Trends in Income Inequality: Evidence from Developing and Developed Countries

Abstract

We use a novel approach to answer questions like: is there a secular trend and shift in inequality across developing and/or developed countries? Do the developing countries converge the inequality level of developed countries? Unlike some recent studies that rely on casual observation of the time series, we conduct recent econometric techniques that allow us to check if there are statistically significant trends and whether these trends are deterministic or stochastic. We also test the inequality gap between developed countries and different developing country groups using convergence test. Using data of 34 countries over the 1960–2020 period, we find that inequality has been either increasing or stable in developed countries; in developing countries, both improvements and deterioration in inequality are observable. We show also that few developing countries reduce the inequality gap with developed countries. These heterogeneous trends suggest that the inequality in the last half-century is driven by national rather than global contexts. Our analysis of the Official Development Assistance and inequality nexus supports this inference.