# **III.   EAST ASIAN DISTRIBUTION AND ITS INEQUALITY**

Figure 2 shows the EAP distribution of consumption expenditure and how it evolved over time. It moves towards a unimodal distribution which looks approximately log-normal although it has a long right-hand tail. The (almost) twin peaks observed in the earlier benchmark years smoothed out over time. As shown by the rightward movement of the distribution, there was particularly strong growth since 2002, which is also illustrated by the positive Growth Incidence Curves (GIC) in Section IV (Figure 7). At the same time as the distribution moved rightwards, it also stretched out suggesting an increase in inequality.

As a first step towards explaining these changes in the overall distribution, we split up the overall density by country and sub-region (Figure 3).<sup>13</sup> It is immediately apparent, that China dominates the regional distribution, accounting for around 70% of the regional population. It is also clear that China has seen very fast growth, followed by the rest of East Asia – excluding Indonesia and the Philippines. While in 1988 the modal Chinese income was below the EAP mode, in 2012 it was clearly above. These compositional changes are analyzed in more detail in Section V (see Figure 10).

Compared with within-country inequality in the region, the Gini index of the EAP-wide distribution of consumption expenditure is high, at between 39 and 45 across the benchmark years (Table 2, Panel A). For example, in benchmark year 2012, the (unweighted) average within-country Gini is around 38 (Table 2, Panel I), and none of the included EAP countries have a Gini greater than the EAP-wide Gini.<sup>14</sup> It is important to note that the trend of the average within-country Gini changes from declining to increasing, once population weights are used, implying an increasing Gini in populous countries (also see Figure 1 in the introduction). Over the entire period of analysis, the EAP-wide Gini index has increased by almost 11%. By contrast, the (unweighted) average within-country Gini has fallen somewhat by around 2%. In other words, within-country inequality for the average EAP country declined slightly, while the region-wide inequality increased.

The Lorenz curve for 1997 is uniformly to the right of the 1988 curve without crossing (Figure 4), so inequality increased between 1988 and 1997 irrespective of the choice of inequality measure (Atkinson, 1970). This appears to have reversed in the most recent period (2007-2012) when the Lorenz curves moved inwards. Between 1997 and 2012, however, there is no unambiguous ranking of Lorenz curves, so the direction of change in inequality depends on the choice of inequality measure. Similarly, when looking at the entire period between 1988 and 2012, the ranking in terms of inequality depends on the choice of inequality measure. That is, the Lorenz curve for 2012 crosses to the left of the 1988 curve at around the 95<sup>th</sup> percentile – suggesting that inequality increased at the bottom. This is also confirmed by the alternative GE inequality measures in Table 2, Panel A. The bottom-sensitive GE(0) measure increases by 26% between 1988 and 2012, while the top-sensitive GE(2) declines by around 36%. At

> 13 Lakner and Milanovic (2016, fn. 31) explain in detail how these stacked densities are created.

> 14 For the earlier benchmark years, there are only a few countries with a Gini higher than the EAP-wide Gini: Malaysia (although it uses income surveys), the Philippines and Thailand before the 1997 financial crisis, Papua New Guinea in 1997 and Solomon Islands in 2007.

7