Practice Problems
9.
Create a population weighted World Income Distribution Coefficient for 2009.
Follow the directions for Homework 2, Q3. Go to World Bank World
Development Indicators and hit
and then
. Choose
and
. From
and
GDP per capita, PPP (constant
2005 international $) and GDP, PPP (constant 2005 international $). Hit
.
2009 and hit
. From
Shift Time to Page and Series to Column
Choose
and
. Sort the data according to GDP, PPP
(constant 2005 international $) from largest to smallest (the Sort tool can be found
in Excel under Data) in descending order. Eliminate all economies with no data.
Examine the top Q=150 countries in terms of size. Re-sort the data according to
GDP per capita, PPP (constant 2005 international $), this time in ascending order
from poorest to richest. Calculate the population of each country, Population =
GDP, PPP /GDP per capita, PPP.
Calculate the Lorenz Curve for each country. Calculate the World GDP,PPP
as the sum of a GDP, PPP (constant 2005 international $) across all q countries.
Calculate the LEVEL as AVERAGE×Q. Index the countries q=1,…,150 where
q=1 is the poorest country and q =150 is the richest country. For country q,
calculate their share as shareq 
GDPq
World GDP
. Starting at q = 1, calculate the
Lorenz curve as the cumulative distribution LCq = LCq-1 + shareq.
Calculate the population share Sum up the population of all Q countries in the
world. Calculate country q’s share of world population wq = Populationq/World
Population
Calculate the area of the trapezoid. In this case, the area under the world’s
Lorenz curve consists of 150 trapezoids of width depending on the share of world
population. Calculate the area of the trapezoid for country q as
LCq  LCq 1
2
 wq .
Calculate the population weighted GINI coefficient for the world economy.
Add the sum of the trapezoids and calculate the population GINI coefficient for
the world economy.
Repeat the same process for 1989. Before selecting the top 150 countries, remove
Serbia which does not have population data. Note that the population weighted
Index does show considerable improvement. High growth countries have tended
to be larger in population.
10. Create your own Human Development Index. From World Development
Indicators Link choose
. From
Indonesia, Mexico, Egypt, Poland, South Africa. Hit
choose China,
.
From
: 1)
Household final consumption expenditure, PPP
(constant 2005 international $); 2)
Survival to age 65,
female (% of cohort); 3)
Population, total; 4)
School enrollment, secondary (% gross).
Hit
.
From
, select 2009. From
Shift Time to Page and Series to Column
Choose
and
Construct a Human Development Index with indicators for health, education, and
material standard of living. Create an index for each indicator. For each indicator Xj
for each country j, choose a maximum XMAX and a minimum level, XMIN create the
X j  X MIN
index I jX 
.
X MAX  X MIN
a. Health. Select Healthj = Survival to age 65, female (% of cohort). Let HealthMIN =
0 and HealthMAX = 100
b. Education. Select Educationj = School enrollment, secondary (% gross). Let
Education MIN = 25 and Education MAX = 100.
c. Standard of Living Select Livingj = Household final consumption
expenditure(constant 2005 international $)/ Population, total. Let Living MIN = 0
and Living MAX = 10,000.
Calculate the alternative index as I j  3 I Health
. Where does China
 I Education
 I Living
j
j
j
rank in this Index?
Compare the results with China’s ranking in the United Nations Human Development
Index database http://hdrstats.undp.org/en/tables/default.html. Under 1. Select countries
the appropriate six countries. Under 2. Select indicators
HDI value. Under 3. Select years
2009.
.
Why does China do worse in the alternative index we constructed than in the HDI
Value? Hit
. Choose
and remove the check
from
and add a check to an indicator
. Compare how China does
when the indicator of material standard of living is consumption based rather than
income based.
Which indicator might be better? [Subjective]