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This remained the consensus for over 20 years – no doubt helped in part by the difficulty of defining ‘institutions’ – but recent works (notably Roy et al. 2016, Patel et al. 2021, Kremer, Willis and You 2021) suggest that the facts are changing. Since the mid-1980s, convergence has been gradually less and less conditional, and since 2000 has even been absolute. These studies argue that prior to Covid-19, poor countries – and especially lower-middle-income countries like India – were on track to catch up to rich ones after all. This seems to be, in part, because underlying policies and institutions in these countries are themselves converging to those of the rich world.This is welcome news in the fight for economic justice for the poor. However, in a response to Kremer, Willis, and You (2021) we discuss why, welcome as it is, it may not be quite as momentous for poverty reduction as it appears on the surface.We outline three reasons as to why this might be the case. First, the distribution of world poverty is changing. More of the world’s poor are living in middle-income countries. Fewer poor countries is not the same as fewer poor people. Second, manufacturing is providing fewer well-paid jobs in developing countries than it did in industrialised countries. Redistribution will be essential to spread the benefits from industrialisation.Third, challenges remain ahead. Redistribution is enabled by democracy, but the ongoing Covid-19 pandemic is abetting democratic backsliding. Meanwhile, climate change threatens future growth (Enevoldsen and Pande 2021).The distribution of world poverty is changing Development economists have long concerned themselves with poor households and with poor countries. For much of the discipline’s history, the association was natural – poor countries were predominantly home to poor households, and poor households were predominantly found in poor countries. In this view, finding absolute convergence is reassuring: as poor countries grow, so do the incomes of the poor individuals within those countries. And poor individuals in poor countries make up the world’s extreme poor…don’t they?The answer is, increasingly, ‘no.’ The period since 1980 has seen a weakening correlation between country income and the share of the world’s poor in that country. While country convergence remains unequivocally beneficial for poor individuals, its relative importance diminishes as within-country inequality has begun to dominate between-country inequality.We argue that absolute convergence in an increasingly unequal world is driving a wedge between country incomes and living standards of vulnerable groups, especially within lower-middle-income countries.The poor are increasingly living outside poor countries: A common presumption is that poor people live in poor countries, many impoverished by colonialism. This was not always the case. Bourguignon and Morrisson (2002) find that in 1820 almost 90% of global inequality was due to within-country inequality rather than between-country inequality.This proportion fell in the subsequent century, and by 1950 within-country inequality accounted for only 40% of global inequality. This proportion remained stable for the next four decades. However, in recent decades, the global income inequality decomposition trend has been reverting. Using a different metric, the World Bank (2016) finds that between 1988 and 2013, the proportion of global inequality due to within-country inequality rose from 20% to 35%.The poor are increasingly clustered within countries: Page and Pande (2018) identify the subset of middle-income countries that contain 1% or more of the world’s poor – high-poverty middle-income countries (HiPMIs). Just five HiMPIs are home to nearly half of the world’s poorest – India, Nigeria, Bangladesh, Indonesia, and Kenya. A quarter of the world’s poor live in India, a middle-income country.While the average incomes of these countries are not among the lowest in the world, the trends of inequality within them have an outsized impact on the global convergence between rich and poor regions, communities, households, and individuals.
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Redistribution the key in reducing poverty
