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Assignment # 02

GINI COEEFICIENT & COMPARISION

Prepared for
Dr. Muhammad ZiaulHaq Mamun
Professor
Course Instructor: Managing operations (P501)

Prepared by
Sayma Zerin
ID # 53
MBA 57D

Institute of Business Administration (IBA)


University of Dhaka,
Dhaka
January 31, 2018
Gini coefficient

The Gini coefficient was proposed by the Italian statistician and sociologist Corrado Gini as a
measure of inequality of income or wealth. In economics, the Gini coefficient (Gini ratio or
normalized Gini index) is a measure of statistical dispersion intended to represent the income
or wealth distribution of a nation's residents, and is the most commonly used measure of
inequality.

The Gini coefficient measures the inequality among values of a frequency distribution i.e.
income level. The Gini coefficient is usually defined mathematically based on the Lorenz
curve, which plots the proportion of the total income of the population that is cumulatively
earned by the bottom x% of the population. A Gini coefficient of zero expresses perfect
equality, where all values are the same (for example, where everyone has the same income). A
Gini coefficient of 1 (or 100%) expresses maximal inequality among values (e.g., for a large
number of people, where only one person has all the income or consumption, and all others
have none, the Gini coefficient will be very nearly one). However, a value greater than one
may occur if some persons represent negative contribution to the total (for example, having
negative income or wealth).

The most equal society will be one in which every person receives the same income and the
most unequal society will be one in which a single person receives 100% of the total income
and the remaining people receive none.

The proverbial case where the richest 20% have 80% of all income would lead to an income
Gini coefficient of at least 60%. An often cited case that 1% of all the world's population owns
50% of all wealth, means a wealth Gini coefficient of at least 49%. The Gini coefficient for the
entire world has been estimated by various parties to be between 0.61 and 0.68.

Limitations of Gini coefficient

 The Gini coefficient is a relative measure. It is possible for the Gini coefficient of a
developing country to rise (due to increasing inequality of income) while the number
of people in absolute poverty decreases.

 Changing income inequality, measured by Gini coefficients, can be due to structural


changes in a society such as growing population (baby booms, aging populations,
increased divorce rates, extended family households splitting into nuclear families,
emigration, immigration) and income mobility.

 Gini coefficients are simple, and this simplicity can often lead to oversights and can
confuse the comparison of different populations; for example, while both Bangladesh
(per capita income of $1,693) and the Netherlands (per capita income of $42,183) had
an income Gini coefficient of 0.31 in 2010, the quality of life, economic opportunity
and absolute income in these countries are very different. Therefore, countries may
have identical Gini coefficients, but can differ greatly in wealth.
Gini Coefficient of Bangladesh

For a given time interval, Gini coefficient can be used to compare diverse countries and
different regions or groups within a country; for example states, counties, urban versus rural
areas, gender and ethnic groups. Gini coefficients can also be used to compare income
distribution over time, thus it is possible to see if inequality is increasing or decreasing
independent of absolute incomes.

If we analyze the Gini coefficient of Bangladesh, it can be seen fluctuating around the trend
line, but the overall trend is downward declining from 48.9 in 2000 to 31.5 in 2010 indicating
a declining income inequality. According to CIA factbook, Gini coefficient for Bangladesh in
2010 was 32.1 and according to World Bank data, it was 32.0 in 2010.

In an article published in The Financial Express (2017), a much clearer picture of income
distribution of Bangladesh was depicted by comparing the income distribution between the
poorest 10 per cent and the richest 10 per cent. The picture that emerges is: the income share
of the poorest 10 per cent is 3.85 per cent compared to 26.92 per cent for the richest 10 per cent
in Bangladesh. Basically, the income share held by the highest 20 per cent is 41.48 per cent
(Mahmood, 2017). This clearly shows a situation where very little of the benefits of economic
growth are trickling down to the very poor, the people who needs it the most.

According to official figures, the degree of income inequality, as measured by the Gini
coefficient, has increased from an average of 0.38 in the 1980s to 0.44 in the 1990s and further
to 0.46 in the 2000s (Matin, 2014). This suggests that while the average living standard is rising
faster than ever, the gap between the rich and the poor is also widening faster than before.

Figure: Gini coefficient of Bangladesh: 1980 to 2000 (Source: HIES survey of BBS)

Detailed time series data show that urban income inequality has apparently declined in the
2000s after rising in the 1990s. Thus, the income Gini went up from 0.40 in 1991/92 to 0.44 in
1995/96 and further to 0.50 in 2000, but that is where the rising trend stopped. In 2005, the
Gini coefficient remained at 0.50 and by 2010 it seems to have fallen to 0.45 (Osmani, 2015).
If these statistics are to be taken at face value, they would imply that whatever forces had
caused urban inequality to widen as growth accelerated for the first time in the 1990s either
ceased to exist or were neutralized by some countervailing forces in the 2000s when growth
accelerated even more.
Figure: Gini coefficient of Bangladesh from 1973-2010 (Source: HIES 2010 report and
previous reports of BBS)

According to a BBS survey 2016, the Gini coefficient, increased to 0.483 from 0.458 in 2010.
According to the HIES 2016, the income inequality in the urban areas has risen faster than in
the rural areas. The national statistical body data showed that the Gini coefficient in urban areas
was recorded 0.498 in 2016 against 0.452 in the HIES 2010. The rate of increase in Gini was
comparatively lower in the rural areas as the HIES 2016 recorded the data at 0.454 from that
of 0.430 in HIES 2010 (Report, 2017).

Gini coefficient of USA and Scandinavian country

Gini coeffiecint (CIA) Gini coefficient (World Bank)


Country
Percent Year Percent Year

USA 47.0 2014 41.0 2013

Norway 26.8 2010 26.8 2014

Sweden 24.9 2013 27.2 2014

Denmark 24.8 2011 28.5 2014

Finland 26.8 2008 26.8 2014

Iceland 28.0 2006 25.6 2014

Table: Gini coefficient of USA and Scandinavian country (Source: CIA and World Bank)
Gini Coefficient for US and Scandinavian Countries
45
40
35
30
25
20
15
10
5
0
USA Norway Sweden Denmark Finland Iceland

Figure: Bar chart of comparison of Gini coefficient for US and Scandinavian countries

References
Bank, T. W. (2017). GINI index (World Bank estimate). Retrieved from The World Bank
Group: https://data.worldbank.org/indicator/SI.POV.GINI?end=2013&start=1979

CIA. (2017). The World Factbook. Retrieved from Central Intelligence Agency:
https://www.cia.gov/library/publications/the-world-factbook/rankorder/2172rank.html

Mahmood, M. (2017, November 11). Income inequality and poverty in Bangladesh.


Retrieved from The Financial Express:
https://thefinancialexpress.com.bd/views/analysis/income-inequality-and-poverty-in-
bangladesh-1510415084

Matin, K. A. (2014). Income Inequality in Bangladesh. Retrieved from Bangladesh Economic


Association: http://bea-bd.org/site/images/pdf/063.pdf

Osmani, S. R. (2015). Linking Equity and Growth in Bangladesh. Retrieved from


http://www.plancomm.gov.bd/wp-content/uploads/2015/02/24_Linking-Equity-and-
Growth-in-Bangladesh.pdf

Report, F. (2017, October 18). Income inequality widens further. Retrieved from The
Financial Express: https://thefinancialexpress.com.bd/economy/income-inequality-
widens-further-1508297476

BBS. (2011). Household Income and Expenditure Survey (HIES) 2010.

BBS. (2007). Report of the Household Income & Expenditure Survey 2005.