The robustness of population-weighted individual income distribution dynamics

Abstract

The recent literature on ‘global income distribution’ has recentlyfocused on ‘individual income inequality’ to account for the so-calledChina effect. We examine the robustness of various populationweighting schemes that account for different country sizes in the studyof income distribution dynamics. We apply our test of stochasticstability to within as well as between-country income distributiondynamics and find that the middle-income group’s role in incomedistribution dynamics vanishes when we allow for very highpopulation weights for China and India. Following a more robustprocedure that caps the weights of countries with excessively largepopulations, we recover the stable middle-income group during somesub-periods of our sample. We argue that giving China and Indiaweights proportional to their populations allows these twohigh-leverage points to dominate all other sources of incomedistribution dynamics.