Decomposition Methods in Analyzing Intra-regional and Inter-regional Income Distribution

In this paper we propose to study the world income distribution in the framework of Richard Stone-Richard Goodwin decomposition method [Goodwin, EJ 1949 and JPKE 1980, Stone’s foreword to Pyatt-Roe, 1977]. The objective here is to collate the social accounting matrices of a group of nations with ROW treated exogenous and decompose the transactions matrix, in a common unit of account, to delineate effects of intra (‘direct effects’) country income disparity from inter (‘cross effects’) group income disparities. This decomposition is pertinent from the point of view of understanding whether the inter-regional income disparities are mainly mediated through the intra-regional income disparities implied by their structure of production and thereby assessing the impact of various growth policies on the macro structure of the economies.