Global Consumption Disparities: Unveiling a Persistent Divide
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Abstract
This paper delves into global consumption inequality through empirical and theoretical analyses. First, countries are categorized into five groups according to their consumption levels to uncover worldwide consumption patterns using the Penn World Tables 10.01 dataset between 1970 and 2019. The results imply that the inequality in per capita consumption is significant and persistent across time. Moreover, there is a ``Caste System'' in world consumption: countries belonging to the lowest class struggle to climb up to the upper consumption groups, whereas the countries in the top class keep their seats over time. Second, the saving rate differences between ``climbing'' and ``falling'' countries are empirically tested based on the Solow-Swan framework, which shows that the level of the saving rate determines the level and the growth rate of per capita consumption. Since the analyses show that the climbing countries have significantly higher saving rates than falling countries, a higher saving rate is conducive to increasing a country's per capita consumption level and growth rate in the long run.
JEL Codes: E21, O47, C21
Keywords: Consumption-saving decision, Solow Growth Model, Cross-sectional models
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Elçin, F. (2024) “Global Consumption Disparities: Unveiling a Persistent Divide”, World Journal of Applied Economics, 10(1), pp. 1-16. doi: 10.22440/wjae.10.1.1.
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References
References
Aguiar, M., & Bils, M. (2015). Has Consumption Inequality Mirrored Income Inequality. American Economic Review, 105 (9), 2725-2756. doi:10.1257/aer.20120599
Aitken, A. (2019). Measuring Welfare Beyond GDP. National Institute Economic Review, 249 , R3-R16. doi:10.1177/002795011924900110
Atkinson, A. B. (2015). Inequality: What Can Be Done? Harvard University Press.
Attanasio, O., Battistin, E., & Ichimura, H. (2004). What Really Happened to Consumption Inequality in the US? (Working Paper No. 10338). NBER. doi:10.3386/w10338
Attanasio, O., Hurst, E., & Pistaferri, L. (2015). The Evolution of Income, Consumption, and Leisure. In C. D. Carroll, T. F. Crossley, & J. Sabelhaus (Eds.), Improving the Measurement of Consumer Expenditures (Vol. 74). University of Chicago Press. doi:10.7208/chicago/9780226194714.003.0005
Attanasio, O., & Pistaferri, L. (2014). Consumption Inequality over the Last Half Century: Some Evidence Using the New PSID Consumption Measure. American Economic Review, 104 (5), 122-26. doi:10.1257/aer.104.5.122
Attanasio, O., & Pistaferri, L. (2016). Consumption Inequality. Journal of Economic Perspectives, 30 (2), 3-28. doi:10.1257/jep.30.2.3
Bannister, G. J., & Mourmouras, A. (2017). Welfare vs. Income Convergence and Environmental Externalities (Working Paper No. WP/17/271). IMF. https://www.imf.org/en/Publications/WP/Issues/2017/12/07/Welfare-vs-45452.
Barrett, G. F., Crossley, T. F., & Worswick, C. (2000). Consumption and Income Inequality in Australia. The Economic Record, 76 (233), 116-138. doi:10.1111/j.1475-4932.2000.tb00011.x
Blundell, R., & Preston, I. (1998). Consumption Inequality and Income Uncertainty. Quarterly Journal of Economics, 113 (2), 603–640. doi:10.1162/003355398555694
Cerra, V., Lama, R., & Loayza, N. (2021). Links Between Growth, Inequality, and Poverty: A Survey (Working Paper No. WP/21/68). IMF. https://www.imf.org/en/Publications/WP/Issues/2021/03/12/Links-Between-Growth-Inequality-and-Poverty-A-Survey-50161.
Cutler, D. M., & Katz, L. F. (1992). Rising Inequality? Changes in the Distribution of Income and Consumption in the 1980s (Working Paper No. 3964). NBER. doi:10.3386/w3964
Deaton, A. (1998). Getting Prices Right: What Should Be Done? Journal of Economic Perspectives, 12 (1), 37-46. doi:10.1257/jep.12.1.37
Fisher, J. D., Johnson, D. S., & Smeeding, T. M. (2013). Measuring the Trends in Inequality of Individuals and Families: Income and Consumption. American Economic Review: Papers & Proceedings, 103 (3), 184–188. doi:10.1257/aer.103.3.184
Fisher, J. D., Johnson, D. S., & Smeeding, T. M. (2020). Estimating the Marginal Propensity to Consume Using the Distributions of Income, Consumption and Wealth. Journal of Macroeconomics, 62 , 103218. doi:10.1016/j.jmacro.2020.103218
Friedman, M. (1957). A Theory of the Consumption Function. Princeton University Press.
Gao, Z., & Zeng, Z. (2010). Economic Development and Consumption Inequality: Evidence and Theory (Working Paper). Baidu Academic. https://www.rbnz.govt.nz/-/media/project/sites/rbnz/files/events/AMW2010/3955105.pdf.
Islam, N. (1995). Growth Empirics: A Panel Data Approach. The Quarterly Journal of Economics, 110 (4), 1127–1170. doi:10.2307/2946651
Johnson, D. S., & Shipp, S. S. (1995). Trends in Inequality Using Consumer Expenditures: 1960 To 1993 (Statistical Survey Paper). Bureau of Labor Statistics. https://www.bls.gov/osmr/research-papers/1995/st950100.htm.
Jones, C. I., & Klenow, P. J. (2016). Beyond GDP? Welfare across Countries and Time. American Economic Review, 106 (9), 2426–2457. doi:10.1257/aer.20110236
Kaldor, N. (1957). A Model of Economic Growth. The Economic Journal, 67 (268), 591–624. doi:10.2307/2227704
Kane, T. (2016). Accelerating Convergence in the World Income Distribution (Economics Working Paper No. 16102). Stanford, CA: Hoover Institution. https://www.hoover.org/sites/default/files/research/docs/16102_-_kane_-_accelerating_convergence_in_the_world_income_distribution.pdf
Kilinc, D., & Yetkiner, H. (2013). Does Gender Matter for Economic Convergence? The OECD Evidence (Working Papers in Economics No. 13/02). Izmir University of Economics. https://eco.ieu.edu.tr/wp-content/wp1302.pdf.
Krueger, D., & Perri, F. (2006). Does Income Inequality Lead to Consumption Inequality? Evidence and Theory. Review of Economic Studies, 73 (1), 163–193. doi:10.1111/j.1467-937X.2006.00373.x
Mankiw, N. G., Romer, D., & Weil, D. N. (1992). A Contribution to the Empirics of Economic Growth. The Quarterly Journal of Economics, 107 (2), 407-437. doi:10.2307/2118477
Meyer, B. D., & Sullivan, J. X. (2013). Winning the War: Poverty from the Great Society to the Great Recession (Working Papers No. 18718). NBER. doi:10.3386/w18718
Meyer, B. D., & Sullivan, J. X. (2017). Consumption And Income Inequality in the U.S. Since the 1960s (Working Papers No. 23655). NBER. doi:10.3386/w23655
Milanovic, B. (2016). Global Inequality: A New Approach for the Age of Globalization. Harvard University Press, Belknap Press. doi:10.2307/j.ctvjghwk4
Modigliani, F., & Brumberg, R. (1955). Utility Analysis and the Consumption Function: An Interpretation of Cross-Section Data. In K. K. Kurihara (Ed.), Post Keynesians Economics (chap. 15). Rutgers University Press.
Ohtake, F., & Saito, M. (1998). Population Aging and Consumption Inequality in Japan. Review of Income and Wealth, 44 (3), 361-381. doi:10.1111/j.1475-4991.1998.tb00287.x
Pasinetti, L. (1962). Rate of Profit and Income Distribution in Relation to the Rate of Economic Growth. Review of Economic Studies, 29 (4), 267–279. doi:10.2307/2296303
Pendakur, K. (1998). Changes In Canadian Family Income And Family Consumption Inequality Between 1978 And 1992. Review of Income and Wealth, 44 (2), 259-282. doi:10.1111/j.1475-4991.1998.tb00272.x
Sala-i Martin, X. (2002). The Disturbing "Rise" of Global Income Inequality (Working Papers No. 8904). NBER. doi:10.3386/w8904
Sen, A. (1999). Development as Freedom. Oxford University Press.
Slesnick, D. (1993). Gaining Ground: Poverty in the Postwar United States. Journal of Political Economy, 101 (1), 1-38. doi:10.1086/261864
Solow, R. M. (1956). A Contribution to the Theory of Economic Growth. The Quarterly Journal of Economics, 70 (1), 65-94. doi:10.2307/1884513
Stiglitz, J. E. (2018). Where modern macroeconomics went wrong. Oxford Review of Economic Policy, 34 (1-2), 70–106. doi:10.1093/oxrep/grx057
Stiglitz, J. E., Sen, A., & Fitoussi, J.-P. (2009). Report by the Commission on the Measurement of Economic Performance and Social Progress (Report). European Commission. https://ec.europa.eu/eurostat/documents/8131721/8131772/Stiglitz-Sen-Fitoussi-Commission-report.pdf.
Tumer, E. T. (2019). Institutions and World Income Distribution. Ekonomik Yaklasim, 30 (113), 51-81. doi:10.5455/ey.17008
Tumer, E. T. (2021). Economic Growth, Institutions and Income Inequality (PhD Thesis). Dokuz Eylul Universitesi, Izmir, Turkey.
Zaidi, M. A., & de Vos, K. (2001). Trends in Consumption-Based Poverty and Inequality in the European Union during the 1980s. Journal of Population Economics, 14 (2), 367–390. doi:10.1007/s001480000038
Aguiar, M., & Bils, M. (2015). Has Consumption Inequality Mirrored Income Inequality. American Economic Review, 105 (9), 2725-2756. doi:10.1257/aer.20120599
Aitken, A. (2019). Measuring Welfare Beyond GDP. National Institute Economic Review, 249 , R3-R16. doi:10.1177/002795011924900110
Atkinson, A. B. (2015). Inequality: What Can Be Done? Harvard University Press.
Attanasio, O., Battistin, E., & Ichimura, H. (2004). What Really Happened to Consumption Inequality in the US? (Working Paper No. 10338). NBER. doi:10.3386/w10338
Attanasio, O., Hurst, E., & Pistaferri, L. (2015). The Evolution of Income, Consumption, and Leisure. In C. D. Carroll, T. F. Crossley, & J. Sabelhaus (Eds.), Improving the Measurement of Consumer Expenditures (Vol. 74). University of Chicago Press. doi:10.7208/chicago/9780226194714.003.0005
Attanasio, O., & Pistaferri, L. (2014). Consumption Inequality over the Last Half Century: Some Evidence Using the New PSID Consumption Measure. American Economic Review, 104 (5), 122-26. doi:10.1257/aer.104.5.122
Attanasio, O., & Pistaferri, L. (2016). Consumption Inequality. Journal of Economic Perspectives, 30 (2), 3-28. doi:10.1257/jep.30.2.3
Bannister, G. J., & Mourmouras, A. (2017). Welfare vs. Income Convergence and Environmental Externalities (Working Paper No. WP/17/271). IMF. https://www.imf.org/en/Publications/WP/Issues/2017/12/07/Welfare-vs-45452.
Barrett, G. F., Crossley, T. F., & Worswick, C. (2000). Consumption and Income Inequality in Australia. The Economic Record, 76 (233), 116-138. doi:10.1111/j.1475-4932.2000.tb00011.x
Blundell, R., & Preston, I. (1998). Consumption Inequality and Income Uncertainty. Quarterly Journal of Economics, 113 (2), 603–640. doi:10.1162/003355398555694
Cerra, V., Lama, R., & Loayza, N. (2021). Links Between Growth, Inequality, and Poverty: A Survey (Working Paper No. WP/21/68). IMF. https://www.imf.org/en/Publications/WP/Issues/2021/03/12/Links-Between-Growth-Inequality-and-Poverty-A-Survey-50161.
Cutler, D. M., & Katz, L. F. (1992). Rising Inequality? Changes in the Distribution of Income and Consumption in the 1980s (Working Paper No. 3964). NBER. doi:10.3386/w3964
Deaton, A. (1998). Getting Prices Right: What Should Be Done? Journal of Economic Perspectives, 12 (1), 37-46. doi:10.1257/jep.12.1.37
Fisher, J. D., Johnson, D. S., & Smeeding, T. M. (2013). Measuring the Trends in Inequality of Individuals and Families: Income and Consumption. American Economic Review: Papers & Proceedings, 103 (3), 184–188. doi:10.1257/aer.103.3.184
Fisher, J. D., Johnson, D. S., & Smeeding, T. M. (2020). Estimating the Marginal Propensity to Consume Using the Distributions of Income, Consumption and Wealth. Journal of Macroeconomics, 62 , 103218. doi:10.1016/j.jmacro.2020.103218
Friedman, M. (1957). A Theory of the Consumption Function. Princeton University Press.
Gao, Z., & Zeng, Z. (2010). Economic Development and Consumption Inequality: Evidence and Theory (Working Paper). Baidu Academic. https://www.rbnz.govt.nz/-/media/project/sites/rbnz/files/events/AMW2010/3955105.pdf.
Islam, N. (1995). Growth Empirics: A Panel Data Approach. The Quarterly Journal of Economics, 110 (4), 1127–1170. doi:10.2307/2946651
Johnson, D. S., & Shipp, S. S. (1995). Trends in Inequality Using Consumer Expenditures: 1960 To 1993 (Statistical Survey Paper). Bureau of Labor Statistics. https://www.bls.gov/osmr/research-papers/1995/st950100.htm.
Jones, C. I., & Klenow, P. J. (2016). Beyond GDP? Welfare across Countries and Time. American Economic Review, 106 (9), 2426–2457. doi:10.1257/aer.20110236
Kaldor, N. (1957). A Model of Economic Growth. The Economic Journal, 67 (268), 591–624. doi:10.2307/2227704
Kane, T. (2016). Accelerating Convergence in the World Income Distribution (Economics Working Paper No. 16102). Stanford, CA: Hoover Institution. https://www.hoover.org/sites/default/files/research/docs/16102_-_kane_-_accelerating_convergence_in_the_world_income_distribution.pdf
Kilinc, D., & Yetkiner, H. (2013). Does Gender Matter for Economic Convergence? The OECD Evidence (Working Papers in Economics No. 13/02). Izmir University of Economics. https://eco.ieu.edu.tr/wp-content/wp1302.pdf.
Krueger, D., & Perri, F. (2006). Does Income Inequality Lead to Consumption Inequality? Evidence and Theory. Review of Economic Studies, 73 (1), 163–193. doi:10.1111/j.1467-937X.2006.00373.x
Mankiw, N. G., Romer, D., & Weil, D. N. (1992). A Contribution to the Empirics of Economic Growth. The Quarterly Journal of Economics, 107 (2), 407-437. doi:10.2307/2118477
Meyer, B. D., & Sullivan, J. X. (2013). Winning the War: Poverty from the Great Society to the Great Recession (Working Papers No. 18718). NBER. doi:10.3386/w18718
Meyer, B. D., & Sullivan, J. X. (2017). Consumption And Income Inequality in the U.S. Since the 1960s (Working Papers No. 23655). NBER. doi:10.3386/w23655
Milanovic, B. (2016). Global Inequality: A New Approach for the Age of Globalization. Harvard University Press, Belknap Press. doi:10.2307/j.ctvjghwk4
Modigliani, F., & Brumberg, R. (1955). Utility Analysis and the Consumption Function: An Interpretation of Cross-Section Data. In K. K. Kurihara (Ed.), Post Keynesians Economics (chap. 15). Rutgers University Press.
Ohtake, F., & Saito, M. (1998). Population Aging and Consumption Inequality in Japan. Review of Income and Wealth, 44 (3), 361-381. doi:10.1111/j.1475-4991.1998.tb00287.x
Pasinetti, L. (1962). Rate of Profit and Income Distribution in Relation to the Rate of Economic Growth. Review of Economic Studies, 29 (4), 267–279. doi:10.2307/2296303
Pendakur, K. (1998). Changes In Canadian Family Income And Family Consumption Inequality Between 1978 And 1992. Review of Income and Wealth, 44 (2), 259-282. doi:10.1111/j.1475-4991.1998.tb00272.x
Sala-i Martin, X. (2002). The Disturbing "Rise" of Global Income Inequality (Working Papers No. 8904). NBER. doi:10.3386/w8904
Sen, A. (1999). Development as Freedom. Oxford University Press.
Slesnick, D. (1993). Gaining Ground: Poverty in the Postwar United States. Journal of Political Economy, 101 (1), 1-38. doi:10.1086/261864
Solow, R. M. (1956). A Contribution to the Theory of Economic Growth. The Quarterly Journal of Economics, 70 (1), 65-94. doi:10.2307/1884513
Stiglitz, J. E. (2018). Where modern macroeconomics went wrong. Oxford Review of Economic Policy, 34 (1-2), 70–106. doi:10.1093/oxrep/grx057
Stiglitz, J. E., Sen, A., & Fitoussi, J.-P. (2009). Report by the Commission on the Measurement of Economic Performance and Social Progress (Report). European Commission. https://ec.europa.eu/eurostat/documents/8131721/8131772/Stiglitz-Sen-Fitoussi-Commission-report.pdf.
Tumer, E. T. (2019). Institutions and World Income Distribution. Ekonomik Yaklasim, 30 (113), 51-81. doi:10.5455/ey.17008
Tumer, E. T. (2021). Economic Growth, Institutions and Income Inequality (PhD Thesis). Dokuz Eylul Universitesi, Izmir, Turkey.
Zaidi, M. A., & de Vos, K. (2001). Trends in Consumption-Based Poverty and Inequality in the European Union during the 1980s. Journal of Population Economics, 14 (2), 367–390. doi:10.1007/s001480000038