Mukti

Inequality in Bangladesh

Posted in economics by jrahman on December 20, 2011

A common refrain in discussions about Bangladesh’s progress is ‘oh, rising per capita income is misleading, look at inequality’.  The implied message is, inequality has widened, and the benefit of economic development isn’t reaching everyone.

So I thought I should look at inequality seriously.  I looked up the World Bank World Development Indicator for Gini c0-efficient — the standard measure of inequality.  If the co-efficient is 0, then we have perfect equality, while 100 signifies complete inequality where one person has everything.  For more detailed explanation, see wiki.

So, what do you think has been the inequality trend in Bangladesh over the past quarter century?  Under which government has inequality been the worst?  How does Bangladesh compare with the feudal Pakistan or communist Vietnam?  The answers, over the fold, may surprise you.

Firstly, inequality has widened, there is no questions about it.  In the 1980s, the Gini co-efficient hovered around 26.  Under BNP, between 1992 and 1996, it crossed 30.  And it was rather steady for the next decade — 2005 is the last year of data.

How bad is this rise in inequality?  One way to answer that is to compare with other similar countries.  That’s what is done in this chart.

 

 

 

 

 

 

 

 

 

It might surprise people — well, it surprised me at least — to see that inequality in Bangladesh has been broadly similar to Pakistan and Egypt.  My prior would have been that given its feudal society, Pakistan would have a worse Gini co-efficient.  I would have also thought that the military’s dominance over the economy would make both Egypt and Pakistan less equal than Bangladesh.  Evidently not.  Who is less equal?  Communist Vietnam.  And our neighbours in South East Asia.

Now, all the countries in my comparison group are richer than Bangladesh.  And there is a theory, depicted by by Kuznets Curve, that suggests that inequality rises initially as a country develops, until it becomes sufficiently rich, beyond which further development is accompanied by falling inequality.  So, according to Kuznets, we can expect inequality to widen in the coming years.

This chart, where per capita income is plotted in the horizontal axis and Gini co-efficient is in the vertical axis, shows that inequality could follow a number of different trajectory as per capita income rises.

 

Pakistan, Vietnam and Nigeria have somewhat higher per capita income than us.  But they have had vastly different inequality experiences.  What will Bangladesh’s future be?

Instead of hand wringing about ‘inequality has worsened’, that’s the question we should discuss.

10 Responses

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  1. shamshir said, on December 22, 2011 at 3:43 am

    There’s a related line of questions that needs asking: If inequality is rising, what of it and why do we care? What is the practical implication of rising inequality? I don’t mean to pose the question to pooh-pooh the discussion. Indeed, I have great sympathy for the large and growing literature – Bob Frank’s stuff , for example – on the negative effects of inequality elsewhere. But there’s a difference between alighting upon inequality as a problem in and of itself, and asking “What does (presumably) rising inequality mean?” Casual observation finds it difficult to see where the beef is. I am open though to alternative perspectives.

    • jrahman said, on December 22, 2011 at 9:42 am

      I guess for many (on the left), inequality is axiomatically bad. While I don’t subscribe to that view, I do think inequality beyond a certain level can create serious political economy problems. Whether that threshold has been crossed in Bangladesh, I am not sure. Stay tuned — there will be more posts.

  2. Panama law firm said, on December 26, 2011 at 1:10 pm

    Informative information about ‘rising per capita income is misleading, look at inequality’.

  3. Diganta said, on December 28, 2011 at 6:00 am

    This is a good article. When income rises fast, people who are capable grabs that share of growth. It takes years to siphon off that extra money to the poor … that’s what is highlighted in Kuznets Curve. Bangladesh would have rising inequality as that of India and China as soon as it will start growing faster …

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  6. michael philipps said, on July 25, 2012 at 4:08 pm

    The inequality that you are looking at is the inequaility of income/consumption. However, if you look at the gini for wealth , then you will find that BD is a much more equal society compared to Pakistan and Egypt.

  7. A bad argument about inequality « Mukti said, on December 10, 2012 at 9:27 am

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