Michael Clemens and Lant Pritchett, researchers at the Center for Global Development, argue that traditional measure of national income distort or understanding of wealth distribution.
It is easy to learn the average income of a resident of El Salvador or Albania. But there is no systematic source of information on the average income of a Salvadoran or Albanian. In this new working paper, research fellow Michael Clemens and non-resident fellow Lant Pritchett create a new statistic: income per natural — the mean annual income of persons born in a given country, regardless of where that person now resides. If income per capita has any interpretation as a welfare measure, exclusive focus on the nationally resident population can lead to substantial errors of the income of the natural population for countries where emigration is an important path to greater welfare. The estimates differ substantially from traditional measures of GDP or GNI per resident, and not just for a handful of tiny countries. Almost 43 million people live in a group of countries whose income per natural collectively is 50 percent higher than GDP per resident. For 1.1 billion people the difference exceeds 10 percent.
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The bottom line: migration is one of the most important sources of poverty reduction for a large portion of the developing world. If economic development is defined as rising human well being, then a residence-neutral measure of well-being emphasizes that crossing international borders is not an alternative to economic development, it is economic development.
Tyler Cowen and Will Wilkinson are favorably impressed with the “income per natural” concept and I concur that it’s an interesting tool.
I’m less clear, however, as to why it should lead to any great paradigm shifts. The paper’s subtitle, “Measuring Development as if People Mattered More Than Places,” sounds provocative and enlightened since, after all, it is indeed the well-being of people that we’re interested in. At the same time, though, it seems to me that places are worth understanding, too, since borders impact how people live.
A Haitian who escapes the abject poverty and brutal conditions of his country by emigrating to the United States and taking a job as a cab driver has almost certainly improved his lot in life. So, if our intent is to capture the micro-level data of said individual as an economic unit, his move is a plus. But if we’re interested in understanding what life is like for people in Haiti, counting him as “a Haitian” strikes me as distortionary since, after all, he no longer lives in Haiti. If he’s sending money home to his brother, thus raising his brother’s standard of living, existing data capture that fact. Ditto if he “retires” after fifteen or twenty years and moves back to Haiti to either to live a life of relative luxury or to start up a new business. If, on the other hand, he stays in the United States and spends his newfound wealth here, it’s far from clear to me why he shouldn’t count as “an American” for statistical analysis.
