Inequality and developing countries

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Inequality and developing countries

• Motivation
• measuring inequality
• the development gap inequality between countries
• inequality within countries

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Why do we care about inequality?

• Ethics
• no society can surely be flourishing and happy,
  of which by far the greater part of the numbers
  are poor and miserable Smith
• there should exist among the citizens neither
  extreme poverty nor again excessive wealth,for
  both are evil Plato
• Economics, equity and efficiency
• political economy
• low demand for domestic goods
• low investment in human capital
• conflict

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Measuring inequality

• Horizontal inequality
• Compare differences in outcomes (e.g. average
  incomes or wages, unemployment or enrolment
  rates, mortality rates, life expectancy etc) -
  gaps between countries/groups.
• Vertical inequality
• Statistical measures of inequality for certain
  welfare indicators (e.g. income, land ownership,
  wages) income share, Lorenz curve, and Gini
  coefficient

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Shares of total income
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Possible Lorenz curves
Inequality is highest in C and lowest in A We
cant rank B and D their Lorenz curves cross
D
A
B
C
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Gini coefficient

• Summary measure of inequality
• in theory takes values between 0 no inequality
  and 1 complete inequality
• in practice ranges from around 0.24 Denmark to
  0.6 Brazil, Sierra Leone
• area A/(AB)

A
B
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Global inequality
WDR 2000/1
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Inequality and development

• Kuznets inverted U hypothesis inequality first
  increases with development and then declines
• based on historical data for industrial countries
  (UK, USA)
• support is mixed

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Vertical inequality country Ginis
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Horizontal inequalities

• Gender
• ethnicity/race/language
• urban v rural
• regional
• overlaps

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Health inequalities infant mortality rates by
income group
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Urban-rural inequalities in health
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UNHDR 2005
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UNHDR 2005
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Summary

• Inequality more than just poverty considers
  whole distribution, not just those below poverty
  line
• Inequality matters
• ethics, relationship with growth, not an
  inevitable part of development
• global inequality rising