Fighting Inequalities through development cooperation and stronger partnerships

Global Inequalities: Global income inequality steadily declined in the three decades leading up to the COVID-19 pandemic, largely due to faster income growth in populous countries—especially China and India—relative to wealthier regions. During this period, the global Gini index (which measures inequality on a scale from 0 to 100 where higher values indicate higher levels of inequality) fell from 70 in 1990 to 62 in 2019, representing an annualized reduction of 0.42%. On average, income growth was consistently higher among the bottom 60% of the world’s population compared to the top 40%, leading to a relative convergence between poorer and richer countries. This pattern contributed to the observed decline in global income inequality between 1990 and 2019.-

However, this downward trend in global inequality came to a halt with the onset of the COVID-19 pandemic, which marked a turning point and reversed two decades of progress: between-country inequality returned to early 2010s levels, while within-country inequality rose, with average Gini coefficients increasing by 0.3 points. Today, the top 10% of the global population captures more than half of total income and holds nearly 75% of global wealth, while the bottom 50% owns just 2%. More than two thirds of the world’s population—approximately 71 per cent—live in countries where income inequality has increased over the past decades. Over 690 million people still live in extreme poverty.

Key Structural Features of Inequalities

The World Inequality Lab 2024 Activity Report’s findings shed further light on the structural features and drivers of these disparities:

1. Demographic shifts: Including population ageing in high-income countries and youth bulges in many low-income countries—are creating unequal pressures on labour markets, public services, and social protection systems. As noted in the Addressing income inequalities through development cooperation. Volume 1, Concepts and definitions - Publications Office of the EU, these changes pose significant challenges for redistribution, employment creation, and intergenerational equity.
2. Constrained Aid Environment and Geopolitical Instabilities: Geopolitical tensions—such as Russia’s invasion of Ukraine, protracted conflicts in the Middle East, and shifts in US foreign aid policy—are placing growing pressure on the global aid system. At the same time, inequality is increasingly recognised as both a driver and a consequence of conflict and fragility, particularly in contexts where exclusion, marginalisation, and limited access to services fuel instability. As a result, addressing inequality is now seen as essential for building sustainable peace and preventing future crises, with “inequality-sensitive conflict prevention” emerging as a key policy priority in fragile and conflict-affected settings.
3. Rising debt burdens and persistent inflation have significantly reduced fiscal space in many partner countries. Wealthy nations continue to benefit from structural advantages within the global financial system, including low borrowing costs due to their reserve currency status. In contrast, the world’s poorest countries are often heavily indebted, constraining their fiscal space and limiting their ability to invest in inclusive development. The convergence of rising needs and shrinking resources highlights the urgency of more coordinated and efficient financing strategies—ones that explicitly prioritise inequality reduction, protect critical social investments, and remain aligned with long-term development goals.
4. Trade globalisation: The relationship between trade and inequality is complex and context-dependent. On the positive side, trade openness has sometimes reduced inequality by raising wages for low-skilled workers, lowering import prices, and narrowing wage gaps (IMF 2015; Robbins 2003). However, trade liberalisation has also tended to shift income toward capital, fuel wealth inequality, and increase wage gaps through offshoring, rising skill demand, and the exit of less productive firms (Basco and Mestieri 2019; Feenstra and Hanson 1996). Regional disparities persist due to limited labour mobility, as shown in both advanced and developing countries (Dix-Carneiro and Kovak 2015; Székely and Mendoza 2016).
5. Financial globalisation: Financial globalisation has generally worsened income inequality by reducing the share of income going to labour in both developed and developing countries since the mid-1990s (Lee and Jayadev 2005; ILO 2008). By enabling freer movement of capital across borders, it has increased demand for skilled workers in developing economies while undermining low-skilled labour, and it has heightened the risk of financial crises that disproportionately affect the poor (Figini and Görg 2011; De Haan and Sturm 2016). Moreover, financial globalisation has weakened workers’ bargaining power, as capital mobility, outsourcing threats, and shareholder pressure for higher returns have led firms to resist wage increases and pursue downsizing, further eroding unions and reinforcing inequality (Furceri, Loungani and Zdzienicka 2018; Harrison 2002). Finally, financial liberalisation and globalisation further exacerbate inequality when weak institutions allow capital flight to tax havens (Wright and Zucman 2018). The concentration of wealth in jurisdictions known as tax havens—such as Singapore, Luxembourg, and Macao SAR—further exacerbates inequality and has triggered renewed calls for more transparent and equitable taxation systems, such as during the Fourth International Conference on Financing for Development (FfD4).Overall, while trade can generate broad economic gains, without progressive taxation and redistribution mechanisms, it risks reinforcing both income and wealth inequalities.
6. Exorbitant Privilege of Rich Countries in the Financial Systems: BRICS countries are now among the world’s largest economies in terms of purchasing power parity (PPP), though not necessarily by market exchange rates (MER). This distinction underscores a key inequality in the global economic system: while BRICS countries have substantial domestic markets and growing consumer power, their influence over international financial systems, trade rules, and currency markets remains limited compared to high-income economies. As a result, despite strong internal growth, BRICS economies face structural barriers to shaping global economic governance, perpetuating inequalities between the Global North and South. These disparities limit their ability to access affordable financing, influence trade standards, or fully benefit from globalization, reinforcing systemic inequalities at the global level.
7. Technological change: Technological change has been a major driver of rising inequality by increasing the skill premium—the wage gap between skilled and unskilled workers—in both advanced and developing countries (IMF 2015). Automation and digitalisation have displaced many low-skilled jobs or raised the skill thresholds needed to access them, thereby boosting demand for skilled labour while reducing opportunities for the less skilled (Dabla-Norris et al. 2015; Jaumotte, Lall and Papageorgiou 2013). At the same time, greater capital intensity in production has raised returns to capital, further benefiting capital owners and amplifying overall income inequality (Dao et al. 2017).
8. Lack of data: Reliable and disaggregated data are essential to accurately describe and measure inequalities—and, in turn, to design and implement effective policies to reduce them. However, inequality-specific data remain scarce in many contexts, limiting the ability of governments and development partners to monitor progress and target interventions. This data gap is driven by several key factors:

• Lack of regular household or individual surveys that collect information on income, consumption, wealth and access to basic services. The lack of data on inequalities can also be explained by the financial aspect as such surveys are usually very expensive.
• Lack of panel data that provide insight into income dynamics and trajectories, making comparisons over time and across countries difficult;
• Underrepresentation of the extreme ends of the income distribution: Standard household surveys often fail to capture the richest and the poorest segments of the population. For example, wealthier individuals tend to be underrepresented or may deliberately avoid surveys, while the most deprived may be harder to reach due to factors like informal housing, migration, or exclusion from official registries. As highlighted in the Addressing income inequalities through development cooperation. Volume 1, Concepts and definitions - Publications Office of the EU, this results in systematic underestimation of inequality, especially in countries with large informal sectors or high wealth concentration.

These findings underscore the complexity of global inequality, highlighting the need for targeted policies that address both international disparities and domestic income gaps. More information on determinants of inequality trends can be found in the Addressing income inequalities through development cooperation. Volume 1, Concepts and definitions - Publications Office of the EU