Data Selection and Perliminary Analysis of a Study on Income Inequality

1214 Words 5 Pages
Data Selection & Preliminary Analysis

This section outlines the data used in the study and the affiliation between the independent variables and the dependent variable in the model. To analyse the determinants of income inequality, data was collected for 15 developed countries and 15 developing countries covering a time range of 1996-2010. The World databank has been predominately used to obtain the data for the variables, however the Eurostat Statistics Database and the UNU Wider Database has also been used on two occasions. The use of descriptive statistics and correlation matrix has also been enlisted in the section.

3.1: Variables

GINI Index:

The dependent variable for this study is income inequality, measured using the
…show more content…
For developed countries, the data was obtained from the Eurostat database, as the World databank had limited data on these sets of countries.

Various factors affect the measurement of inequality, these include whether the unit of analysis is a household or an individual. Economic theory suggests that poor households tend to have more members than more affluent households; therefore the distribution of income at the household level will be more equal than if measured at the individual level. Thus, our empirical analysis could show that the GINI coefficients are greater in economies that inform data at the individual level. Furthermore, it is noted that affluent households proportionately save a larger share of their income than poorer households. This suggests that economies that use income rather than consumption expenditure will tend to have higher GINI coefficients.

GDP per capita:
The GDP per capita based on purchasing power parity (PPP) will be used as the variable for economic development. The PPP indicates how an international currency has the same purchasing power over GDP as the currency in a local market. The measurement is also more useful when comparing the living standards between different sets of countries, because it takes into account the relative cost of living and the rate of inflation. The natural log of GDP per capita will be used in the study to ensure a better fit to the model, by eradicating the effects of

Related Documents