Income distribution inequality in Pakistan, Thailand and Australia _using Gini index, GDP and...

8/8/2019 Income distribution inequality in Pakistan, Thailand and Australia _using Gini index, GDP and application of Kuznets

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56

LOREN

Inecono

function

ofthedi

income

thetotal

percenta

showdis

consider

develop

inequalit

GINIINThisinde

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calculate

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45degre

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KUZNE

AKuzne

Kuznets'

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56

GDP - realgrowthrate

ThisentrygivesGDPgrowthonanannualbasisadjustedforinflationandexpressedasa

percent.

GDP realgrowthrate(%)

Years Pakistan Thailand Australia

2000 3.1 4 4.3

2001 4.8 4.2 4.7

2002 3.3 1.4 3.6

2003 4.5 5.2 3.6

2004 5.5 6.7 3

2005 6.1 6.1 3.5

2006 6.6 4.5 2.7

2007 6.6 4.8 2.72008 5.3 4.8 4.3

2009 2.7 2.6 2.3

0

1

2

3

4

5

6

7

8

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Pakistan

Thailand

Australia


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56

GDP - percapita(PPP)

ThisentryshowsGDPonapurchasingpowerparitybasisdividedbypopulationasof1Julyfor

thesame

year.

GDP percapita(PPP)(US$)


2000 2000 6400 23400

2001 2000 6700 25000

2002 2100 6600 27700

2003 2100 6900 27700

2004 2100 7400 30000

2005

2200

8100

31300

2006 2400 8600 32500

2007 2600 9200 34600

2008 2400 8000 39300

2009 2400 7900 38300

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

1 2 3 4 5 6 7 8 9 10

Pakistan

Thailand

Australia


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56

APPLICATIONOFTHEKUZNETSSHYPOTHESIS

KuznetsstestwillbeappliedtothethreeeconomicstakingintoconsiderationtheGiniindex

andthe

GNP

per

capita

to

investigate

and

prove

the

followings:

HO:Inearlystagesofdevelopmentincomeisnotdistributiontendstoworsen,whileinlater

stagesitwillnotimprove,notforminganinvertedUcurve(betweentherelationshipofGNP

percapitaandGiniindex)

HA:Inearlystagesofdevelopmentincomedistributiontendstoworsen,whileinlaterstagesit

willimprove,forminganinvertedUcurve(betweentherelationshipofGNPpercapitaandGini

index)

GINIINDEXOFTHECOUNTRIES

FACTORSAFFECTINGGINIINDEXINPAKISTAN,THAILANDANDAUSTRALIA

AlthoughtherearemanyfactorsresponsibleforthefluctuationintheGiniindexbutincaseof

Pakistan,ThailandandAustraliathemostimportantfactorsresponsibleforincomeinequality,

figuredoutbyliterature,areeconomicdevelopment,financialmarketdevelopment,

governmentexpenditures(sizeofpublicsector),education,inflation,populationgrowthand

openness.

Year Pakistan Thailand Australia

2000 31.2 41.4 35.2

2001 31.2 41.4 35.2

2002 31.2 41.4 35.2

2003 33 43.2 35.2

2004 33 43.2 35.2

2005

33

43.2

35.2

2006 30.6 42 35.2

2007 30.6 42 35.2

2008 30.6 42 35.2

2009 31.2 42.5 35.2


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56

1.EconomicGrowth

Themainfactoraffectingincomeinequalityistheeconomicgrowth.Therelationshipbetween

income inequalityandeconomicgrowthhasreceiveda lotofattentionfromtheresearchers.

Theimpactofeconomicgrowthontheincomeinequalityisambiguous.

2.Financial

Development

Financialmarkethasalsoaneffectonincomeinequality.Theoryprovidesdifferenthypothesis

concerning the financial development and income inequality. Some theories (Banerjee and

Newman, 1993; Galor and Zeira, 1993; Aghion and Bolton, 1997) claim that financial

intermediarydevelopmentispropoor.3.Inflation

Inflationmayhaveastrongredistributioneffectwhichcouldbepositive(throughitseffectson

individualincomewealth)ornegative(throughaprogressivetaxsystem).Itisalsoarguedthat

higherrate

of

inflation

hurts

the

poor

and

middle

class,

relatively

more

than

rich,

because

later

havebetterexcesstofinancialmarketsthatallowthemtohedgetheirexposuretoinflation.

4.GovernmentConsumption

Government Consumption is also one of the factors affecting income inequality. Income

inequalitymay increase or decreasewithgovernmentconsumption. Ifmostof redistribution

through tax and transfer system is toward poor, government consumption might result into

greater inequality.However, itcouldhaveoppositeeffects ifgovernmentconsumption isnot

developmental.

5.

Population

Growth

Difference inpopulationgrowth isanotherfactorexplaining intercountryvariation in income

inequality.Althoughpopulationgrowthgenerallydeclinesaspercapita incomerises,there is

considerablevariation inpopulationgrowthrateamongthecountriesatsimilar income level.

Generally, it is believed that faster population growth is associated with higher income

inequality.Oneofthereasonsisthatdependencyburdenmaybehigherforpoorgroup.

6.Education

One of the most important factors underlying the income inequality is level of access to

education.Thereistwowaylink;ontheonehandanunequaleducationalopportunityleadsto

greater inequality in income distribution by widening the skilled and productivity gap in the

workingpopulation.Ontheotherhandunequalincomedistributiontendstopreventthepoor

investingineducationandacquiringskill.7.OpennessoftheCountryforForeignTrade

A number of studies have attempted to relate trade policy variables to economic growth

(Dollar, 1992; Sachs and Warner, 1995; Edwards, 1992). These studies found that trade


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56

openness is associated with more rapid growth. Dollar and Kraay (2004) found evidence in

support of the view that globalization leads to faster economic growth and a reduction in

incomeinequality.

GNPper

capita

GNPpercapitaiscalculatedbyGDP(GrossDomesticProduct,thevalueofgoodsandservices

producedwithinacountry)plusnetincomereceivedbyresidentsfromnonresidentsources.

GNP/capitaisthetotaldividedbythenumberofpeopleinthecountry.Inotherwords,

GNP/capitaisameasureofnationalincomeperperson.

GNP(US$)


2000 1690 4850 26690

2001

1720

4970

276802002 1800 5220 28920

2003 1930 5600 30390

2004 2060 6030 31370

2005 2230 6420 32840

2006 2390 6970 34320

2007 2530 7480 36080

2008 2590 7760 37250

2009 2670 7980 38470

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

1 2 3 4 5 6 7 8 9 10

Pakistan

Thailand

Australia


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56

Hypoth

AsPakist

ofthe

K

stagesof

income

income;

2

3

3

3

3

GiniIndex

Year2000200120022003200420052006200720082009

sisProveanisinthe

znetsPove

developme

istribution

thereforeH

9

.50

.5

1

.5

2

.5

3

.5

1690

KUZ

stagesofde

tytest

whe

ntincomed

endstobe

willbeacc

1720 18

ETSSPOP

GNPp

velopingec

applied

to

istribution

moreunifor

eptedand

00 1930

VERTYHAKISTANercapita(x1690

1720

1800

1930

2060

2230

2390

2530

2590

2670

nomics,th

thePakista

endstobe

mandsho

Owillberej

2060 2

GNPperca

YPOTHE

)

reforethe

seconom

orsenbut

simprove

ected.

30 2390

ita

IS

GiniI33

3

3

3

3

3

eisaninve

,proving

th

inthelater

entinthed

2530 2

8|P

dex(y)1.2

1.2

1.2

3

3

3

0.6

0.6

0.6

1.2

tedUstruc

atin

initial

tagesthe

istribution

90 2670

a g e

ure

f


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56

Hypoth

AsThaila

oftheK

stagesof

income

income;

4

4

4

4

GiniIndex

Year2000200120022003200420052006200720082009

sisProvendisalsoo

znetsPove

developme

istribution

thereforeH

.5

1

.5

2

.5

3

.5

4850

eofthede

tytestwhe

ntincomed

endstobe

willbeacc

4970 5

T

GNPp

velopingec

appliedto

istribution

moreunifor

eptedand

20 5600

HAILANDercapita(x4850

4970

5220

5600

6030

6420

6970

7480

7760

7980

nomics,th

theThailan

endstobe

mandsho

Owillberej

6030

GNPperc

)

reforether

dseconom

orsenbut

simprove

ected.

6420 697

apita

GiniI4

4

4

4

4

4

4

eisaninver

,provingt

inthelater

entinthed

7480

9|P

dex(y)1.4

1.4

1.4

3.2

3.2

3.2

2

2

2

2.5

tedUstruc

atininitial

tagesthe

istribution

7760 79

a g e

ure

f

0


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56

Hypoth

Asindica

Australia

oftheK

develop

distribut

develop

Thereis

Kuznets

5

1

15

2

25

3

35

4

GiniIndex

Year2000200120022003200420052006200720082009

sisProvetedbythe

ischaracte

znetsPove

entecono

ionofinco

d;therefor

oinverted

sHypothesi

26690

orldrankin

izedasad

tytestwhe

iestheinc

ebecomes

HAwillbe

Ustructure

.

27680 289

A

GNPp

gofHDIan

velopedec

appliedto

omedistrib

oneofthef

acceptedan

becauseth

20 30390

USTRALIAercapita(x26690

27680

28920

30390

31370

32840

34320

36080

37250

38470

othereco

nomics,th

theAustrali

tiontends

actorthatp

dHOwillbe

economyi

31370 3

GNPperca

)

omymeasu

reforether

aseconom

tobehomo

rovesthat

rejected.

sdeveloped

2840 3432

pita

GiniI3

3

3

3

3

3

3

3

3

3

ringinstru

eisnoinve

y,provingt

geneous.Th

ustralianec

,provingth

36080

10|P

dex(y)5.2

5.2

5.2

5.2

5.2

5.2

5.2

5.2

5.2

5.2

entsthat

tedUstruc

atin

isequal

onomyis

acceptanc

37250 384

a g e

ure

eof

70


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56

FINDINGSFORUNEQUAL/EQUALDISTRIBUTIONONINCOME

SEGMENTS PAKISTAN THAILAND AUSTRALIA

Agriculture&

Manufacturing

Mostlaborforce

demandso

increased

investmentin

agriculturesector

canreduce

inequality.

Inequalityislowdueto

highmanufacturing

activitiesutilizingbig

laborforce.

Focusedonboth

agricultureand

manufacturingtherefore

distributioninequalityis

less.

Servicesector

Expansioninservice

sectorandreal

estatehas

helped

in

reducingthe

unequalincome

distribution.

Veryvastservicesector

especially

tourism

and

tradehasresultedin

moreequalincome

distribution.

Effectivetradeandmore

opportunities

in

service

sectorhavehelpedin

reducingthedistribution

inequality.

Investments

Moreforeign

investmenthas

resultedinmore

inequalityofincome

distributionbecause

onlytopsegmentof

elitesbenefit

from

it

Foreigninvestmentis

hugebutwithlocal

groupshavingstakethat

mayhelpabitin

narrowingthegap.

Moreinvestmentfrom

localgroupstherefore

thedistributionisamong

localpeoplewhichhelp

inreducingthe

inequality.

Government

subsidies

Government

subsidieshavenot

helpedinreduction

ofinequality

becauselowlevel

peoplearenot

earning.

Moreprivatizationhas

helpedinlessinequality

andlocalentrepreneurs

areemerging.

Strongprivatesectorand

verylesssubsidieshave

contributedinmore

equaldistributionof

income.

Government

expenditures

Hugeexpenditures

haveresultedinmoreinequality

andpovertyas

incomeis

concentratedtoa

particularclass.

Governmentexpenditures

havehelpedinalleviating

relativepoverty.

Governmentishas

empoweredtheprivate

sectorsoexpenditure

havenotaffectedthe

poor.


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Appendix

DifferencebetweenGDPandGNP

GDP GNP

Definition

Anestimatedvalueofthe

totalworthofacountrys

productionandservices,

calculatedover

the

course

on

oneyear.

GDP(+)totalcapitalgains

fromoverseasinvestment()

income

earned

by

foreign

nationalsdomestically.

Standsfor GrossDomesticProduct GrossNationalProduct

FormulaforCalculation

GDP=consumption+

investment+(government

spending)+(exports

imports)

GNP=GDP+NR(Netincome

fromassetsabroad(Net

IncomeReceipts))

LaymanTerms

Totalvalueofproducts&

Servicesproducedwithinthe

territorialboundaryofa

country

TotalvalueofGoodsand

Servicesproducedbyall

nationalsofacountry

(whetherwithin

or

outside

thecountry)

BIBLIOGRAPHY

Contents

http://en.wikipedia.org/wiki/Kuznets_curve http://en.wikipedia.org/wiki/Lorenz_curve http://www.indexmundi.com/pakistan/distribution_of_family_income_gini_index.html http://www.tradingeconomics.com/Analytics/About

Us.aspxhttp://www.diffen.com/difference/GDP_vs_GNP

http://ucatlas.ucsc.edu/gnp/gnp.html http://www.perc.org/articles/article688.php.

TradePolicies

Somereformsin

pastfewyears

havehelpedin

moretradewhich

isagoodsignto

reduceinequality

Haveaveryeffectiveand

vasttradewithmany

countrieswhichincludes

FTAwithAustralia.Thisis

amajorsourcein

reducingthe

inequality

Haveabignetworkof

tradeandFTAswith

countrieslikeThailand.

Thisreducesthe

inequalitywitheffective

distributionof

income


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MillsJH,WaiteTA(2009)Economicprosperity,biodiversityconservation,andtheenvironmentalKuznetscurve.EcologicalEconomics68(7):20872095

http://www.georgetown.edu/faculty/aml6/pdfs%26zips/ups%2520and%2520downs.pdf http://www.idrc.ca/uploads/userS/10515499840pakistanreport10.pdf D.P.Doessel,AbbasValadkhani,(1998)"Economicdevelopmentandinstitutionalfactors

affectingincome

distribution:

the

case

of

Iran,

1967

1993",

International

Journal

of

SocialEconomics,Vol.25Iss:2/3/4,pp.410 423

http://www.pu.edu.pk/economics/pesr/PDFCurrentIssue/PESR%20Summer%202008/1%20HAFEEZ%20Income%20Distribution.pdf

Diagrams

*maxipedia.com **http://en.wikipedia.org/wiki/Image:Kuznets_curve.png

GDP,GNP

and

Gini

figures

are

taken

from

http://www.google.com/publicdata http://hdr.undp.org/en/media/HDR_2000_EN.pdf http://hdr.undp.org/en/media/completenew1.pdf http://hdr.undp.org/en/media/HDR_2002_EN_Complete.pdf http://hdr.undp.org/en/media/hdr03_complete.pdf http://hdr.undp.org/en/media/hdr04_complete.pdf http://hdr.undp.org/en/media/HDR05_complete.pdf http://hdr.undp.org/en/media/HDR06complete.pdf http://hdr.undp.org/en/media/HDR_20072008_EN_Complete.pdf http://hdr.undp.org/en/media/HDR_2009_EN_Complete.pdf www.indexmundi.com

Income distribution inequality in Pakistan, Thailand and Australia _using Gini index, GDP and...

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