How a country’s Gini coefficient shapes its economic landscape

Image source:

The Gini coefficient, also known as the “Gini index,” is a statistical measure of distribution. It was developed in 1912 by Corrado Gini, an Italian statistician. At present, it is a reliable tool that helps reveal and analyze income distribution where 0 is perfect equality and 1 signifies perfect inequality.

In some instances, the Gini index can also be used to assess wealth distribution among a country’s population. However, while it’s true that the world’s poorest nations hold the highest Gini coefficients and the wealthiest have the lowest, the index should not be considered as an absolute measurement of either wealth or income. This is because, this tool measures relative wealth, not absolute wealth.

Thus, it’s possible for a developing economy to have a higher Gini index due to rising inequality but at the same time have a lower number of people that are below the poverty line. Moreover, a high-income nation can share the same Gini coefficient as a low-income country if both of them follow a similar distribution of income among their respective population. This scenario can be seen between Turkey and the U.S. (based on 2014 data).

Most importantly, according to experts, the growing concentration of income on a particular group of earners can directly reduce a country’s economic growth. For starters, the income inequality and unequal distribution of wealth between the rich and the poor can result in a stunted economy due to lower spending. Economic growth happens when a larger population spends money. Usually, the majority comes from middle to lower middle-class citizens. However, the minority who holds a country’s huge percentage of wealth doesn’t consume and spend at the same rate that the former can.