Misleading UN report skews global economic development data

July 31, 2012

Free Market Foundation

Anti-globalisation activists like to quote a 1999 United Nations Human Development Report that seeks to establish that: “Gaps in income between the poorest and the richest countries have continued to widen” over the past four decades.

But serious economists are disgusted with the methodology of the report, as well as its unfounded conclusions. “When I began looking at the numbers, I saw a lot of mistakes,” comments Xavier Sala-i-Martin, an economist at Columbia University.

Critics point out that not only does the U.N. report depart from standard economic procedures like not correcting for price levels from country to country it hides numbers. Perhaps most egregiously, it compares gaps in income between the poorest and richest countries not individuals. Thus the economic circumstances of the citizens of tiny Grenada are put on a par with those of China which has a population 12,000 times greater.

Mistakes like these completely distort the record of globalisation.

When the distortions were corrected in two working papers for the National Bureau of Economic Research, a completely different picture emerged:

Over the last three decades, the world’s two largest countries India and China have raced ahead economically, as have other Asian nations with relatively large populations.

In effect, the new world middle class is made up of the top 40 percent of Chinese and Indians, and the effect of their economic rise is big.

So 2.5 billion people have seen their standards of living rise toward those of the billion people in the already developed countries.

A paper by Sala-i-Martin finds that by 1970, global income distribution hit about $1,000 in today’s dollars but by 1998, the largest number of people earned about $8,000, roughly equivalent to incomes in Portugal.

Africa has failed to live up to its potential and fully 95 percent of the world’s “dollar-a-day” poor live there.

Source: Virginia Postrel, Economic Scene: The Rich Get Rich and Poor Get Poorer. Right? Let’s Take Another Look, New York Times, August 15, 2002.

For text http://www.nytimes.com/2002/08/15/business/15SCEN.html
For more on Globalization http://www.ncpa.org/iss/tra

FMF Policy Bulletin\20 August 2002