South-Western College Publishing - Economics  
Income Inequality in Asia is on the Rise
Topic Income Distribution and Poverty
Key Words

Asia, poverty, income inequality, Gini coefficient, China, India, US

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Reference ID: A167394594
News Story

During the 1990s, the growth in Asian nations was hailed as growth for everyone. Given the current level of inequality in Asian nations today, that doesn’t seem to have happened.

The Asian Development Bank studied 21 Asian nations, and concluded that inequality, as measured by the Gini coefficient, increased in 15 of those nations. For some nations, that increase was significant: China’s Gini coefficient increased from 0.41 to 0.47, while in Thailand, the change was reversed. The Gini coefficient measures the level of income inequality by measuring how much of the total national income goes to various groups of people. Perfect equality of income distribution would have a Gini value of 0, while perfect inequality (everything going to one individual or group) would have a Gini value of 1.

But there’s the difficulty in comparisons. The US Gini coefficient is about 0.46, and for most Western nations, that value is based on income distribution. However, income data is very unreliable in many Asian nations, making groups like the ADB resort to estimating income with variables like expenditures. These tend to underestimate the income-based value of the Gini coefficient. It’s been estimated that Thailand’s Gini coefficient is 0.43 according to the expenditure-model, but 0.52 according to the income model.

There are many reasons given for this income disparity. First, there is a significant disparity in incomes between the rich urban population and the poorer rural population in many Asian nations. Second, a gap is opening up in labor-market skills. As a result of increased education in many of these nations, highly skilled workers are paid internationally recognized rates, while those with lower skills are paid rates appropriate to the location.

This is also coming, though, as poverty is falling globally. The percentage of people living on $1 or less a day has fallen in many countries over the last decade. Part of this is due to redistribution and increased international awareness of the problem, and part is due to economic growth over the last decade. What is true, though, is that poverty would have decreased far more had those gains from economic growth been distributed more equally.

Discussion Questions:
1. Is an increase in the Gini coefficient the same thing as saying there is an increase in poverty? Why or why not?
2. There is concern over growing social unrest in rural China, targeted against the urban populations. Do you think this is related to the increase in income inequality? Why or why not?
3. What kinds of policies can be enacted to reduce the level of income inequality?
Multiple Choice/True False Questions:
1. A Gini coefficient of 0 indicates
  1. Perfect inequality
  2. Perfect equality
  3. No income
  4. No poverty
2. As the Gini coefficient rises over time
  1. Countries become more unequal.
  2. Countries become more equal.
  3. Countries become richer.
  4. Countries become poorer.
3. As the Gini coefficient rises, the population gets poorer.
  1. True
  2. False
Source “For Whosoever Hath, To Him Shall be Given, and He Shall Have More,” The Economist, August 9, 2007.
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