Distribution of income
Development can also be measured by the income distribution within an economy and the elimination of large gaps between the rich and poor. Initial development of an economy generally reduces absolute poverty but the hoped for "trickle down" effect of the benefits the rich gain from economic growth has not happened and many still remain very poor. An effective tax/benefits system helps to redistribute income.
A Lorenz curve can be used to show the distribution of income within an economy. The diagonal line demonstrates perfect equality as every portion of the society has an equal portion of the total income within the economy.
Gini coefficients
A Gini coefficient can be calculated by dividing the area A by the area OPT (as marked on the below diagram).
This gives a value of between 0 and 1, a single figure to demonstrate the inequality within an economy, a coefficient of 1 represents perfect inequality (where on individual has all the wealth within an economy - a ridiculous theoretical situation) and a coefficient of 0 represents perfect equality where all citizens have equal incomes. By this measure the aim of communism was for a very developed world where all were equal.
Bangladesh has a Gini coefficient of 0.23, the UK a Gini coefficient of 0.33, Brazil a Gini coefficient of 0.65 and the world a Gini coefficient of 0.83.
These notes are from a lesson on 25/06/2004 and homework set on 21/06/2004.
