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

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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

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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

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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

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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

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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

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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

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Kuznets Curve Economia dello Sviluppo

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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

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

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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

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

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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

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Source: Maddison, 2003 Economia dello Sviluppo

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Source: Maddison, 2003 Economia dello Sviluppo

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Measuring Inequality Inequality Trends Bourguignon & Morrisson, Inequality Among World Citizens, 1820-1992 (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

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