Economic Inequality and its impact on the Global Development.

Economic inequality is the unequal distribution of financial resources, particularly income (earnings) and wealth (assets minus debts), within a society. It is measured by the disparities in income and wealth among individuals and groups, with factors like inheritance contributing more to wealth inequality than income inequality. High economic inequality is often correlated with negative social outcomes and is measured using tools like the Gini coefficient.

The Gini coefficient (also known as the Gini index or Gini ratio), is a measure of statistical dispersion intended to represent the income inequality, wealth inequality, or consumption inequality within a nation or a social group. It measures the inequality among the values of a frequency distribution, such as levels of income. A Gini coefficient of 0 reflects perfect equality, where all income or wealth values are the same, while a Gini coefficient of 1 (or 100%) reflects maximal inequality among values, a situation where a single individual has all the income or wealth while all others have none.

High economic inequality in a country can limit people’s ability to move up the socioeconomic ladder, and thereby slow progress toward broad-based growth and poverty eradication. Mitigating economic inequality is essential for boosting a shared prosperity and achieving key development goals. It is most important to ascertain, when does inequality become too high, along with the policies needed to be implemented for the most effective solutions.

To effectively address inequality, measuring it flawlessly is omnipotent. The World Bank’s Poverty and Inequality Platform provides Gini index estimates—a measure of how equally (or unequally) income or consumption is distributed among a population for 172 countries, covering about 98% of the world’s population. This valuable tool has helped assessing the level of economic inequality in these 172 countries, since Gini index has a long history of use and familiarity to a broader audience. 

Global poverty estimates till 2023 were updated on the Poverty and Inequality Platform (PIP), including nowcasted estimates up to 2025. The update includes three main changes to the PIP data:

• First, the update brings new survey data for several country-years, including important updates to data from India;

• Second, it includes the adoption of the 2021 Purchasing Power Parities (PPPs); and

• Third, based on the new PPPs and new survey data, including new national poverty lines, the update revises the global poverty lines.

As a result of these combined changes, the global extreme poverty rate in 2022 is revised up from 9.0% to 10.5%, corresponding to an increase in the number of individuals living below the international poverty line from 713 to 838 million. At the regional level, all regions see upward revisions, most notably Sub-Saharan Africa (where the extreme poverty rate goes from 37.0% to 45.5% in 2022), except for South Asia (with a downward revision from 9.7% to 7.3%). Based on nowcasted estimates, global extreme poverty is projected to decrease from 10.5% in 2022 to 9.9% in 2025.

• New & revised data: The June 2025 update brings an additional 74 country-year datapoints to the PIP database, including two new countries: Barbados and Equatorial Guinea, whilst improving existing data for another 90 country-years. With new data for Egypt, the survey coverage in the Middle East and North Africa has improved substantially. However, coverage for Sub-Saharan Africa in recent years remains limited, largely due to the unavailability of recent data for Nigeria, and as a result, the estimates for the region after 2019 are subject to additional uncertainty. The new datapoints also include the 2022 survey data for India, which implies a revision to its consumption methodology, and affects the estimates for South Asia, as well as global figures due its population size.
   
• Adoption of 2021 PPPs: The International Comparison Program (ICP) released 2021 Purchasing Power Parities (PPPs) in May 2024. The 2021 PPPs provide updated information on the price levels of goods and services across countries, while keeping the methodology largely unchanged from the 2017 PPPs. These are adopted in the current update of PIP in line with previous decisions to update poverty estimates with new PPPs when these are driven by new price information and not changes in the ICP methodology. A legacy series using the 2017 PPPs continues to be available in PIP.
   
• New poverty lines: The adoption of new PPPs requires a re-estimation of the global poverty lines. The international poverty line — also called the extreme poverty line — is revised from $2.15 to $3.00, while the two other poverty lines more applicable to lower-middle and upper-middle income countries are revised from $3.65 to $4.20, and from $6.85 to $8.30, respectively. All three global poverty lines are derived from national poverty lines around the world that reflect countries’ own assessments of what it means to be poor. Specifically, the three lines are based on the median national poverty line (in PPP terms) within the respective income group.

The change in the lines between PPP rounds is explained by changes in both the PPPs and the underlying national poverty lines. In fact, for the international poverty line, most of the change in the line from $2.15 to $3.00 is explained by changes in the underlying national poverty lines.

While revised poverty lines, underlying data revisions, and changes in PPPs affect the level of poverty, from a historical lens, the trends remain similar. The following graph shows the estimated poverty rates by regions since 1990. The graph also depicts the updated nowcasts of poverty following the methodology introduced in the September 2024 update. The nowcast suggests a modest decline in the global extreme poverty rate from 10.5% in 2022 to 9.9% in 2025. Based on the latest data, the South Asia region experienced the most significant decline in extreme poverty between 2022 and 2025. Conversely, the Middle East and North Africa was the only region to experience an increase in poverty during this period, up from 8.5% in 2022 to 9.4% in 2025.

Challenges with monitoring economic inequality –

The indicator, is just one of many ways to measure economic inequality, and each method has its limitations. In the case of the Poverty and Inequality Platform, for instance, estimates rely on household survey data, which often underrepresent people at the extreme ends of the income distribution due to underreporting or nonresponse. Data frequency also varies; some countries update their estimates annually, while others do so less often. Countries in Latin America and many high-income countries tend to use data on disposable income, while others, mostly low and lower-middle income countries rely on consumption expenditure, largely because that’s the data available. 

Other factors can also make it difficult to accurately compare inequality estimates across countries. Some countries adjust for price differences between rural and urban areas when calculating real household income or consumption; others do not. Comparability issues can also arise over time, as countries change their survey designs and methodologies. 

In recent years, there have been efforts to address these gaps, such as by combining household surveys with tax records or other administrative data. But outside of high-income countries, data on

comprehensive personal income taxes is often limited. 

The World Bank actively works with countries to improve the quality of their welfare data. This includes building stronger partnerships with national statistical systems, expanding the use of tax and administrative data to bridge data gaps, and developing innovative methods to better capture income and wealth distributions. 

The World Bank’s mission to end poverty and boost shared prosperity on a liveable planet envisions a world where growth is not only robust but also broad-based. That means systematically including people across all income levels, especially those at the bottom of the distribution. 

To achieve these goals, understanding the drivers of economic inequality is needed. That requires better data, stronger partnerships, and open dialogue. While challenges remain, our commitment to evidence-based policy making and collaboration will continue to guide our efforts to ensure that growth benefits all and that no one is left behind. 

Team Maverick