why officials do can raise is why don’t the poor benefit from not adhering to the anti- not reduce their bribes, one obvious borrow the required amount of pollution laws through bribing an reason among them is that when bribes from the credit market and inspector. A government contractor officials engage in corruption there thus avoid the poverty trap? The may supply shoddy goods at the is certain probability (however small obvious explanation is that banks full price by paying a consideration or large) that they would get caught would not lend to the poor; but why? to officials. Through bribery and and be punished. It is this expected It is assumed that since the poor do collusion the rich can clearly benefit punishment that acts as a cost not have collateral, banks would from corruption. for engaging in corrupt activities, not risk a loan because in the event thus prompting officials to charge of reneging they do not have many When it comes to the poor, however, some positive amount of bribe. options to recover the loans. The the story is different. The World Other reasons could include that the reason, therefore, is that given the Bank study ‘Voices of the Poor’ corrupt officials may not be able to lender’s inability to monitor the loan proclaims that ‘Poor people engaged distinguish between those who can once it has been issued, the lender in the study reported hundreds pay the bribes and those who cannot, does not want to take the risk of of incidents of corruption as thus asking the same bribe from all. lending the money. The underlying they attempt to seek healthcare, Further, it may also be the case that assumption here is that poor people educate their children, claim social there is more than enough demand would cheat in such circumstance assistance, get paid, attempt to by people who can afford to pay a simply because they could get away access justice or police protection, higher bribe for the limited number with it. and seek to enter the marketplace’. of say, jobs or other resources, that The poor are often harassed by the official can dispense. This assumption, however, may not public authorities and are seldom reflect reality satisfactorily. Many the beneficiaries of development Note that because of moral hazard of the poor are hardworking and projects. In a telling revelation in the problems bribes must be paid honest people, who would fulfil

10 Corruption Perceptions Index 2006, www.transparency.org

their commitments like others. If, discusses the interlinkages between being that it will deter officials from suppose, the banks were to receive corruption and inequality in the engaging in corrupt activities. But a guarantee that the poor would not presence of incomplete information given the vast scale of corruption renege, would they then lend to in the credit market. In fact we in many countries, it becomes clear the poor? The answer to this is not demonstrate that corruption, by that monitoring and enforcement apparent. There can still be a case allowing low ability agents to may be extremely costly. As such, where the poor are excluded from collude with government inspectors, a better route of reducing poverty the credit market. If the borrowers plays an intrinsic role in the exit of may then be to focus on credit have heterogeneous abilities in the high ability poor borrowers. The market imperfections. In this way terms of their performance with tragedy of the situation is that the at least the poor would not be cash the loans and the lenders cannot more hardworking and better able constrained to pay the bribes. But as differentiate between the borrowers, of the poor are excluded from the we show, it is possible that a better then situations may arise where some market and thus are unable to move functioning credit market may also of the high ability poor borrowers out of the poverty trap. This is quite help in reducing corruption. are pushed out of the market because contrary to our expectations where they cannot be distinguished from we hope that through hard work and the low ability borrowers, thus ability one can build a better life increasing their cost of borrowing for themselves, free from poverty. and making it unsustainable for Thus in the presence of corruption Indranil Dutta is a Research them to remain in business. The high and credit market imperfection, Fellow at UNU-WIDER, ability rich borrowers, however, can even if the poor do not renege on Helsinki, Finland. He be easily differentiated from the rest their repayment, they still may be returns to the Department because being rich they can afford to excluded from the credit market. of Economics, University of put up collateral, and in turn enjoy a Sheffield in January 2007 lower rate of interest. What we have tried to highlight is the role of corruption in reinforcing Ajit Mishra is a Senior An argument along similar lines poverty traps. Hence, if we aim to Lecturer with the has been explored in our paper reduce poverty, fighting corruption (‘Inequality, Corruption and should be an important priority. Department of Economic Competition in the Presence of Typically this is achieved by focusing Studies, University of Market Imperfections’, WIDER on stricter laws, better monitoring, Dundee, UK. Research Paper 2005/46), which and greater enforcement; the idea

11 WIDER Special Events and Book Launch

Eddy van Doorslaer and Tony Barnett speakers of the first plenary session of the WIDER Conference on Advancing Health Equity organized in Helsinki on 29-30

Susanna Kekkonen Susanna September 2006. Approximately 100 experts participated in this conference.

The WIDER Annual Lecture on Global Patterns of Income and Health by Angus Deaton was held on Friday 29 September 2006. The webcast of the lecture, conference papers, and other materials are available online at: www.wider.unu.edu.

WIDER organized a seminar on International migration and development: patterns, problems, and policy directions a t the UN headquarters, New York, Tuesday 12 September 2006. The speakers were the directors of the WIDER projects on migration, from left: Jeff Crisp, Tony Shorrocks, (Chairperson), George Borjas, and Andrés Solimano. Some 200 participants attended the seminar at the Dag Hammarskjöld Library Auditorium.

This event coincided with the UN High Level Dialogue on Migration at the UN Headquarters in New York, 14-15 September 2006.

A launch of the WIDER study on Income Inequality and Poverty in Transition China co-directed by Cai Fang and Guanghua Wan was held in Beijing on 25 October 2006.

The panelists from left: Cai Fang, Chen Jiagui, Justin Lin, Guanghua Wan, and Xie Shuguang.

The event attracted considerable attention from the Chinese media and government agencies. A central government website stated that the WIDER study will be valuable for policy making related to poverty and inequality.

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Launch of WIDER study on World Distribution of Household Wealth

The co-authors of the WIDER study on the World Distribution of Household Wealth, James Davies, Susanna Sandström, Anthony Kyosuke Kurita Kyosuke Shorrocks, and Edward Wolff presented the research outcome on Tuesday 5 December 2006 to the media at the United Nations headquarters in New York and at the Foreign Press Association (FPA)

in London. A pre-launch was held at WIDER in Helsinki on Friday 1 December 2006.

Kyosuke Kurita Kyosuke This study, which shows that the richest 2% of adults in the world own more than half of global household wealth, attracted Susanna Sandström and Anthony Shorrocks presentation in Helsinki considerable attention in the world

media. This included news agencies, newspapers, radio, TV, and internet reports, such as AFP, Associated Press, Canadian Press, Kyodo News, Reuters, ABC News, BBC Dana Wright/FPA Dana World, CNN, Finnish Broadcasting (YLE), Fox News, Phoenix Chinese News, National Public Radio, Daily Graphic, Globe and Mail, Helsingin Sanomat, Hufvuvstadsbladet, Le Monde, Le Soire, Süddeutsche Zeitung, The Australian, The Economist, The Financial Times, The Guardian, The New York Times, The Observer, The Times, The Washington Post, Bloomberg, BusinessWeek, Earthtimes.org, Anthony Shorrocks presentation in London at the FPA Forbes, Yahoo! News, etc.

The report, figures, tables and other related material from the World Distribution of Household

We a l t h are available at: United Nations Nations United www.wider.unu.edu

See the article on pages 4-7 The Global Distribution of Household Wealth, summarizing the study.

Edward Wolff and James Davies presentation at the UN in New York

13 WIDER Publications

Policy Brief a strong analytical orientation, The New Economy in consisting of a mix of conceptual Development: ICT Opportunities Mobilizing Talent for and empirical analyses that and Challenges Global Development constitute new and innovative Edited by Anthony D’Costa Andrés Solimano contributions to the research (hardback 0230001467) UNU Policy Brief No. 7, 2006 literature. September 2006 Technology, Globalization and Journal Development Studies Palgrave Macmillan World Development Volume 34, Issue 8 (August 2006) WIDER Special Issue The Impact of Globalization on the World’s Poor Edited by Machiko Nissanke and Erik Thorbecke

Income Inequality and Poverty in Transition China (in Chinese) Edited by Fang Cai and An elegant, insightful and Guanghua Wan extremely helpful book in (paperback 7802302943) understanding intriguing September 2006 connections between ICT and Social Sciences Academic Press, economic growth. Because of its China analytical and yet readable style, the book is an essential reading for Books professional economists, policy makers and well-informed readers. Inequality, Poverty and Well-being —Lakhwinder Singh, Department Edited by Mark McGillivray of Economics, Punjabi University (hardback 1403987521) August 2006 Studies in Development Linking the Formal and Informal Economics and Policy Economy: Concepts and Policies Palgrave Macmillan Edited by Basudeb Guha-Khasnobis, This book examines inequality, and Elinor Ostrom poverty and well-being concepts (hardback 0-19-920476-4) and corresponding empirical September 2006 measures. Attempting to push UNU-WIDER Studies in future research in new and Development Economics important directions, the book has Oxford University Press

14 Understanding Human —Sakiko Fukuda-Parr, Visiting Well-being Professor, The New School, Edited by Mark McGillivray New York, and Director and and Matthew Clarke Lead Author, UNDP Human (paperback 92-808-1130-4) Development Reports 1996-2004 November 2006 United Nations Uniersity Press This volume extends WIDER’s outstanding tradition of publishing cutting edge work on the quality of life. Mark McGillivray has done a fine job of bringing together new work by leading figures in the field. Anyone interested in research in this area should consult and learn from this book.

—Mozzafer Qizilbash, Professor of Politics, Economics and Philosophy, University of York [This volume] is an excellent synthesis of past debates and contemporary policy analysis. It embraces economic development, governance, and social justice issues and it provides innovative case studies from a wide variety of contexts. Examining advances in underlying —Ray Bromley, State University well-being, poverty, and inequality of New York at Albany concepts and corresponding empirical applications and case No matter how you divide up studies the authors examine the developing world—‘formal– traditional monetary concepts and informal’, ‘legal–extralegal’ measurements, and non-monetary (my preference)—one thing is factors including educational not debatable: most people are achievement, longevity, health, and poor, on the outside of the system subjective well-being. looking in, and getting angrier every day. The message of this Human Well-being: book is it’s time to stop talking Concept and Measurement The authors of this much-needed and start designing reforms— Edited by Mark McGillivray book critically consolidate based on the informal practices (hardback 0230004989) current literature on well-being and organizations that poor December 2006 measurement, propose new entrepreneurs already use. I second Studies in Development dimensions and measures, and that motion. If you rebuild the Economics and Policy articulate the need for more and system from the bottom-up, they Palgrave Macmillan better international data. The will come—with their enterprise, project of shaping indicators and creativity, and piles of potential It has become widely processes to reflect wider horizons capital. acknowledged that the purpose of human aspiration is of pivotal of development is to improve importance in development, and —Hernando de Soto, President, human well being. But how do the book provides a tremendously Institute for Liberty and we define well being? How do solid yet creative contribution to it. Democracy, Peru we measure it? This volume is a much needed publication that —Sabina Alkire, Director, Oxford brings together leading research Poverty and Human Development on addressing these questions. Initiative, Department of This is an important book for all International Development, development professionals. University of Oxford

15 WIDER Discussion Papers

DP2006/09 Anthony Clunies-Ross and John Langmore: Political Economy of Development Finance

DP2006/08 Andrés Solimano: The International Mobility of Talent and its Impact on Global Development

DP2006/07 Hongbin Li and Yi Zhu: Income, Income Inequality, and WIDER was established by UNU as its fi rst Health: Evidence from China research and training centre and started work in Helsinki, Finland, in 1. Through Research Papers its research and related activities, WIDER seeks to raise unconventional and frontier issues and to provide insights and policy For a complete list and free access to the 150+ Research Papers published advice aimed at improving the economic and in 2006, visit the WIDER website or contact us (see Ordering WIDER social development of the poorest nations. publications). WIDER Angle is the newsletter of UNU- WIDER. Published twice a year, the Forthcoming books newsletter focuses on the Institute’s research activities. It is distributed free of The Impact of Globalization on the World’s Poor: Transmission charge. The newsletter is also available on Mechanisms our website at: www.wider.unu.edu. Edited by Machiko Nissanke and Erik Thorbecke Editorial contents, design and layout by Ara (hardback 0230004792) Kazandjian (e-mail: [email protected]), January 2007 and Basudeb Guha-Khasnobis Studies in Development Economics and Policy (e-mail: [email protected]). Palgrave Macmillan

Advancing Development: Core Themes in Global Development Research and Training Centres and Programmes of the United Nations Edited by George Mavrotas and Anthony Shorrocks University www.unu.edu (hardback 0230019021) (paperback 0230019048) • UNU World Institute for Development Economics January 2007 Research (UNU–WIDER) • UNU Maastricht Economic and social Research Studies in Development Economics and Policy and training centre on Innovation and Technology Palgrave Macmillan (UNU–MERIT) • UNU Institute for Natural Resources in Africa (UNU–INRA) The impressively broad range of issues in global economics that are • UNU International Institute for Software Technology (UNU–IIST) covered in this volume bring out not only the diversity of problems • UNU Institute of Advanced Studies (UNU–IAS) • UNU International Leadership Institute (UNU–ILI) that are all quite important for development in the contemporary • UNU International Network on Water, Environment world, but also the fact, in which there is reason to take some pride, and Health (UNU–INWEH) • UNU Programme for Comparative Regional that WIDER … has been able to contribute substantially to such a Integration Studies (UNU–CRIS) variety of fi elds, informed by a good understanding of the need for • UNU Institute for Environment and Human Security (UNU–EHS) coverage as well as quality. • UNU Programme for Biotechnology for Latin America and the Caribbean (UNU–BIOLAC) —From the Foreword by Amartya Sen • UNU Food and Nutrition Programme for Human and Social Development (UNU–FNP) • UNU Geothermal Training Programme (UNU–GTP) • UNU Fisheries Training Programme (UNU–FTP) Ordering WIDER publications • UNU International Institute for Global Health (UNU-IIGH)

WIDER The WIDER Discussion Paper and Research Paper series are Katajanokanlaituri 6 B available to download from www.wider.unu.edu 00160 Helsinki, Finland Tel. (+358-9) 6159911 Fax (+358-9) 61599333 Books are available from good bookshops or direct from the E-mail [email protected] publishers: www.oup.co.uk, www.palgrave.com, Website www.wider.unu.edu and www.unu.edu/unupress/. For further information on the Institute’s activities, please contact: For other inquiries and orders please contact WIDER Publications, Mr Ara Kazandjian Tel. (+-) 1210 Mr Adam Swallow, Katajanokanlaituri 6 B, FIN-00160 Helsinki, E-mail: [email protected] Finland, e-mail: [email protected]. Printed by Forssa Printing House Finland, 200, ISSN 12-

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