Development indicators Gianni Vaggi and Clara Capelli University of Pavia November 2013 Inequality

Relative concept; Focus on distribution (wealth, income, opportunities, etc.); Unlike efficiency (see Pareto), there is no widespread consensus on the definition of equity/distributive justice; Income distribution can be functional (i.e. wages, profits, rents) or personal. Economia dello Sviluppo

The personal distribution of income depends on: Personal features and skills; Personal position wrt to an economy ’ s productive structure; Welfare schemes (the so-called "secondary personal distribution of income) Economia dello Sviluppo

The Lorenz Curve Developed in 1905 by Max Lorenz; Relates the cumulative proportion of income to the cumulative proportion of individuals; The x-axis records the cumulative proportion of individuals, ranked by income level (from the poorest to the richest); The y-axis records the income share for each proportion of population. Economia dello Sviluppo

Measuring Inequality Inequality Trends How to Draw a Lorenz Curve Calculate the proportion of income belonging to each individual; Calculate which proportion of total population each individual represents; Sort these individuals on the basis of the income they own; Define the line of equidistributed income; Plot the cumulative proportion of income against the cumulative proportion of population. Economia dello Sviluppo

The Gini Coefficient How can we compare Lorenz Curves? An index allows for easier comparisons. Introduced by Corrado Gini in 1912 (Variability and Mutability); Measures the inequality among values of a frequency distribution; Ranges from 0 (perfect equality) to 1 (complete inequality); It is equal to the area between the equality line and the Lorenz Curve, divided by the area below the equality line; Economia dello Sviluppo

Gini coefficients, 2008 Afghanistan27.8 Argentina46.3 Brazil55.1 Colombia57.2 China (2005)42.5 Ghana (2006)42.8 Egypt30.8 India33.4 Nigeria44.8 Malaysia (2007)46.2 Mozambique45.7 Russia42.3 Thailandia40.5 Turkey39.0 Venezuela (2006)44.8 West Bank & Gaza (2007)38.7 Source: WB Database Economia dello Sviluppo

Kuznets Curve Economia dello Sviluppo

Kuznets Curve/2 Industrialization and rural-urban migration lead to a rise in inequality; After a certain level of income, democracy and welfare schemes allow for more equality; Economia dello Sviluppo

Again on China & India, Brazil & Venezuela Economia dello Sviluppo

Kuznets Curve: Criticisms Fields (2001): other factors matter more than the stage of development (history&geography, role of mining, access to land, etc.); Stiglitz (1996): East Asian Miracles shows that Kuznets ’ story does not hold; Palma (2011): The real difference is made by what is appropriated by the richest decile. Economia dello Sviluppo

The Gini coefficient fell in 44 countries (out of 81 examined): Source: WBI, 2012 Economia dello Sviluppo

Maddison, The World Economy. Historical Statistics (2003) World inequality falls between 1950 and 1960 (post-war catching up of Europe and Japan); It then rises strongly until 1980 (rapid growth of developed countries); It then falls, mainly because of China. Economia dello Sviluppo

Source: Maddison, 2003 Economia dello Sviluppo

Source: Maddison, 2003 Economia dello Sviluppo

Measuring Inequality Inequality Trends Bourguignon & Morrisson, Inequality Among World Citizens, (2001): World inequality (global Gini) increased by 30 percent, hitting 0.6; This is mostly due to the "between" component; A comparatively little difference was found between the world distribution of the 1990s and in the 1950s; Stabilizing effect of the "within" component. Economia dello Sviluppo