Welcome To The

Economics of Development

Dr. Suvendu Barik

 Dr. Suvendu Barik
Meaning of Development and Economic Growth
 The world-wide depression (1929-33) and the Second World War (1939-44) were
the two historic events that compelled the states all over the world to think
seriously about the problems of economic development. The growing importance
of the subject and the interest shown by the states in the problems of
development, ‘Economics of Development’ is now considered as an important
branch of economic theory.
 This branch of economics is known by different names such as Economics of
Growth, Economics of Underdevelopment, Economics of Development, or
development Economics.
 The term ‘economic growth’ refers to increases over time in a country’s real
output of goods and services or more appropriately product per capita.
 The term ‘economic development’, in contrast, is more comprehensive. It implies
progressive changes in the socio-economic structure of a country. Viewed in this
way, economic development involves a steady decline in agriculture’s share in
GNP (Gross national Product) and a corresponding increase in the share of
industries, trade, banking, construction and services. This transformation in
economic structure is invariably accompanied by a shift in the occupational
structure of the labour force and an improvement in its skill and productivity.
 Continue
 Thus, economic growth is related to a quantitative sustained increase in the
country’s per capita output or income accompanied by expansion in its labour
force, consumption, capital and volume of trade. On the other hand, economic
development is a wider term. It is related to qualitative change in economic
wants, goods, incentives and institutions.
 Distinction between These Two-
 Schumpeter: makes the distinction clearer when defines development as a discontinuous
and spontaneous change in the stationary state which forever alters and displaces the
equilibrium state previously existing; while growth is a gradual and steady change in the
long run which come about by a gradual increase in the rate of savings and population.
 Kindleberger: “Economic growth means more output, while economic development
implies both more output and changes in the technical and institutional arrangements by
which it is produced and distributed. Growth may well involve not only more output
derived from greater amounts of inputs but also greater efficiency, i.e., an increase in
output per unit of input. Development goes beyond this to imply changes in the
consumption of output and in the allocation of inputs by sectors.”
 Friedman: defines growth as an expansion of the system in one or more dimensions
without a change in its structure, and development as an innovative process leading to the
structural transformation of social systems.
 Dr. Suvendu Barik

2. Obstacles to Economic Development:

 Broadly speaking, the features of an underdeveloped economy create obstacles in the
way of economic development, and hamper economic progress. The factors
hindering development are both non-economic and economic.
A) NON-ECONOMIC FACTORS-
i) Social and Cultural Factors:
Though it is a debatable issue, yet there is a consensus among psychologist,
psychiatrists and sociologists that cultural and social factors influence economic
development. For example, the caste system restricts the mobility of labour and
creates social discrimination. Social organisations formed on the basis of caste
system promote group interests and encourage sectional and sectarian attitude that
discourage economic growth.
 Similarly, joint family system is another important social institution, which is also
responsible for the indifferent attitude of the people towards economic development.
This system makes saving impossible. It creates inertia and lethargy among the
family members, which discourage urge for hard work and better living.
 Laws of inheritance cause sub-division and fragmentation of holdings and property
which in turn adversely affect the productivity in rural and urban sectors. Low yield
generates vicious circle of poverty and weakens the fibre of development.
ii) Religious Factors:
An English poet Wordsworth in one of his poems, lamented that we are too much
with the world, but in underdeveloped countries, the people are too much with
religion and religious beliefs and too much of everything is bad.
Too much of religion makes people indifferent towards economic
activities. They spend most of their time in meditation and prayers and devote little
time to fruitful and productive work. Religious taboos among large sections of
population inhibit economic growth and development.
iii) Political Factors:
Political factors also impinge economic development of underdeveloped countries.
Most of the countries of Asia and Africa have been under the political domination of
colonial powers of Europe. Impact of imperialism has been quite tremendous upon
the underdeveloped counties like India.
The main interest of the colonial powers was to maintain Law and order
and exploit natural resources of colonies for the material progress of their own
counties. The infrastructure created in the form of ports, roads, railways, irrigation
projects was with the intention of providing wherewithal for the economic progress
of their own counties.
However, in recent years, conditions in underdeveloped countries have considerably
changed. New ideas have dawned upon the people and they have become conscious
of better and improved standard of living. They have realised the importance of hard
work and glamour of better living.
B) ECONOMIC FACTORS-
a) Market Imperfections:
i) Factor Immobility:
ii) Price rigidity:
iii) Ignorance of Market Conditions:
iv) Monopolistic Practices:
 How to Solve the Problem or Solutions:
The neoclassical economists believed that a completely free
market economy, under the conditions of perfect
competition, could ensure maximum production frontier
and optimum allocation of resources. According to these
economists, “marginal analysis” could be used for the
removal of market imperfections. The marginal analysis
requires-
 The marginal analysis requires-

• Mobility of factors of production from one industry to

another;
• Price flexibility;
• Developed means of transport and communication;
• Removal of social rigidities;
Other factors which can help in the removal of
market imperfections are:
• Dynamic entrepreneurs who can take the initiative for
making fresh investment;
• Organisational capability of the entrepreneurs so as to
achieve the optimum allocation of resources;
• Innovations and researches to produce goods in the new
form and at low cost.
 b) Vicious Circles of Poverty (VCP):
 More important than market imperfections are the domestic
impediments, known as “Vicious Circles”. This term explains the
factors responsible for economic backwardness of underdeveloped
countries (UDCs).
 Meaning: The vicious cycle of poverty, also known as generational
poverty, is understood as when at least two generations of a family
are below the poverty line. Once poverty starts, it is likely to
continue if there is no external intervention.
 The example of sick man is generally quoted to describe the VCP. A
poor man is underfed and under-nourished. under-nourishment makes
him weak and exposes him to sickness. The earning capacity of a
sick-man is meagre hence he is poor and he is poor because he is
sick. The VC is completed.
 Ragnar Nurkse, an economist in 1953 introduced the model vicious
circle of poverty theory to demonstrate low level of economic
activity. It consists of two levels; supply level and demand level.
Demand Side of VCP:
Supply Side of VCP:
What is true of an individual is also true of an economy.
UDCs are sick because they are poor and vice-versa. These
countries are generally entrapped in the VC.

According to Meier and Baldwin, “Development of natural

resources depends upon the character of human
productive resources. The more economically backward are
the people, the less developed will be the natural
resources. Through illiteracy, lack of skills, deficient
knowledge and factor immobility, the resources will remain
unutilised, underutilised and misutilised. Underdeveloped
resources are, therefore, both a cause and consequences
of the backward population.”
This explanation illustrates three facts of VC, which are
responsible directly or indirectly, individually or jointly, for
keeping the underdeveloped countries in the state of
poverty. They are-

i) Low Productivity, low income, low saving, low

investment, hence low productivity.

ii) Deficiency of capital, low investment, low real

income, low saving, low demand, low investment.

iii) Backward people. This leads to unutilised,

underutilised and misutilised human and natural
resources.
 Vicious Circle of Market Imperfections:
 Meier and Baldwin have described a third vicious circle based on
capital deficiency due to market imperfections. In underdeveloped
countries, resources are underdeveloped and people are economically
backward. Existence of market imperfections prevents optimum
allocation and utilization of natural resources and the result is
underdevelopment and this, in turn, leads to economic backwardness.

 The development of natural resources depends upon the character of

human resources. But due to lack of skill and low level of knowledge,
natural resources will remain unutilized, under-utilized and
misutilised. In the words of Meier and Baldwin, “Underdeveloped
resources are, therefore, both a consequence and cause of the
backward people… The more economically backward are the people,
the less developed will be natural resources, lesser the development of
natural resources more the people are economically backward.” The
vicious circle caused by Market Imperfections is shown as under.
The vicious circle of poverty is a result of the various vicious
circles which were on the sides of supply of and demand for
capital. As a result capital formation remains low productivity and
low real incomes. Thus, the country is caught in vicious circles of
poverty which are mutually aggravating and it is very difficult to
break them.
 Dr. Suvendu Barik
Measures to Break Vicious Circles
 Vicious Circles (VC) can be broken with the hammers of investment
both private and public. These hummers must strike at the roots of the
VC. Proper and suitable incentives must be provided to the potential
investors for raising volume of domestic investment.

 Investment must be accompanied by production-oriented policies.

When emphasis is laid only on raising the investment that could result
in inflation. To counteract inflation, investment policy must be
supplemented by rational production policy.

 The growth of population should be checked by all possible means.

Rapid increase in population will strengthen the VC. Drastic and
effective steps in the form of compulsory sterilisation, legal restriction
on the number of children, suitable monetary incentives for voluntary
limitation of the size of the family and education and training in family
planning methods must be adopted to check the growth of population.
 c) International Factors:
1) Impact of International Trade:
i) Dependence on Primary Exports Makes development uncertain:
ii) Advantages of International Specialisation Cannot be Grabbed:
iii) Disequilibrium in Factor Prices:
iv) Adverse Effects of Cyclical Instability in International Market:
2) Effects of Foreign Investment:
i) Their impact on development is very uneven.
ii) MNCs produce inappropriate products...
iii) Multinationals use their economic power to influence government policies in
directions unfavourable to development.
iv) MNCs may damage host economies by suppressing domestic entrepreneurs
and using their superior know-how, worldwide contacts, advertising skiils....
v) By virtue of their monopoly,
vi)With tremendous economic power at their command...
The gist of entire discussion is that underdevelopment has been the result of
interplay of market imperfections, vicious circle of poverty and international forces.
 3. Determinants/ Factors of Development:
The basic determinants of economic growth can be classified in two
categories (a) non-economic forces, and (b) economic forces.

A) NON-ECONOMIC FORCES:
The economic factors broadly involve social, political, religious and
administrative factors. Here we are to concentrate our discussion on
social and political factors, because they largely shape the course of
development.
 a) Social factors:
Education, health, ideological transformation and other such factors
help moulding public opinion for achieving social objectives of
development.

i) Education and Health

ii) Ideological Transformation
1) Rationality
2) Economic planning
3) Social and Economic Equalisation
4) Improved Institutions and attitudes
iii) Urbanisations
b) Political Factors:
i) Good and Efficient Government
ii) Maintenance of Law and Order
iii) Social Justice
iv) Quality of Leadership

B) ECONOMIC FORCES:
a) Economic Factors:
i) Market economy
ii) Economic Stability
iii) Development Planning
b) Structural factors
i) Labour Population
ii) Stock of Real Capital
iii) Technological Advance

c) External Factors
i) Foreign Trade
ii) Foreign Finance
iii) International Cooperation
4. Measuring Development and Development Gap:
Development Gap: refers to the space between nations
demographically, economically and developmentally.
This gap is measured based on the industrial progress and
infrastructure capabilities of a country and ranks it in
comparison to global standards.
By putting this sort of ranking system in place, it is easy to
determine the countries that are doing best and the countries
that are in need of better management and updating.
4. Measuring Development Gap :
 What are some developmental measures?
Here are a few developmental measures. They are:

 Per - Capita Income

 PQLI – Physical Quality of Life Index
 HDI - Human Development Index.

 HPI - Human Poverty Index.

 Multidimensional Poverty Index.
 GPI - Genuine Progress Indicator.

Just as there are indicators to measure and quantify economic

growth, the same is true for economic development.
 A) What Is Income Per Capita?
Uses, Limitations, and Examples
 Per-capita Income: A measure of the amount of money earned per-person in a
nation or geographic region in a given year. Per capita income counts each man,
woman, and child, even newborn babies, as a member of the population.
 Uses: Per capita income is used to determine the average per-person income for
an area and to evaluate the standard of living and quality of life of the population.
Per capita income for a nation is calculated by dividing the country's national
income by its population.
Per Capita Income in the U.S.
 The United States Census Bureau takes a survey of income per capita every ten
years and revises its estimates every September. The census takes the total income
for the previous year for everyone 15 years and older and calculates the median
average of the data. The census includes earned income (including wages,
salaries, self-employment income), interest income, dividends as well as income
from estates and trusts, and government transfers (Social Security, public
assistance, welfare, survivor and disability benefits). Not included are employer-
paid healthcare, money borrowed, insurance payments, gifts, food stamps, public
housing, capital gains, medical care, or tax refunds.
 Limitations of Per Capita Income
Although per capita income is a popular metric, it does have some limitations. Per capita income
as a metric has limitations that include its inability to account for livings standards, inflation,
international comparisons, income disparity, poverty, wealth, or Savings.
 Livings Standards : Since per capita income uses the overall income of a population and
divides it by the total number of people, it doesn't always provide an accurate representation
of the standard of living. In other words, the data can be skewed, whereby it doesn't account
for income inequality. For example, let's say a town has a total population of 50 people who
are earning $500,000 per year, and 1,000 people earning $25,000 per year. We calculate the
per capita income as ($500,000 * 50) + (1,000 * $25,000) to arrive at $50,000,000 in total
income. When we divide $50,000,000 / 1,050 (total population), the per capita income is
$47,619 for the town.
However, the per capita income doesn't give us a true picture of the living conditions
for all of those living in the town. Imagine if federal aid or public assistance was provided to
towns based on per capita income. The town, in our example, might not receive the necessary
aid such as housing and food assistance if the income threshold for aid was $47,000 or less.
 Inflation: Per capita income doesn't reflect inflation in an economy, which is the rate at
which prices rise over time. For example, if the per capita income for a nation rose from
$50,000 per year to $55,000 the next year, it would register as a 10% increase in annual
income for the population. However, if inflation for the same period was 4%, income would
only be up by 6% in real terms. Inflation erodes the purchasing power of the consumer and
limits any increases in income. As a result, per capita income can overstate income for a
population.
 Limitations of Per Capita Income … Continued
 International Comparisons: The cost of living differences can be inaccurate when
making international comparisons since exchange rates are not included in the calculation.
Critics of per capita income suggest that adjusting for purchasing power parity (PPP) is
more accurate, whereby PPP helps to nullify the exchange rate difference between
countries. Also, other economies use bartering and other non-monetary activity, which is
not considered in calculating per capita income.
 Savings and Wealth: Per capita income doesn't include an individuals savings or wealth.
For example, a wealthy person might have a low annual income from not working but
draws from savings to maintain a high-quality standard of living. The per capita metric
would reflect the wealthy person as a low-income earner.
 Children: Per capita includes children in the total population, but children don't earn any
income. Countries with many children would have a skewed result since they would have
more people dividing up the income versus countries with fewer children.
 Economic Welfare: The welfare of the people isn't necessarily captured with per capita
income. For example, the quality of work conditions, the number of hours worked,
education level, and health benefits are not included in per capita income calculations. As
a result, the overall welfare of the community may not be accurately reflected.
It's important to consider that per capita income is only one metric and should be
used in conjunction with other income measurements, such as the median income, income
by regions, and the percentage of residents living in poverty.
 C) PQLI – Physical Quality of Life Index:
 PQLI: is a measure that combines three basic indicators of human
well-being – literacy rate, life expectancy, and infant mortality
rate – into a single index. Or, Physical Quality of Life Index
(PQLI) is an attempt to measure the quality of life or well-being
of a country.

 It was developed by Morris David Morris in (1979), an American

economist, in the late 1970s as an alternative to the Gross Domestic
Product (GDP) as a measure of a country’s progress and
development.

 The PQLI seeks to capture the level of basic human development in

a society and compares the well-being of people across different
countries and regions.
 B) Physical Quality of Life Index Components:
Components of PQLI:
 Life Expectancy (LE): The number of years a newborn can expect
to live, on average.
 Infant Mortality Rate (IMR): The number of infants who die
before reaching the age of one, per 1,000 live births.
 Basic Literacy Rate (BLR): The percentage of people aged 15 and
above who can read and write.
These three indicators are combined to create the Physical
Quality of Life Index (PQLI), which provides a comprehensive
measure of basic human well-being in a society. The PQLI ranges
from 0 to 100, with higher scores indicating better quality of life.
The PQLI is often used as an alternative to GDP as a measure of
development, as it captures aspects of human well-being that are
not captured by economic measures alone.
 Life expectancy rate represents the average number of years
that an individual is predicted to live. According to the 2011 census, the
average age in India is 66.8 years.

Infant mortality is the number of newborns that die during the

first year of infancy for every 1000 births. According to the 2011 census,
it is 47 per 1000 people.

Basic literacy rate: Any individual above the age of seven who
can read and comprehend in at least one language is deemed
educated. According to the 2011 census, it stands at 74.04 per cent in
India.

Each of the aforementioned criteria is scored on a scale of 1 to

100, with 1 being the poorest performance and 100 representing the
highest performance. The Physical Quality of Life Index is then
computed by comparing these three parameters and allocating equal
merit to each.
 Advantages of PQLI
 The advantages of PQLI are that it aids in comprehending the
economy’s overall wellbeing and the effectiveness with which its
welfare measures are executed. This assists the government in
implementing remedial measures.
 The technique used to calculate the PQLI is universally accepted.
As a result, it may be used to compare nations, which enables
comparatively impoverished countries to take remedial action,
which is one of the advantages of PQLI.
 The three metrics, namely life expectancy, infant mortality, and
literacy, all accurately reflect the country’s population wellbeing. A
nation that scores well on all three parameters is considered to have
a successful economy. It is another advantage of PQLI.
 The PQLI evaluates the country’s sharing of income. A nation
cannot have a high life expectancy, a long life expectancy, or a low
newborn mortality rate unless a significant proportion of its
inhabitants gain from economic progress.
 PQLI Limitations:
While the Physical Quality of Life Index (PQLI) provides a comprehensive
measure of basic human well-being, it has several limitations, which
include:
 Lack of Weightage: The PQLI treats all three indicators as equally
important and does not provide any weightage to indicate which of the
three is more critical for well-being in a particular society.
 Biases: The PQLI is based on the assumption that higher literacy rates,
longer life expectancies, and lower infant mortality rates are always
indicative of a better quality of life, which may not always be true.
 The PQLI overlooks a variety of elements that affect one’s quality of life,
including job, housing, justice, life expectancy rate, and state pensions.
 The PQLI does not account for a country’s economy changing
structurally.
PQLI: Conclusion
 Overall, while the PQLI can provide a useful snapshot of
basic human well-being, it should be used with caution,
and in conjunction with other measures of development
and well-being.

 The physical quality of life index is an essential

component for countries. As, it can be used to compare
nations, which aids the comparatively impoverished
countries in taking remedial action.

 The three indicators, namely life expectancy, infant

mortality, and literacy rate, accurately reflect the country’s
citizens’ well-being.
C) The Human Development Index (HDI)
The measurement of economic development can be done through
the human development index (the HDI). This is the most used
index to measure economic development.
Lord Meghnad Desai and Nobel Laureate Amartya Sen
invented the Human Development Index and UNDP
incorporate it into its first Human Development Report (HDR)
in 1990. It takes the following three factors into account:
 Health: The HDI measures the average life expectancy in a
specific country and compares it to the global average.
 Education: The HDI measures the mean years of schooling
and expected years of schooling in a country.
 Standard of living: The HDI measures the gross national
income (GNI) per head, using the principle of purchasing
power parity, PPP.
C) The Human Development Index (HDI)
 Since 2010, HDI is being defined in HDR as the geometric mean
of normalised indices measuring achievements in each dimension
(prior to HDR (2010, simple arithmetic mean of the three
dimension indices used to be taken).
 Having defined the minimum and maximum values, the
dimension indices are calculated as-

Dimension Index= Actual value –Minimum Value /

Maximum value – Minimum value

In determining the HDI, each component has an equal weightage of

33%. The closer the HDI is to 1, the more developed the country is.
HDI ranks all the countries within the range of 0 (Lowest HDI) and
1 (highest HDI). The table below shows the top five countries with
the highest HDI ranking with their GDP and GDP per capita
rankings.
 Table 1. HDI, GDP and GDP per capita ranking.

GDP per capita

HDI rank Country HDI score GDP rank
rank
1 Norway 0.957 32nd 4th
2 Ireland 0.955 27th 3rd

3 Switzerland 0.955 20th 2nd

4 Hong Kong 0.949 40th 15th

5 Iceland 0.949 110th 7th

Using the above noted three measures of development and applying a formula
(explained below) to data of 175 countries , the HDI puts all these counties
into three categories, Low HDI (0.0 to 0.499), medium HDI (0.50 to 0.799),
and high HDI (0.80 to 1.0). As per the Latest data, there are 195 counties in
the world and the rank of India is 132.
As you can see, despite these countries having the highest ranking in terms of
economic development, they do not maintain the highest ranking in GDP, and
there is a disparity in GDP per capita which is an indicator of economic growth.
This illustrates how a country's level of income and output does not directly
translate to a high level of economic development.
 Strengths of the HDI

As the HDI is the most commonly used measure of

economic development, it has many strengths:

 Reliable. The information is updated on an annual basis

and sourced reliably.
 Accurate. The HDI is superior to single indicators as it
uses two types of social data (health and education)
along with one type of economic data, which gives a
broader perspective.
 Useful. The HDI is a very useful tool for governments
aiming to devise policies focusing on economic and
human development.
 Weaknesses of the HDI
These are the main weaknesses of the Human Development Index as
a measure of development:
 Simplicity. It has been criticized for being too simple and therefore
unable to give a real representation of the level of development in
an economy. This is backed by the argument that economic and
human development are broader concepts with far greater
dimensions than the ones captured in the HDI.
 Not equally weighted. All the factors used to calculate a country's
HDI have equal weight, but there is a concern that wealth (GNI)
still has too much weight in the HDI. This fact leaves room for
richer countries to artificially manipulate their rankings. In addition,
the GNI does not take into consideration the hidden economy which
tends to make up a larger proportion of less developed countries'
economies.
The hidden economy involves economic statistics that are not measured by the government
and ignore government regulations and rules. The hidden economy includes legal
activities that avoid paying taxes, illegal activities (the sale of stolen goods or drug
trafficking), and non-market activities (like having your own fishery). The hidden
economy is also called the underground economy, black market, and shadow economy.
 Weaknesses of the HDI…Continued
Some other criticisms that the HDI as a development measure
has received are:
 A long-life expectancy is not equivalent to a high quality of
life.
 Someone with a high life expectancy could be working a high-
risk job for less than average pay.
 The number of years people spend in school doesn't accurately
measure the quality of the education they receive.
 The HDI alone does not measure the extent of inequality in a
country. It is possible to have a satisfactory HDI rank and a
huge income gap between the very wealthy and the very poor.
 The HDI fails to give an account of whether the development
is sustainable.
 Example: Country Y might be experiencing economic growth
and improved living standards, but issues such as pollution
and corruption remain.
 Income and Wealth Inequality
"For we, the people, understand that our country cannot succeed
when a shrinking few do very well and a growing many barely
make it. We believe that America's prosperity must rest upon
the broad shoulders of a rising middle class."
—President Barack Obama1
 Billionaires are increasing their fortunes by $2.7 billion every day. Meanwhile, at
least 1.7 billion workers live in areas where inflation is higher than wages. Income
inequality is a global problem. It has several consequences, including financial
crises, fragile economies, high inflation, poorer health outcomes, and violence.
 Data reported by the World Bank allow us to compare the distribution of income
across countries. As of 2018, the available data show large international differences
in income inequality. Although not all countries in the world have data on income
inequality, among those that do, the United States ranks among the top 25% most
unequal.
 Income and Wealth Inequality …Continued-1
 Income inequality is a global issue with several causes, including
historical racism, unequal land distribution, high inflation, and stagnant
wages. As gaps increase thanks to crises like COVID-19, the world needs
to take action in education, labor market policies, tax reforms, and
higher wages.

 There are many different types of inequality among people: educational

attainment, work experience, and health—to name a few.
 Economists directly link differences in educational attainment and work
experience, also known as human capital, to differences in economic
outcomes. That is, formal education and job skills determine how likely a
person is to find and hold a stable job that pays good wages.
 The flow of money from wages is the most important source of income
for most people. Over time, regular income from employment allows
people to own assets such as a home or a retirement financial portfolio.
That stock of assets is called wealth.
 Income and Wealth Inequality …Continued-2
 Economic inequality is an umbrella term for a) income inequality or
distribution of income (how the total sum of money paid to people is
distributed among them), b) wealth inequality or distribution of wealth (how
the total sum of wealth owned by people is distributed among the owners),
and c) consumption inequality (how the total sum of money spent by people
is distributed among the spenders).
 Each of these can be measured between two or more nations, within a single
nation, or between and within sub-populations (such as within a low-income
group, within a high-income group and between them, within an age group
and between the inter-generational groups, within a gender group and
between them etc, either from one or from multiple nations).[1]
 Income inequality metrics are used for measuring income inequality,[2] the
Gini coefficient being a widely used one. Another type of measurement is the
Inequality-adjusted Human Development Index, which is a statistic
composite index that takes inequality into account.[3] Important concepts of
equality include equity, equality of outcome, and equality of opportunity.
 Gini coefficient
https://en.wikipedia.org/wiki/Gini_coefficient

 In economics, the Gini coefficient, also known as the Gini index or Gini ratio, is a
measure of statistical dispersion intended to represent the income inequality, the
wealth inequality, or the consumption inequality within a nation or a social group. It
was developed by Italian statistician and sociologist Corrado Gini (1912 in his
paper Italian: variability and mutability). Building on the work of American
economist Max Lorenz, Gini proposed that the difference between the
hypothetical straight line depicting perfect equality, and the actual line
depicting people's incomes, be used as a measure of inequality.
 The Gini coefficient measures the inequality among the values of a frequency
distribution, such as levels of income. The Gini coefficient is an index for the degree
of inequality in the distribution of income/wealth, used to estimate how far a
country's wealth or income distribution deviates from an equal distribution.
 A Gini coefficient of 0 reflects perfect equality, where all income or wealth values
are the same, while a Gini coefficient of 1 (or 100%) reflects maximal inequality
among values, a situation where a single individual has all the income while all
others have none.
 Gini coefficient …Continued
https://en.wikipedia.org/wiki/Gini_coefficient

 Considering the effect of taxes and Transfer payments, the income Gini coefficient
ranged between 0.24 and 0.49, with Slovenia being the lowest and Mexico the
highest. African countries had the highest pre-tax Gini coefficients in 2008–2009,
with South Africa having the world's highest, estimated to be 0.63 to 0.7.
 The Gini coefficient is usually defined mathematically based on the Lorenz curve,
which plots the proportion of the total income of the population (y-axis) that is
cumulatively earned by the bottom x of the population . The line at 45 degrees thus
represents perfect equality of incomes.
 The Gini coefficient can then be thought of as the ratio of the area that lies between
the line of equality and the Lorenz curve (marked A in the diagram) over the total
area under the line of equality (marked A and B in the diagram); i.e., G = A/(A + B).
If there are no negative incomes, it is also equal to 2A and 1 − 2B due to the fact that
A + B = 0.5.
 Assuming non-negative income or wealth for all, the Gini coefficient's theoretical
range is from 0 (total equality) to 1 (absolute inequality). This measure is often
rendered as a percentage, spanning 0 to 100. However, if negative values are factored
in, as in cases of debt, the Gini index could exceed 1. Typically, we presuppose a
positive mean or total, precluding a Gini coefficient below zero.
The Gini coefficient is equal to the area marked A divided by the total area of A
and B, i.e. Gini = A/ A + B . The axes run from 0 to 1, so A and B form a
triangle of area 1/2 and Gini = 2 A = 1 − 2 B .
Max Otto Lorenz was an American economist who developed the Lorenz
curve in an undergraduate essay. His doctoral thesis (1906) was on 'The
Economic Theory of Railroad Rates' and made no reference to perhaps his
most famous paper. The term “Lorenz Curve" for the measure Lorenz
invented was coined by Willford I. King in 1912.
https://en.wikipedia.org/wiki/Max_O._Lorenz

 You can think of the horizontal axis as percent of people and the vertical
axis as the percent of income those people receive. Therefore the Lorenz
curves always start and end at the same places, where 0% of people make
0% of the country's income and 100% of people make 100% of the total
income.
 Inequality is implied when the curve is below the 45-degree line: At the left,
the percentage of people is higher than the percent of income they receive
(i.e. 10% of the people getting 5% of the total income); at the right, the
percent of income received rises more than the percent of people receiving
it.
 The area above the Lorenz curve - marked "A" - is shaded differently from
the area below the curve -- marked "B". This simplifies the mathematical
explanation of the gini coefficient, which is A/(A+B).
 Thank You
Dr. Suvendu Barik