Income Measurement, Global Inequality and Inclusive Growth: A Contribution to Development Economics

One of the current economics paradigms is to employ the GDP per capita as the average income measurement. This dissertation presents a less biased measure of average income to study global inequality and, using a case study, shows that this measure remained stagnant in the presence of high but jobless growth. Chapter I contests the paradigm by displaying the multiple drawbacks inherent to both GDP and GNI per capita, stating that they are just indicators of production. This dissertation finds that the average wage is a less biased estimator because it is somewhere between the average income in the informal sector and the average income of the rentiers, and it is not affected by most of the problems that discredit the GDP per capita. Thus, chapter II uses the average wage to study income inequality between countries. This dissertation focuses on the core of the debate: the pattern of income inequality between countries in the aftermath of globalization. It is shown that the methodologies selected play a major role. For instance, in the period 1990-2008 the GDP per capita shows an undeniable decrease in inequality between countries while the average wage reflects in general an increase in the trend of relatively high inequality between countries and between regions. This dissertation also searches for the explanatory factors of the difference between both indicators. Chapter III is about the economic model of the Dominican Republic, a country that followed many development recipes but still has high unemployment. It shows some of the reasons why the real GDP per capita increased by 128% in a period of real-wage stagnation. This country has a negative trade balance for goods that represents around 16% of their GDP, and almost 80% of the exports in goods are from free-trade zones. Given the structure of this economy, a GDP growth of 5% keeps the unemployment rate constant. These facts reflect that this type of non-inclusive growth failed in one of the basic goals: decreasing the high unemployment. The regressions showed that sectors with a higher proportion of local producers better impact unemployment and that an improvement in the trade balance positively affects employment.