Quantitative Project: World Income and Health Inequality Based on what we have d
ID: 3486067 • Letter: Q
Question
Quantitative Project: World Income and Health Inequality
Based on what we have discussed so far, it seems that there is a lot of variation around the world in terms of income, wealth, education, health status, and many other characteristics. And these characteristics seem to be related with one another. For example, people from wealthier countries tend to live longer. In this project, you are asked to use international data to empirically investigate the relationship between income and health status. The following sections provide a general description of this project and raise questions that you need to answer.
Objectives:
A. Substantive: Students will be able to
1. investigate world inequality in income.
2. investigate world inequality in health status.
3. investigate the relationship between income and health status.
B. Quantitative Skills: Students will be able to
1. sort a single variable and examine its distribution
2. calculate within-group adjusted-means weighted by populations
3. produce a scatter plot to investigate the relationship between two variables
Data and Variables
The data are from “2008 World Population Data Sheet” published by the Population Reference Bureau ( http://prb.org/Publications/Datasheets.aspx ).
Three variables are used for this project:
Gross National Income (GNI) PPP per capita
Life expectancy
Population (in millions)
These three variables for more than 100 countries are already compiled in an Excel file.
Validity of the Measurement
Income level
Q_1: Why can’t Gross National Income be directly used as a
measure of income level? What does the PPP adjustment
take into account? Why has it to be per capita?
Health Status
Q_2: How is life expectancy defined? Why not to use Crude
Death Rate (CDR)? What is the advantage of using life
expectancy?
Data Analysis
Corresponding to the three objectives stated above, the analysis section is composed of the following three parts:
1. Investigation of income inequality between rich and poor countries
Q_3: Find out the top five countries with the highest GNI PPP per capita
and the bottom five countries with the lowest values. List these
countries’ names and their income.
Q_4: How much is the difference between the highest and lowest country?
Q_5: If we want to find out the overall difference between these two
groups, can we simply take an average of the five values of GNI PPP
per capita within each group and compare the two means? Why or
why not?
A better way is to compare the population-weighted means. We first need to calculate the total income for each country by multiplying GNI PPP per capita by its population. Then, add all five total income within each group. Finally, divide the sum within each group by the corresponding sum of population.
Q_6: What is the average income for either group? How much is the
difference and how to interpret it?
2. Investigation of inequality in life expectancy
Q_7: Find out the top five countries with the highest life expectancy
and the bottom five countries with the lowest values. List these
countries’ names and their life expectancy.
Use the same method for Q_3 to answer this question.
Q_8: How much is the difference between the highest and lowest country?
Q_9: If we want to find out the overall difference between these two
groups, can we simply take an average the five values of life
expectancy within each group and compare the two means? Why or
why not?
Similarly, a better way is to compare the population-weighted means. We first need to calculate the total expected life-years for each country by multiplying life expectancy by its population. Then, add all five total expected life-years within each group. Finally, divide the sum within each group by the corresponding sum of population.
Q_10: What is the average life expectancy for either group? How much
is the difference and how to interpret it?
3. Investigation of the relationship between GNI PPP per capita and life
expectancy
One intuitive way to assess such a relationship is to put these two
variables in a two-dimension chart, where GNI PPP per capita takes the horizontal axis and life expectancy the vertical axis. Each country is represented by a single dot, whose position on this chart is determined by the values of these two variables.
This can be done in Excel:
Highlight all the numbers of the two columns of “GNI PPP per
Capita” and “life expectancy;”
Click “Insert” on the command bar, and select “Chart”;
Select the “XY (scatter)” chart type;
See the example handout for more details.
Q_11: Produce a scatter plot chart for these two variables by using Excel.
What kind of general trend does it show? Some dots seem to be distant from the bulk of the dots. They are called outliers. Find three of them. Which countries do these dots represent? Why are they outliers? What are the possible explanations for them?
Conclusion and Discussion
Q_12: Based on the findings above, what conclusions can be drawn about income and health inequality between countries in the world? What is the general relationship between income and health status? Why do you think there is such a relationship? What does the existence of the outliers tell us regarding the impact of income on health? Does higher national income always lead to better health of the citizens? Overall, what can be learned from this study regarding how to maintain or improve people’s health?
Type your answers to all the questions above on separate paper. Attach the chart.
Explanation / Answer
Q-1:
Gross domestic product (GDP)
GDP is a monetary measure of the market value of all final goods and services produced in a period (quarterly or yearly) of time. Nominal GDP estimates are commonly used to determine the economic performance of a whole country or region, and to make international comparisons.
Nominal GDP per capita does not, however, reflect differences in the cost of living and the inflation rates of the countries; therefore using a basis of GDP per capita at purchasing power parity (PPP) is arguably more useful when comparing differences in living standards between nations.
Purchasing power parity (PPP)
PPP is an economic theory that states residents of one country should be able to buy the goods and services at the same price as inhabitants of any other nation over time.
Why do economists say that? International trade allows people to shop around for the best price. Given enough time, everyone's purchasing power will become equal, or reach parity. PPP depends on the law of one price.
That states that once the difference in exchange rates is accounted for, then everything would cost the same.
That's not true in the real world on a day-to-day basis. That's because of differences in transportation costs, taxes, and tariffs. People can’t ship some things. Good examples are land and services like haircuts. Not everyone throughout the world has the same access to international trade. For example, someone in rural China can't choose between every good and service throughout the world. Perhaps one day Amazon.com and other online retailers will enable real purchasing power parity.
PPP Calculation
Purchasing power parity is a calculation that determines how much things would cost if parity did exist. It takes into account the impact of exchange rates. It describes what each item purchased in a country would cost if it were sold in the United States.
These are then added up for all the final goods and services produced in that country for that given year.
Parity is tedious to compute. A U.S. dollar value must be assigned to everything. That includes items not widely available in America. For example, there aren't too many ox-carts in the United States.
Would its U.S. price accurately describe its value in rural Vietnam, where it's needed to grow rice? What is the U.S. price equivalent of a haircut in a country where family members give it?
For many developing countries, the PPP is estimated using a multiple of the official exchange rate measure. For developed countries, the OER and PPP measures of the gross domestic product are more similar, since their standards of living are closer to the United States.
How It's Used
Purchasing power parity is used in many situations. The most common method is to adjust for the price differences between countries. For example, China produced $10.98 trillion in goods and services in 2015. The U.S. produced $17.95 trillion. You cannot compare the two without taking into account the fact that the cost of living in China is much lower than in the United States.
For example, a McDonald's Big Mac costs $5.04. In China, you can get the same thing for only $2.79. People in China don't need as much income because it costs less to live. For more fun comparisons, see The Economist's Big Mac Index.
That's because China artificially sets the value of its currency to be lower than the U.S. dollar. It intentionally wants its cost of living to be lower, so it can pay its workers less.
As a result, its exports cost less, making it more competitive on the global market. For more, see Currency Wars.
Purchasing power parity solves the problem of comparing countries with different standards of living. It recalculates the value of a country's goods and services as if they were being sold at U.S. prices. Under PPP, a Chinese Big Mac costs $5.04, the same as it does in the United States. As a result, China's GDP under PPP is $19.39 trillion. That makes it the world's largest economy, ahead of the European Union and the United States. That's why the CIA provides GDP estimates on both an official exchange rate and a purchasing power parity basis.
Without purchasing power parity, China's GDP per capita would only be around $6,475. That's lower than the standard of living in Ukraine, Algeria or Kosovo.
With PPP, each of the 1.3 trillion people receives (on average) the benefit of $14,100 in economic production. That's better, but still only on the level of Libya and worse than Iraq. It's far less than the U.S. GDP per capita of $55,800. That's because the United States divides its GDP among only 319 million people. (Source: “CIA Factbook,” Central Intelligence Agency.)
Although this doesn't happen often, PPP is also used to set the exchange rate for new countries. It is used to forecast future real exchange rates.
(Important Note: Post questions separatey. All questions cannot be answered at a stretch. We can answer one question at a time)