Assessing Income Inequality in Rural and Urban Areas of Khyber Pakhtunkhwa: A Comparative Analysis Using Lorenz Curve and Gini Index Approaches

Income inequality remains a substantial issue for both developed and developing economies, as it has correlation with poverty and economic growth. This central theme of research study is to assess the income disparities between rural and urban areas of Khyber Pakhtunkhwa (KP), Pakistan, using the Lorenz Curve and Gini Index approaches. The major analysis encompasses a comparative assessment of income and expenditure patterns to compute the extent of inequality in the region. Data was gleaned from the Household Integrated Economic Survey (HIES), which included with a specific focus on 1,352 households in KP. The findings reveal significant income disparities in KP, with a Gini Coefficient of 0.38 through the income approach, indicating a 38% income inequality level. In contrast, the expenditure approach yielded a lower Gini Coefficient of 0.32, suggesting that expenditure data may provide a more accurate reflection of economic disparities in KP, where individuals are often hesitant to disclose actual income levels. The Lorenz Curve analysis further corroborates these findings, showing a pronounced deviation from the line of equality, particularly in urban areas. The research also underscores the interlinkage between income inequality and poverty, emphasizing that reducing income disparities can lead to poverty alleviation and enhanced economic development. The study concludes with policy recommendations aimed at addressing to policymakers who should prioritize increasing access to quality education for the lower-income population in Khyber Pakhtunkhwa to enhance their skill sets and job prospects. This study recommends that the government may introduce targeted economic policies and social safety nets, such as conditional cash transfers and subsidized healthcare, to bridge the rural-urban income gap and ensure more equitable development across the KP province.