Development Economics Muhammad Waqas

BBA-III A Assignment No. 2 Submission Date 30th January 2022

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Question 1). Are rapid economic growth (as measured by either GNI or per capita GNI) and a
more equal distribution of personal income necessarily conflicting objectives? Summarize the
arguments both for and against the presumed conflict of objectives, and state and explain your
own view under the discussion of case study 5 “Institutions, Inequality, and Incomes: Ghana
and Côte d’Ivoire”
ANSWER:
Economists usually distinguish between two principal measures of income distribution for both
analytical and quantitative purposes: the personal or size distribution of income and the
functional or distributive factor share distribution of income. These two factors do not conflict
with each other but yes, if there high inequality in the country there can be a major hindrance
in their growth.
Ghana’s development has exceeded expectations—at least after many disappointments. Côte
d’Ivoire (CIV) started with many apparent advantages, but on many economic measures, Ghana
has closed the development gap that existed between itself and CIV at independence. As of
1987, inequality was calculated by the World Bank through the gini coefficient that Ghana had
0.354 and CIV had 0.404. When the gini coefficient was again calculated in 2002, it was found to
be 0.408 in Ghana and 0.484 in Côte d’Ivoire. So this can be seen as a clear example that
inequality can tend to slow down the growth of a country.
Question 2). What is the relationship between a Lorenz curve and a Gini coefficient? Give some
examples of how Lorenz curves and Gini coefficients can be used as summary measures of
equality and inequality in a nation’s distribution of income.
ANSWER:
The “Lorenz curve” helps us to measure the distribution of income using visual/graphical
representation whereas the “Gini Coefficient” uses numerical representation. If the Gini
coefficient is 0 then there is perfect equality but if the Gini Coefficient is 1 then there is said to
be perfect inequality. Now, in the Lorenz curve, the deviation of the curve from the “equality
line” represents the state of equality. The Gini Coefficient is related to the Lorenz curve as both
tools have the same purpose, which is to represent the state of equality. The Gini coefficient
can be calculated through the Lorenz curve by dividing the shaded area (A) to the whole area
(BCD).
Development Economics Muhammad Waqas
BBA-III A Assignment No. 2 Submission Date 30th January 2022

As it was estimated by the World Bank in 1987, the gini coefficient in Ghana was found to be
0.354 whereas in Côte d’Ivoire it was calculated up to 0.404. When the gini coefficient was
again calculated in 2002, it was found to be 0.408 in Ghana and 0.484 in Côte d’Ivoire. As we
can see by these statistics, the measure of inequality in CIV was greater than Ghana in 1987 but
when it was calculated again in 2002, both countries went through the rise in inequality but CIV
faced a major bump in their numbers.
Question 3). Outline the range of major policy options for altering and modifying the size
distribution of their national income. Which policies do you believe are absolutely essential?
Explain your answer.
ANSWER
As it is a fact we can’t reach perfect distribution of national income in any country but there are
some approaches which can help in minimizing that gap of inequality in a country.
Increasing the assets of the poor through land reform measures and equal access to education
and health facilities, as the assets of the poor will tend to increase then the poverty of the
country will decline and the standard of living of the poor class might upgrade to lower middle
class or better. Education, the key to success, will also result in getting better jobs and
increasing the better literacy rate which can prove to be very essential for the future.
Enforcing progressive rates of taxation on income and wealth of the rich would help in
generating revenue that could be used for upliftment of the needy and poor. Such policy will
lead to the government of developing countries to have enough funds so that they can start
program which may provide aid to the poor. Another approach can be skill development
program so that such people can learn skills and add up to the workforce of the country.
Another policy is the replacement of manufactured goods that are imported by the one which
are produced locally. Such approach will lead to a better growth and it will also create vacancies
and many job opportunities within the country.