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Income Inequality in Bangladesh
Income Inequality in Bangladesh
1.1 Introduction
The economy of Bangladesh though has faced many problems but now is growing faster than that of any other country. Its GDP is significantly increasing every year. But with the facing economy growth its income hasnt increased and the dispersion of income is getting higher. Poverty hasnt decreased that much yet. Now reducing poverty and inequality in income have become a challenge for the country. Despite the large numbers of people living in poverty, the definition of poverty has been the subject of debate. The mainstream emerging sees poverty as generally being characterized by inability of individuals, households, or entire communities, to command sufficient resources to satisfy a socially acceptable minimum standard of living. The alternative view understands poverty as a part of social property relations. Inequality can be defined in terms of being the opposite of equality, a state of social organization that enables or gives equal access to resources and opportunities to all members. Bangladesh has witnessed a modest progress in reducing poverty since the early 1990s. However, there is no room for complacency. Still, about one-third (31.5 percent) of its population is living below the so-called poverty line (BBS, 2010). Likewise many other countries, poverty is still a vital concern and challenge for Bangladesh. The progress of inequality reduction in Bangladesh requires an in-depth assessment. This report is an attempt to sketch the current scenario and to make future projection of inequality so that we can have a clear image to generate evidence and insights that can be used to feed into poverty reduction.
Specific Objective: To show income distribution in Bangladesh To find out the prevailing recent income inequality To show the government steps towards reducing it To analyze the governments action and plan for future
1.4 Methodology
For the analysis charts and graphs has been used. Analyzing the income inequality Lorenz curve has been used. Gini Coefficient as given in the BBS survey has been used directly. Other information provided in this report is fully observational. Mathematical terms or equation has been not used for analyzing. Statistical tools are also not used to the fullest.
1.5 Limitation:
The main limitation in preparing a perfect report is not having sufficient knowledge of measuring the inequality of income. The Gini coefficient has been used directly and Lorenz curve is the only analysis made from the data. No further analytical tool has been used. This study has been done through analyzing different data there might be some flaws as analyzing has its own disadvantage. So there is no saying that the report is perfect in its way.
Gini Coefficient: At this point, the Gini coefficient, which is simply a quantification of the Lorenz curve, can be introduced. Gini coefficient is simple and handy summary measure of Lorenz curves. It is the ratio of the area between the line of equality and the Lorenz curve and the area beneath the line of equality. It is often used to measure income inequality. It is a number between 0 and 1, where 0 corresponds to perfect equality (e.g. everyone has the same income) and 1 corresponds to perfect inequality (e.g. one person has all the income, and everyone else has zero income). It was developed by the Italian statistician Corrado Gini and published in his 1912 paper.
Total 02 100.00 0.78 2.00 3.22 4.10 5.00 6.01 7.32 9.06 11.50 15.94 35.85 24.61
Urban 04 100.00 0.76 1.98 3.09 3.95 5.01 6.31 7.64 9.30 11.87 16.08 34.77 23.39
Total 05 100.00 0.77 2.00 3.26 4.10 5.00 5.96 7.17 8.73 11.06 15.07 37.64 26.93
Urban 07 100.00 0.67 1.80 3.02 3.87 4.61 5.66 6.78 8.53 10.18 14.48 41.08 30.37
Income Gini 0.458 0.431 0.452 0.467 0.428 0.497 Co-efficient Table-1 Percentage share of income of households by Decile group and Gini Co-efficient (Source: BBS HIES 2010)
It is seen from the table that the gap between the rich and the poor is extremely high. Another thing is that the top 5% of has the 24.61% of income and the bottom 5% has only .78% of income. Decile 1 to 5 in 2010 is recorded 2.00%, 3.22%, 4.10%, 5.00% and 6.01% respectively at national level. And that total occupies only 20.33% of the total 50% income. Whereas decile 6 to 10 in 2010 is recorded 7.32%, 9.06%, 11.50%, 15.94% and 35.85% respectively. They total consist 79.67% of the income. Changes in the income: From 2005 to 2010 there hasnt been much change. The data are about same and inequality tends to remain somewhat unchanged. The Graphical presentations are given below
The graph show nationally income shared by household. The changes in 2005 to 2010 is the top accumulation of income has been reduced somewhat. In case of rural income shared the graph is provided below that is made from Table-1
This graph shows that rural income shared by households is pretty close and changes are relatively very low. The urban income (%) shared by household graph is given below
There is a significant change in the inequality level from 2005 to 2010. At the top level the inequality reduced and in the bottom level it is increasing.
It is believed that sustained and equitable economic growth inevitably leads to poverty reduction. There is widespread concern that economic growth has not been shared fairly, and that the current economic crisis further widens the gap between the rich and poor. In Bangladesh, the number of people living in poverty has increased due to rising disparities in the distribution of resources income this To the we have three They rural, nation income inequality. and within country. describe situation, divided it segments. include urban and level
Lorenz curve and Gini Coefficient: To understand the inequality there is no other way than getting ideas from the Lorenz curve and Gini Coefficient.
National Income Inequality Income inequality in 2010 in the national level is still pretty high. the Lorenz curve of the income inequality is given below
From Table-1 Gini Coefficient in the national income (%) shared by household is 0.458. So the dispersion in income among the deciles is relatively large. Changes from the 2005 Gini Coefficient is only 0.009 percentage point.
Rural Income Inequality: The breakdown of all the components of rural income and the corresponding Gini coefficients is shown in the following table. A component of rural income having a concentration ratio that is greater than the Gini ratio has a "disequalising" effect, indicating that relatively higher proportions of it accrue to the higher income groups. The Lorenz curve for rural income inequality in 2010 is provided below
As the Gini Coefficient in Rural Income distribution is .0431 it is lower than the national level Gini coefficient. But the inequality rises from 2005 to .003 percentage point.
Urban Income Inequality: Non-agricultural salary, the single largest source of urban income, was a disequalizing source of income. This is contrasted with non-agricultural wage which was a highly equalizing source. The difference between the two is that wages are paid on a daily or weekly basis representing mainly blue-collar jobs, whereas salaries are paid on a monthly basis, indicating white-collar jobs. Apart from farm income, which represents a very small share of urban income, and non-agricultural wage income, almost all the other components contributed to the rising urban inequality specifically income from non-farm enterprise, property income, remittances and transfer, and rental value of housing. Of these, income from non-farm enterprise and remittances and transfer were particularly important as their concentration ratios increased considerably over the decade. Though the concentration ratio of property income was quite high throughout the period, it remained fairly constant.
In urban areas inequality is tend to increase. The Lorenz curve showing inequality is given below
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There Gini Coefficient is .452 which is pretty lower than the Gini Coefficient of 2005. It has reduced to .045 percentage point.
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Reduction of poverty and inequality is a fundamental challenge in Bangladesh. Government of Bangladesh is taking several steps in reducing income inequality. The steps taken by Bangladesh Government to reduce inequality are 1. Social safety net program SSNP
2. Dynamic redistribution of wealth 3. Employment generation program 4. imposing government rules and regulation 5. imposing progressive taxes at an effective level
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The programs include in SSNs in Bangladesh as follow: 1. Cash transfers: Old Age Allowances, Allowance for Retard/Disable Person, Allowance to the Widowed, Deserted and Destitute Women, Honorarium Program for the Insolvent Freedom Fighters, Primary education Stipend Project, Female Secondary School Assistance Program and so on. 2. In-kind transfer: Vulnerable Group Feeding Program, Vulnerable Group
Development, Gratuitous Relief, Test Relief, Food for Works, Community Nutrition Program and so on. 3. Price subsidy: Fertilizer and Electricity Subsidy, Subsidy for Marginal Farmers to cope with the Fuel Price Hike, Food Subsidy. 4. Jobs on labor-intensive public works: Rural Employment Opportunities for Public Assets, 100 days Employment Generation Program and so on. 5. Fee waivers: Free schooling, health card. 6. Others Special programs: Housing for the Homeless, Microcredit for Women Selfemployment, Rehabilitation Program for Beggars and Alternative Employment Project for Beggars. The government of Bangladesh spends a large sum of money in the social safety net program in every year to reduce income inequality and thus eliminate poverty. The allocation pattern of social safety net program by the government is show below Table-2 Allocation Pattern of Social Safety Net Programmes (In Crore taka) Programmes Budget (2009-10) revised Cash transfer (various 5,539.28 Budget (201011) revised 6359.30
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allowances) programmes Cash transfer (special) Food programmes: Protection Micro credit programmes: 395.00 Social empowerment Miscellaneous fund 2984.15 3300.38 340.02 161.00 55.52 7232.12
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5.1 Recommendation:
As the government wants to increase the social optimality, they are more likely to reduce the inequality in income. Government has been trying to decrease the rate of inequality but still no effective change has been seen. Some recommendations can be made to gear up some changes and decrease the rate of inequality. Government has to take more people with high income under tax criteria Progressive tax is good enough to reduce the inequality Minimum wage should be increased The ratio of high payment and lower payment should be reduced Different development programmes should be introduced More employment should be created to reduce unemployment Tax payers should be encouraged to contribute in social welfare programmes Maintaining and developing new rules and regulation can be of help People can be trained to further development creating human capital Some percent of GDP should be used to take some people out of the poverty line Effectiveness of programmes should be monitored and incase of failure instantly treatment needed
5.2 Conclusion
In Bangladesh there is positive relation of increasing income inequality with the increase of total income. As the government is trying to reduce the rate of inequality, there is hardly any change seen. Income Distribution also shows the differences where most of the wealth concentrates in
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one decile and others are scattered in the rest of deciles. Gini coefficient hasnt changed to significant percentage point which is still considered high. Government Social Safety Net programmes to redistribute the wealth isnt working well. So reasons for the failure of programmes should be found out and treated well.
Reference
Bangladesh Bureau of Statistics, Report of the Household Income and Expenditure survey 2010. Dhaka:Bangladesh Bureau of Statistics Muhammad Sirajul Haque, Economic Growth and Income Inequality in Bangladesh. S. R. Osmani and Binayak Sen, Inequality in Rural Bangladesh in 2000s, Trend and causes. Azizur Rahman Khan, Measuring Inequality and Poverty in Bangladesh: An Assessment of the Survey Data. Bangladesh Development Studies International Monetary Fund 2012, Bangladesh: Poverty Reduction Strategy Paper. General Economic Division, Planning Commission, Government of Peoples Republic of Bangladesh and UNDP, Financing Growth and Poverty Reduction: Policy Challenges and Options in Bangladesh. Uttam Deb, Zobdul Hoque, Nafisa Khaled and Subir Kanti Bairagi, Growth, Income Inequality and Poverty Trends in Bangladesh: Implications for Development Strategies. Barkat-E-Khuda, Social Safety Net Programmes in Bangladesh: A Review. http://en.wikipedia.org/wiki/Lorenz_curve http://en.wikipedia.org/wiki/Gini_coefficient http://www.investopedia.com/terms/i/income-inequality.asp http://en.wikipedia.org/wiki/Economic_inequality http://www.closertogether.org.nz/reduce-income-inequality/