Personal Assets from a Global Perspective
Much attention has recently been focused on estimates of the world distribution of income by World Bank researchers and others. The global distribution of income is very unequal and the inequality has not been falling over time. In some regions poverty and inequality have become much worse. WIDER researchers have long been interested in the picture for related measures of economic status or well-being. One of the most important of these measures is household wealth, the value of personal assets net of debts.
Wealth is important since it confers stability, independence, and a kind of self-insurance against negative income, financial and other shocks. It often also confers social and economic influence or power. Across countries and regions, and across age groups, genders and other groups, wealth varies independently of income. Old people sometimes have very low incomes but significant wealth, and poor people often lag further behind in assets than they do in income or expenditure. This means that to get an accurate idea of economic status or well-being it is very important to take into account assets as well as income.
The development of wealth data has historically lagged behind that of income data. However, the quality of wealth data has now reached the point where one can reasonably ask questions like ‘What is the world distribution of household wealth?’ and ‘How does wealth inequality compare with income inequality?’. The largest and most prosperous OECD countries all have good wealth data based on household surveys, tax data and national balance sheets. Household wealth surveys are also now available in the largest developing countries – China, India and Indonesia. Household income and expenditure surveys in a large number of other developing and transition countries provide partial information on assets in the form of housing and other durables, and make possible some inferences about holdings of financial assets. At the top end, Forbes magazine enumerates the world’s US$ billionaires and their holdings. More detailed lists are provided regionally by other publications, and fi nancial companies like MerrillLynch estimate the number and holdings of US$ millionaires. In short, there is now a surprising amount of information on household wealth holdings available. WIDER has concluded that the time has therefore come to estimate the world distribution of wealth.
An idea of what we may learn from this project can be gained by looking at some preliminary numbers. So far we have collected estimates of the mean level and composition of household net worth in the year 2000 from 21 countries. Amounts have been converted to US dollars, using PPP exchange rates. We see large differences in wealth. The US is the richest country, with mean wealth estimated at $148,675 per person in 2000, followed closely by the UK at $124,415. At the opposite extreme we have India, Indonesia and South Africa, with mean wealth of just $6,248, $8,061 and $9,627 respectively. Some developed countries that one would expect to rank very high in the distribution, like New Zealand and Sweden appear to have less than half the household wealth per capita of the US In such cases careful investigation of how the data are constructed is required, to ensure that the apparent differences are real. On the other hand, there is strong clustering of about ten OECD countries in the $80,000-$120,000 range, in line with their fairly similar living standards.
Turning to the distribution of wealth, we have so far studied data from 12 countries clustered in the period 1998-2002. In general levels of concentration are high. The median value for the Gini coefficient is 0.70, for example, which is much higher than typical levels of the Gini for income, which are in the range of about 0.35-0.45. The mid value for the share of the top 10 per cent of wealth-holders is 52 per cent, again much higher than comparable numbers for income. Near the top end of the scale is the US with a Gini of 0.83. At the opposite extreme is China, where although wealth inequality has been rising for the last 15 years, the estimated Gini stood at just 0.55 in 2002. That this is not representative for developing countries is suggested by a Gini of 0.76 for Indonesia. Western European countries tend to be in the middle between these extremes, with Germany and the UK, at 0.68 and 0.71 respectively, very close to the average Gini for our sample.
One contribution of our project will be to provide a fi rst estimate of the world distribution of wealth. In order to generate this estimate we need suitable numbers on the level of household wealth in a large sample of developing, transition, and developed countries. We also need estimates of wealth inequality within a range of different types of countries. While good data is available for many developed countries and for the largest developing countries, it will be necessary to make imputations for others. This is being done on the basis of careful analysis of the determinants of wealth levels and inequality in the countries where data are available.
An enormous amount of work remains to be done. The data we have generated so far give us a tantalizing glimpse of where we are headed, but the bulk of the work lies ahead. WIDER’s project on Personal Assets from a Global Perspective involves the efforts of a team of about 20 researchers from around the globe. A core group is assembling data on national balance sheets and official estimates of wealth distribution. Meanwhile a number of researchers are focusing their efforts on important categories of assets – housing, fi nancial assets, and informal sector wealth – while other are examining gender aspects of wealth-holding and the historical evolution of wealth distributions. Still others are doing in-depth regional studies – for Eastern Europe, China, India, Africa, and Latin America. The researchers will meet at a conference in Helsinki 4–6 May 2006, and their efforts will be recorded in research volumes to be published later in 2006.
In addition to documenting the degree of wealth inequality this project will focus on important structural issues such as the age and gender profiles of wealth holding in countries at different stages of development and in different regions. It will also study differences household portfolio structure, examining to what extent the less developed countries, for example, fall short in financial assets and borrowing. Researchers will analyze the problems that hold back the growth of household financial assets in developing and transition countries – ranging from factors like lagging development of financial institutions through insecure property rights and corruption. Prospects for the growth of personal financial assets in developing and transition countries will be assessed. This is very important both because growth of financial assets in these countries can be expected to go hand-inhand with faster economic growth, and because it will lead to a rise in wealth-income ratios that may allow well-being to rise in these countries more quickly than GDP or other measures of aggregate income. A final important contribution of this project will be to provide guideposts and suggestions for developing better data on personal asset-holding around the globe. The importance of introducing household wealth surveys in the many countries where they are currently lacking, raising response rates and reporting accuracy, and developing national balance sheets as part of the activities of statistical agencies and central banks, will all be highlighted. The technical problems and other challenges in developing this essential database on a global scale will be carefully examined, in the hope that this project will provide but the first of many productive examinations of the global distribution and composition of wealth.
Jim Davies is a Professor, and the RBC Financial Group Fellow, in the Department of Economics at the University of Western Ontario, where has been a faculty member since 1977. He is the director of the WIDER project on Personal Assets from a Global Perspective.