Assignment #

GINI COEFFICIENT & LORENZ CURVE

Prepared for:
Professor Dr. Muhammad Ziaulhaq Mamun
Course Instructor: Managing Operations (P 501)

Prepared by:
Navid Ahmed Mamun
MBA, 53D
Roll: ZR-48

Institute of Business Administration

University of Dhaka

April 25, 2016

Gini Coefficient: The Gini coefficient is a measure of statistical dispersion intended to

represent the income distribution of a nation's residents, and is the most commonly used
measure of inequality. Italian statistician Corrado Gini invented the Gini Coefficient. The
United Nations (UN) uses this coefficient in their annual ranking of nations.
The Gini coefficient measures the inequality among values of a frequency distribution (for
example, levels of income). A Gini coefficient of zero expresses perfect equality, where all
values are the same, for example, where everyone has the same income. A Gini coefficient of
one or 100% expresses maximal inequality among values e.g., for a large number of people,
where only one person has all the income or consumption, and all others have none, the Gini
coefficient will be very nearly one. However a value greater than one may occur if some
persons represent negative contribution to the total. For example, by having a negative
income or wealth. For larger groups, values close to or above 1 are very unlikely in practice.
Given the normalization of both the cumulative population and the cumulative share of
income used to calculate the Gini coefficient, the measure is not overly sensitive to the
specifics of the income distribution, but rather only on how incomes vary relative to the other
members of a population. The exception to this is in the redistribution of wealth resulting in a
minimum income for all people. When the population is sorted, if their income distribution
were to approximate a well known function, then some representative values could be
calculated.
It is a way of comparing how distribution of income in a society compares with a similar
society in which everyone earned exactly the same amount. Inequality on the Gini scale is
measured between 0, where everybody is equal, and 1, where all the country's income is
earned by a single person.
Gini developed his coefficient in 1912, building on the work of American economist Max
Lorenz, who published a hypothetical way to depict total equality - a straight diagonal line on
a graph - in 1905. The difference between this hypothetical line and the actual line produced
of people's incomes is the Gini ratio.
According to Antonio Cabrales, a professor of economics at University College London,
The Gini coefficient provides an index to measure inequality.
"The Gini has been around for a very long time, and it's very technically sound if you want to
measure income inequality across the whole population," explains Andy Sumner, director of
the International Development Institute at Kings College, London. "But one might say the
Gini is oversensitive to changes in the middle, and under sensitive at the extremes."
The coefficient doesn't capture very explicitly changes in the top 10% - which has become
the focus of much inequality research in the past 10 years - or the bottom 40%, where most
poverty lies.
Lorenz Curve:
The Lorenz curve is the graphical representation of wealth distribution developed by
American economist Max Lorenz in 1905. On the graph, a straight diagonal line represents
perfect equality of wealth distribution; the Lorenz curve lies beneath it, showing the reality of
wealth distribution. The difference between the straight line and the curved line is the amount
of inequality of wealth distribution, a figure described by the Gini coefficient.

Lorenz Curve for Bangladesh (2010)

120
100
80
60
40
20
0

20

40

60

80

100

120

Figure: Lorenz Curve for Bangladesh (2010)

Gini Coefficient for Bangladesh, USA, and Denmark:

Table: Gini Coefficient for Bangladesh, USA, and Sweden.
Country
Bangladesh
USA
Sweden

Year
2010

Gini Coefficient
Urban
0.452

2015
2013

Rural
0.431
0.8056
0.249

Total
0.458

Reference:
1. Monitor, BBC Magazine. Who, What, Why: What is the Gini coefficient? [Online] 2015. [Cited:
April 24, 2016.] http://www.bbc.com/news/blogs-magazine-monitor-31847943.
2. Report of the Household Income & Expenditure Survey. Statistics, Bangladesh Bureau of. 2010,
p. 30.

3 The World Bank. GINI Index (World Bank Estimate)

http://data.worldbank.org/indicator/SI.POV.GINI