Theme 3: Economic Development Unit 3.1: Development Inequalities within countries

Gini Coefficient The scale of disparities within countries is often as much an issue as the considerable variations between countries. The Gini Coefficient is a technique frequently used to show the extent of income inequality which may exist. It allows: analysis of changes in income inequality over time in individual countries and comparison between countries.

Global Variations in Gini Coefficient, 2009

Global Variations in Gini Coefficient It is a ratio showing income inequalities, with values between 0 and 1.0. A low value indicates a more equal income distribution while a high value shows more unequal income distribution. A Gini coefficient of zero would mean that everyone in a country had exactly the same income (perfect equality). At the other extreme a Gini coefficient of 1 would mean that one person had all the income in a country (perfect inequality). In general, more affluent countries have a lower income gap than lower income countries. Southern Africa and South America show up clearly as regions of very high income inequality. Europe is the world region with the lowest income inequality.

Income Inequality in China

Income Inequality in China In China, the income gap between urban residents and the huge farm population reached its widest level ever in recent years as rural unemployment in particular rose steeply. The ratio between more affluent urban dwellers and their rural counterparts reached 3.36 to 1. This substantial income gap is a very sensitive issue in China as more and more rural people feel they have been left behind in China’s economic boom.

Regional Inequalities In all countries some areas develop faster than others because of human and physical advantages. These areas become known as core areas. The other areas (those that do not develop as much) are known as periphery areas. Usually, urban areas possess natural location advantages and become hubs for industry and trade, thus developing as the core, especially the capital city. Rural areas, due to their remoteness and lack of accessibility are slower to change and remain dominated by agriculture and other primary industries. They develop into the periphery.

Regional Inequalities Core areas are likely to experience greater growth, investment, and inward migration. Periphery areas: may be exploited, and suffer from a lack of investment.

Regional Inequalities Characteristics of core areas: Flat land which facilitates easy construction Good transport links e.g. international airports, road and railway hubs. Best education and health facilities e.g. universities and major hospitals.

Inequalities within countries A theory of regional disparities

A Theory of Regional Disparities The model of cumulative causation* helps to explain regional disparities. *Cumulative Causation: the process whereby a significant increase in economic growth can lead to even more growth as more money circulates in the economy. According to this model, there are three stages in the development of regional disparities: the pre-industrial stage when regional differences are minimal a period of rapid economic growth characterised by increasing regional economic divergence a stage of regional economic convergence when the significant wealth generated in the most affluent region( s) spreads to other parts of the country.

Cumulative Causation - Myrdal

In the model, economic growth begins with the location of new manufacturing industry in a region with a combination of advantages greater than elsewhere in the country. Once growth has been initiated in this ‘core’ region, flows of labour, capital and raw materials develop to support it and the growth region undergoes further expansion by the cumulative causation process. Cumulative Causation 1

A detrimental negative effect (the backwash effect) is transmitted to the less developed regions (the periphery) as skilled labour and locally generated capital is attracted away. Manufactured goods and services produced and operating under the economies of scale of the core region flood the market of the relatively underdeveloped periphery, undercutting smaller-scale enterprises in such areas. Cumulative Causation 2

The wealth gap between the core and the periphery widens and regional inequality increases (regional economic divergence). However, increasing demand for raw materials from resource- rich parts of the periphery may stimulate growth in other sectors of the economies of such regions. If the impact is strong enough to overcome local negative effects, a process of cumulative causation may begin. Cumulative Causation 3

This may lead to the development of new centres of self-sustained economic growth (spread effects). If the process is strong enough and significant economic growth occurs in the periphery, the inequality between core and periphery may begin to narrow. This is the second stage on the figure – regional economic convergence. Cumulative Causation 4

Regional Inequalities Many developing countries are in the first stage, where the wealth gap between core and periphery is still widening. Thus, they have a high Gini coefficient. Movement from stage 1 to stage 2 is usually attained by a combination of: market forces – the cost of doing business in the core region of a country may become so high that investment in the periphery becomes increasingly popular government regional development policies – government investment to improve conditions in peripheral regions, such as improvements in infrastructure, can help attract business investment. Regional Inequalities

Inequalities within countries Factors affecting inequalities within countries

Factors affecting inequalities within countries Residence Ethnicity Employment Education Land Ownership

Residence Where people are born and where they live can have a very significant impact on their quality of life. The UN has recognised that the focus of global poverty is moving from rural to urban areas, a process known as the urbanisation of poverty. This includes: Regional differences within countries – the wealth gap between core and periphery, which is explained above. Urban/ rural disparities with urban areas generally attracting much greater investment. This results in higher per capita incomes in urban areas. Intra-urban contrasts – low, middle and high income areas often exist close together in the same city. Large numbers of people live in slum conditions in cities in developing countries and find it extremely difficult to break out of this situation.

Regional differences in Russia

Urban and Rural Disparities in India and Russia

Intra-urban contrasts in Paris, France

Factors affecting inequalities within countries Residence Ethnicity Employment Education Land Ownership

Ethnicity The development gap often has an ethnic and/or religious dimension whereby some ethnic groups in a population have income levels significantly below the dominant group(s) in the same population. This is often the result of discrimination which limits the economic, social and political opportunities available to the disadvantaged groups. Examples include South Africa, Indonesia and Bolivia. Ethnic or religious minorities may be heavily concentrated in a particular region or regions of a country.

Factors affecting inequalities within countries Residence Ethnicity Employment Education Land Ownership

Employment Jobs in the formal sector* of the economy will be known to the government department responsible for taxation and to other government offices. Such jobs generally provide better pay and much greater security than jobs in the informal sector. Fringe benefits such as holiday and sick pay may also be available. Formal sector employment includes health and education service workers, government workers, and people working in established manufacturing and retail companies. *that part of an economy known to the government department responsible for taxation, and to other government offices. Jobs in the informal sector* are generally low-paid and often temporary and/ or part-time in nature. Such employment is outside the tax system with poor job security and an absence of fringe benefits. About three-quarters of those working in the informal sector are employed in services. Typical jobs are shoe-shiners, street food stalls, messengers, repair shops and market traders. Informal manufacturing tends to include both the workshop sector, making for example cheap furniture, and the traditional craft sector. Many of these goods are sold in bazaars and street markets. *that part of the economy operating outside official recognition.

Factors affecting inequalities within countries Residence Ethnicity Employment Education Land Ownership

Education Education is a key factor in explaining disparities within countries. Those with higher levels of education invariably gain better-paid employment. In developing countries there is a clear link between education levels and family size, with those with the least education having the largest families. Maintaining a large family usually means that saving is impossible and varying levels of debt likely. In contrast, people with better educational opportunities have smaller families and are thus able to save and invest more for the future. Such differences serve to widen rather than narrow disparities. Standards of education can vary significantly by region and as a result of other factors in a country.

Factors affecting inequalities within countries Residence Ethnicity Employment Education Land Ownership

Land Ownership The distribution of land ownership (tenure) has had a major impact on disparities in many countries. The greatest developmental disparities tend to occur in countries with the largest inequities in land ownership. The ownership of even a very small plot of land provides a certain level of security that those in the countryside without land cannot possibly aspire to. Households headed by women are often the most disadvantaged in terms of land tenure.

Inequalities within countries A Case study – regional contrasts in brazil

Introduction Brazil is the largest country in South America and covers nearly half (47%) of the South American continent. It is currently the fifth largest economy in the world, is home to the Amazon Rainforest and is a popular location for tourism. Brazil is also rich in natural resources and active in world issues such as climate change, giving it significance on a worldwide scale.

Introduction to Brazil GDP - per capita (PPP): $11,208 (2013 est.) $10,978 (2010 est.) $8,373 (2009 est.) Life Expectancy: 73.6 years - 2012 Source: World Bank Population (2013) 200,400,000 Gini Coefficient 0.53 (52.7%) - 2014

Physical Map of Brazil

Regional Map of Brazil North Northeast Centrewest Southeast South

Regional Contrasts in Brazil Life expectancy in Brazil Regional Contrasts in Brazil Brazil's literacy rate is 86.4% which is the lowest of all South American countries. It falls just behind Bolivia and Peru at 87.2% and 87.7%, respectively. The north-east of the country which is also the poorest has an illiteracy rate of 17%, the highest, which contrasts with south Brazil where the rate is 4.7% Areas with the darkest green have the highest LE (+75); whereas the red is the lowest (+67)

Regional Contrasts in Brazil South-east Brazil is the economic core region of Brazil. It has the highest population of 86.3 million.

Regional Contrasts in Brazil Over time the south-east has benefited from flows of raw materials, capital and labour. The last two inputs have come from abroad as well as from internal sources. The region grew rapidly through the process of cumulative causation. This process not only resulted in significant economic growth in the core, but also had a considerable negative impact on the periphery. The overall result was widening regional disparity.

Regional Contrasts in Brazil However, more recently some parts of the periphery, with a combination of advantages above the level of the periphery as a whole, have benefited from spread effects from the core. The south has been the most important recipient of spread effects from the south-east, but the other regions have also benefited to an extent. This process has caused the regional gap to narrow at times, but often not for very long. In Brazil income inequality still remains very wide.

Reasons for the development of SE Brazil

The south-east has benefited from a number of advantages: Natural Environment Natural Environment The natural environment of the SE provided the region with a number of advantages for the development of its economy, especially primary industries. Warm temperatures, adequate rainfall and rich terra rosa soils have provided many opportunities for farming The region is important for coffee, beef, rice, cacao, sugarcane and fruit, There are large deposits of iron ore, manganese and bauxite which have made mining a significant industry. Gold is still mined and region is energy rich, with large deposits of oil and gas offshore. Hydro-electric power is generated from large rivers flowing over steep slopes. Temperate rainforest provides the raw material for forestry. Fishing is important for many of the coastal settlements.

The south-east has benefited from a number of advantages: Transport Transport The region is the focus of the country’s road and rail networks. It contains the main airports and seaports. It has a significant pipeline network for oil and gas.

The south-east has benefited from a number of advantages: Economic Economic The south-east’s industries generate large amounts of money for Brazil and is centre of both foreign and domestic investment. More transnational companies are located in the south-east than in the rest of Brazil. E.g. motor assembly with Ford, GM, Toyota, Volkswagen, Volvo and Fiat are located there. Other industries include food processing, textiles, furniture, clothing, printing, brewing and shoemaking. The location of raw materials in the region and large domestic market have provided favorable conditions.

The south-east has benefited from a number of advantages: Labour Education With the highest population density in Brazil, the labour supply here is plentiful. The region also has the highest educational and skill levels in the country.

Cumulative Causation The success of the first large wave of investment by foreign companies in the south-east encouraged others to follow. For the last 50 years the area has experienced an upward cycle of growth.