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Is reduction of regional inequality a worthy goal in itself?
इस पृष्ठ का िहन्दी अनुवाद
By morgan ⋅ October 13, 2009 ⋅ Post a comment
1
Quoting Abraham Lincoln “Democracy is the government of the people, by the people, for the people“.
tweet
retweet
By the virtue of the very definition of democracy, from the standpoint of democracy reduction of inequality in India is
very much a worthy goal.
From an economic standpoint:
There are concerns that regional inequality in India has increased after the economic reforms of 1991. This concern is
supported by various statistical analyses.1
The concern over the regional inequality prevalent in India is worrisome, for it has and may lead to a lot many
undesirable consequences:
Lost economic potential
Unfairness in regional opportunities
Potential instability
Loss of social cohesion
Adverse social consequences including higher crime an disease2
In India, naxalism and terrorism in many parts of India have risen from actual and perceived regional inequalities. These along
with poverty and other inherent inequalities have formed a vicious cycle where one leads to the other and breaking out of this
mould has proved to be extremely difficult for the governments at both the central as well as at the state level.
In short regional inequality in India has to be fought and reduced at any cost for the future progress of India as an
economic and world superpower.
The trade-off between overall development and inequality.
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In India, economic growth since the economic reforms of 1991 has lead to a divergence in income levels.1
However there have also been instances where economic growth has lead to convergence in income levels for example in
USA and in recent times Brazil. China too saw a convergence in income levels during the 70s and 80s but recently is
witnessing a divergence in income levels.2
Forces toward Convergence
1. Equalizing Education
2. Migration
1. Rural to Urban
2. Changing Industries & Occupations
3. Both Labor and Capital
3. Agricultural transformation
Development Causes Divergence
1. Development is not naturally equal
1. Across Industries and Geographies:
2. Manufacturing & Services v. Agriculture
3. Coast v. Interior
Thus development inherently creates inequality. However with time development may lead to Convergence if
1. Legal and economic institutions are similar across the country
2. Government: education and public health
3. People and capital are free to migrate
To understand the complex nature of the workings and consequences of economic growth it is imperative to understand the
following:
What all constitutes development?
Economic development, generally speaking, is a process of change that is focused on the betterment of the community, state,
and/or nation. Defining economic development can be difficult. Economics is viewed as the foundation for building a prosperous
society.
It is the second term—”development”—over which there is considerable debate. People’s perceptions of development vary. For
some, development has the appearance of successful commercial enterprise; for others, the face of development is one of
economic equality. Nevertheless, the concept of “economic development” has the attention of government, the business sector,
and the citizenry. We pursue economic development as one of the goals of a successful country, state, or city.
What all constitutes inequality?
Regional inequality is basically a disparity between the standards of living applying within a nation. It is difficult to quantify the
prosperity or poverty of a region, but there are two basic indicators.
The first is unemployment, which has been used in Britain as a symptom since the 1920s. Most UK regional policy has concerned
the alleviation of unemployment.
The second indicator is per capita income.
Other factors indicating disparity include the type of industry and its growth or decline, numbers of young people in further
education, housing standards, and the quality of the environment.
Causes of regional inequality:
1. Preferential policy
2. Geography
1. Access to cheap transportation
2. Inaccessibility of certain regions due to geographical terrain
3. Urbanization and industrial structure
4. Agriculture v. manufacturing & services focus
5. Education
Measures of inequality4
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The most common measure of regional inequality is the Gini Coefficient.
The Italian statistician Corrado Gini suggested a simple and easily comprehendible measure of inequality known as the Gini
coefficient. Graphically, the calculation of this coefficient can be interpreted as follows (Atkinson 1983):
Mathematically, the Gini coefficient is calculated as the arithmetic average of the absolute value of differences between all pairs
of incomes, divided by the average income (see Table 4.1).1 The coefficient takes on values between 0 and 1,with zero
interpreted as perfect equality.
Though individual studies of regional disparity may deal with separate development
measures – population growth, wages, welfare, regional productivity, etc. the use of an integrated indicator is often essential, particularly if a comparative
(cross-country) analysis is required. In order to measure the extent of disparities,
various indices of inequality are commonly used. These indices may be classified
into two separate groups (Kluge 1999):
• Measures of deprivation (Atkinson index, Theil redundancy index,
Demand and Reserve coefficient, Kullback-Leibler redundancy index,
Hoover and Coulter coefficients, and the Gini index);
• Measures of variation, such as the coefficient of variation and Williamson’s
index.
1) Maximum to minimum ratio (MMR) 5
A comparison of the per capita GRDP (gross regional domestic product, or other index such as per capita consumption or per
capita income) of the region with the highest income to that of the region with the lowest income (minimum per capita GRDP)
provides a measure of the range of the disparity between them. Maximum to minimum ratio (MMR) provides a quick, easy to
comprehend, and politically powerful measure of regional income inequality.
2) The Gini index is widely used in the inequality literature. Following Shankar and Shah (2003), we compute the unweighted
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Gini index as follows:
where yi and yj are the GRDPs per capita of regions i and j, respectively. n is the number of regions, and yu is the unweighted
mean of the per capita GRDPs. Gu varies from 0 for perfect equality to 1 for perfect inequality.
The unweighted Gini index takes every region in the same magnitude, i.e., every region was taken as one equal unit regardless of
its population size. The weighted Gini index, which weights the regions’ per capita GRDPs based on their respective population
proportions, is calculated as shown below:
where y = GDP / P is the national mean per capita GDP. Pi and Pj are the populations of regions i and j, respectively. P is the
national population, and n the number of regions. Gu varies from 0 for perfect equality to 1 – (P* / P) for perfect inequality,
where P* represents the population of the region which produced the total GDP. If P* is small compared to P, i.e., if the region
with a small proportion of the population produced all the GDP, then the value for perfect inequality would approach 1.
3) Another commonly used measure of inequality is the Theil index. Following Theil (1967), it is computed as follows:
where γi is the GDP share of region i and pi is the population share of region i. For equal per capita GRDPs, i.e., with GRDPs
proportional to regional populations, this index takes a value of 0. For a case where region i produces the entire GDP, Theil
becomes log (P/Pi) , where P is the total population of the country, and Pi is the population of region i. Note here that as the
population share of region i decreases, Theil increases if region i produces the entire GDP.
Similar to the Theil_T index, we can compute the Theil_L index, which uses the population share as a weight, i.e.,
Compared to other measures of inequality such as Gini, CV (coefficient of variation), and Rw (relative mean deviation), Theil
indexes satisfy several desirable properties, i.e., they are additively decomposable, and satisfy mean independence (or incomezero-homogeneity), the principle of population replication (or population-size independence), and the Pigou- Dalton principle of
transfers (Bourguignon, 1979; Shorrocks, 1980, Akita et al., 1999). An inequality index is said to be additively decomposable if
total inequality can be written as the sum of between-group and within-group inequality. Mean independence implies that the
index remains unchanged if everyone’s expenditure is changed by the same proportion, while population-size independence
means that the index remains unchanged if the number of households at each expenditure level is changed by the same
proportion, i.e., the index depends only on the relative population frequencies at each expenditure level, not the absolute
population frequencies. Finally, the Pigou-Dalton principle of transfers implies that any expenditure transfer from a richer to a
poorer household that does not reverse their relative ranks in expenditures reduces the value of the index.
Suppose that the regions are grouped into mutually exclusive and collectively exhaustive groups and each group can be divided
into several small sub-regions. The Theil index can be decomposed into within-group and between-group components as follows:
where the meanings of pi and ?i are the same as above, I is the number of groups, pij is population share of sub-region j in group
i, ?i is the GDP share of sub-region j in group i, LB is the between-group component of the Theil index L and measures the
extent of inequality due solely to differences in the group mean per capita GDP. Lw is the within-group component of the Theil
index L and is defined by a weighted average of within-group Theil indexes
shares of the groups Pij.
with the weights being the population
References:
Стр. 4 из 8
1. Regional Inequality in India: A Fresh Look by Nirvikar Singh, Laveesh Bhandari, Aoyu Chen, Aarti Khare
2. World Development Report 2006 By Francisco H. G. Ferreira, Michael Walton
3. Economic Growth and Regional Inequality by Douglas J. Young, Professor of Economics, Montana State University, USA
& Fulbright Scholar University of International Business and Economics, Beijing
14.07.2011 22:24
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4. Measures of Regional Inequality for Small Countries by Boris A. Portnov, Department of Natural Resources and
Environmental Management, University of Haifa, Israel, and and Daniel Felsenstein, Department of Geography, Hebrew
University of Jerusalem Mount Scopus, Jerusalem Israel
5. Title: The Trend of Regional Income Disparity in the People’s Republic of China Author: Zhaoyuan Xu Shantong Li
6. Trade Liberalization, Poverty, and Income Inequality in India by Rajat Acharyya
Half a World: Regional inequality in five great federations by Branko Milanovic, World Bank and Carnegie Endowment for
International Peace
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