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

1. Development indicatorsGianni Vaggi and Clara CapelliUniversity of Pavia November 2013 Inequality

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

3. 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 ofincome) Economia dello Sviluppo

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

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6. 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 individualrepresents; 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 cumulativeproportion of population. Economia dello Sviluppo

7. The Gini Coefficient How can we compare Lorenz Curves? An index allows for easiercomparisons. • Introduced by CorradoGini 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

8. Gini coefficients, 2008 Afghanistan 27.8 Argentina 46.3 Brazil 55.1 Colombia 57.2 China (2005) 42.5 Ghana (2006) 42.8 Egypt 30.8 India 33.4 Nigeria 44.8 Malaysia (2007) 46.2 Mozambique 45.7 Russia 42.3 Thailandia 40.5 Turkey 39.0 Venezuela (2006) 44.8West Bank & Gaza (2007) 38.7 Source: WB Database Economia dello Sviluppo

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12. Kuznets Curve Economia dello Sviluppo

13. Kuznets Curve/2 • Industrialization and rural-urban migration lead to a rise ininequality; • After a certain level of income, democracy and welfare schemesallow for more equality; Economia dello Sviluppo

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

15. 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 doesnot hold; Palma (2011): The real difference is made by what is appropriatedby the richest decile. Economia dello Sviluppo

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

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

18. Source: Maddison, 2003 Economia dello Sviluppo

19. Source: Maddison, 2003 Economia dello Sviluppo

20. 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 worlddistribution of the 1990s and in the 1950s; • Stabilizing effect of the "within" component. Economia dello Sviluppo