Gini Coefficient

Gini Coefficient

Named after the Italian statistician who developed the measure, the Gini Coefficient is a statistical measure of income inequality developed by Corrado Gini in 1912.

Working off of Max Lorenz’s Lorenz curve, Gini developed a way to measure the inequality in the distribution of income. The Lorenz curve is a hypothetical diagonal straight line that represents total equality, while the Gini coefficient is calculated based on the difference between this hypothetical line and the actual line calculated on the basis of individuals’ incomes.

The coefficient has a value between o and 1, where 1 represents complete inequality, and o represents complete equality. Since its inception the coefficient has been one of the key measures of inequality, and has frequently been relied upon by academics researchers, and even the UN to measure inequality (News 2015).

Inequality has become increasingly important where economists were obsessed with the growth and GDP they are now starting to look at distribution of income and equality, because those are the keys to sustainable growth.

One of the criticisms regarding the Gini Coefficient is that it does not account for transfer of income among the top 10 percent or bottom 40% of society, so where the coefficient does not measure the transfer of income, it does not measure any intersectional measure of income (World Bank, 2002).

For the purpose of policy making, or policy analysis especially in a world becoming increasingly one where the top 1% own the majority of the world’s resources, international transfer of income is something that governments and policy makers want to encourage. In light of this criticism Andy Sumner, and Alex Cobham developed the Palma ratio, which is more sensitive to aspects that the Gini coefficient fails to adequately 1neasure.

Inequality has been on the rise in Pakistan; from 35 in 1988 on the Gini Index we have come to 41 in 2014 (Junaidi, 2016). Considering the fact that inequality leads to social unrest and complications in the functioning of a democracy, the situation heralds bad news for Pakistan.

Furthermore, as history bears witness, the middle class has always been the engine of economic growth, and inequality has the harshest effect on the middle income group. It is imperative for Pakistan’s politicians and policy makers to address the situation.

Modern economic study has increasingly begun to focus on inequality, not only as a way to see the division of resources but also to examine changes due to new policies, to encourage progressive and redistributive policies.

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