Dresden 2011 – scientific programme

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SOE: Fachverband Physik sozio-ökonomischer Systeme

SOE 18: Financial Markets and Risk Management I

SOE 18.1: Talk

Thursday, March 17, 2011, 10:15–10:30, GÖR 226

(contribution withdrawn) The dynamics of the World Income distribution — Faustino Prieto and •Jose Maria Sarabia — University of Cantabria, Santander, Spain.

In this paper, the dynamics of the World Income distribution is studied. The World Income distribution is considered in terms of the Gross Domestic Product (GDP), GDP per capita, GDP at purchasing power parity power (PPP) and GDP-PPP per capita. The country information data is taken from the International Monetary Fund (IMF) for the period 1980 to 2005.

Six different probabilistic distributions are fitted and compared: lognormal, Singh-Maddala, Dagum, Tsallis, classical Pareto and Pareto positive stable (PPS) distributions.

All of these six models are fitted by maximum likelihood. In order to studied several hypotheses, a rolling sample methodology is implemented. This methodology enables to study the sensitivity of the results with respect to the number of the countries included in the sample as well as to analyze the power-law behavior in the upper tail of the distribution.

The different models are compared using the Akaike information criterion (AIC). The PPS and lognormal distributions provide the best fit. The model validation is done by using different types of graphics, including Q-Q and log-log rank-size plots.

Finally, the PPS distribution is used to analyze the dynamics of the World Income distribution, establishing a comparison with the IMF predictions.