Abstract:

Widening income inequality as a defining challenge indicates that world is diverging into twin peaks, rich and relatively poor. This paper investigates the convergence hypothesis as a dominant narrative of world income inequality to depict whether the current development process of inequalities is satisfactory for world economic growth. The empirical methods of absolute and conditional convergence for multiple indicators of income inequality with its impact on economic growth have been employed on a large panel of 200 countries from 1980 to 2018. The data is collected from the websites of World Income Inequality Database and World Development indicators of World Bank. Such results overwhelmingly support the convergence in income inequalities for the rich while the divergence for the poor. The analysis also concludes that rise in top class income shares cause to decrease the world GDP growth on average over the ten-year period, while increase the shares of low income holders enhance economic growth.  Thus policies focusing on the poor and the middle class can mitigate, not only inequality and poverty, but can also boost world GDP growth. These policies should be according to country-specific characteristics and institutional settings by raising average living standards, encouraging the circulation of income and more inclusive prosperity for which countries will have to work together.

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