Lecture 5 PDF: Income Distribution

PER CAPITA INCOME AND INCOME DISTRIBUTION AS DETERMINANTS OF FOOD SECURITY PER CAPITA INCOME AND FOOD SECURITY Generally, as income gets higher, the market access to food would increase. However, in a national perspective, higher per capita income does not assure higher food security as in...

PER CAPITA INCOME AND INCOME DISTRIBUTION AS DETERMINANTS OF FOOD SECURITY PER CAPITA INCOME AND FOOD SECURITY Generally, as income gets higher, the market access to food would increase. However, in a national perspective, higher per capita income does not assure higher food security as income distribution could be skewed to the rich which would still indicate many being food insecure. RELATIONSHIP BETWEEN INCOME AND FOOD CONSUMPTION The law was named after the statistician Ernst Engel (1821– 1896). Engel's law is an observation in economics stating that, with a given set of tastes and preferences, as income rises, the proportion of income spent on food falls, even if actual expenditure on food rises. In other words, food is essential good; and the income elasticity of demand for food is between 0 and 1.  ENGEL’S CURVE FOR OMAN Income (OR/Month/Household) % Expense on food of total household income Less than 100 0.78 100-199 0.78 200-299 0.61 300-399 0.66 400-499 0.41 500-599 0.42 600-699 0.23 700-899 0.24 900-1099 0.21 More than 1100 0.18 Average 21.0 MEASUREMENT OF INCOME DISTRIBUTION Basic methods of measurement 1. Percentile distribution of income 2. Lorenz curve and Gini co-efficient In essence, the MEASURE OF INEQUALITY = percentile distribution of % INCOME RECEIVED BY POOR 40% income provides a valuable snapshot of % INCOME RECEIVED BY RICH 20% how income is distributed within a population, helping us understand the extent of income inequality and its implications for society. DRAWING LORENZ CURVES Cumilative % Population Cumilative % Income Equal Income Unequal Income 20 20 3 40 40 11 60 60 28 80 80 50 100 100 100 The Lorenz curve is a graphical representation of income or wealth distribution within a population. It visually illustrates the degree of income inequality LORENZ CURVE LORENZ CURVE LORENZ CURVE  11 GINI COEFFICIENT % of Income Gini co-efficient = Area between the diagonal and Line of equality Lorenz Curve over area of Lorenz curve the half square. A B GC = A / (A + B) % of Population Smaller the GC  more equal is the distribution GC’S OF FEW COUNTRIES Source Gini Coeficients (0 = Equal distibution) 40 35 30 25 20 Seri… GC 15 10 5 0 Ethiopia Japan Sri Lanka UK Countries  INCOME DISTRIBUTION IN OMAN Year 2000 Year 2008 Income (OR/Month/Household) % Households’ Less than 100 8.20 3.00 100-199 12.30 4.70 200-299 13.30 7.60 300-399 12.40 9.00 400-499 10.40 9.50 500-599 8.80 6.50 600-699 5.90 5.70 700 and more 28.70 54.00 Average Income (OR/ Month/Household) 638.000 913.000 Source: MONE (2001 and 2010) LORENZ CURVE FOR OMAN https://link.springer.com/chapter/10.1007/978- 3-319-05768-2_9/figures/3 INCOME DISTRIBUTION IN DIFFERENT COUNTRIES INCOME DISTRIBUTION IN DIFFERENT COUNTRIES CONT … The most equal income distribution is in Japan (GC = 24.9) and most unequal is in Brazil (GC = 60.7). Over the past 30 years income inequality in most countries have increased. Oman’s income equality has increased. 2003 GC = 46.49 2008 GC = 36.35 FACTORS INFLUENCING INCOME DISTRIBUTION Traditional Thinking: Heredity and Environment New trends: Ability Entrepreneurship Education level Family status Wealth inheritance Discrimination (color, ethnicity etc.) Luck KUZNET’S CURVE The Kuznets Curve is a U-shaped graphical relationship that shows the connection between economic growth and various factors such as income inequality, environmental quality, or forest cover. It was originally proposed by economist S. Kuznets in 1955. KUZNET’S CURVE  https://www.sciencedirect.com/science/article/ pii/B9780128221884000038 KUZNET’S CURVE KUZNET’S CURVE CONT … Kuznet’s curve: As a country gets richer in the initial stages of development, income equality decreases; but, after a certain level of development, income equality improves. The very poor may not be able to initially benefit from technology lead development, but subsequently with improved education, health, infrastructure, the poor would also be able to benefit from development.  https://www.economicsonline.co.uk/definitions/ the-kuznets-curve.html/ KUZNET’S CURVE  https://www.tutor2u.net/economics/reference/ what-is-the-kuznets-inequality-curve KUZNET’S CURVE