Economics Working Paper 16102
In the 1990s, cross-country empirical data suggested that the world income distribution was diverging into two peaks, rich and relatively poor. With the passing of time, we can update that empirical analysis by calculating a Markov transition matrix for the most recent two decades. This paper presents the clearest empirical picture to date of how the world income distribution has changed every succeeding decade from 1960 to 2010. This paper also compares transition matrices for 122 countries over two periods, 1970-90 and 1990-2010 and finds that divergence in the earlier period has shifted to convergence in the latter. Further, differencing the two matrices shows how the dynamic is itself evolving. Projecting these dynamics forward suggests rapid growth across all regions over the coming century that will bring nearly all countries to within 80 percent of the per capita income frontier.