Chapter 11: Forecasting of Income Inequality in the South Asian Region: An ARIMA Model with Exogeneous Variable

The central topic of an ongoing argument among philosophers, economists, and policymakers around the globe has been the distribution of income. It is a significant economic concern because it affects social cohesion, economic growth, and overall quality of life. The problem of rising income inequality in the South Asian region is one of the major obstacles to the development of the continent’s economy. In order to achieve the sustainable development goals (United Nations, 2015) by 2030, the South Asian countries must address the raising income inequality of the continent. This puts an importance on the exercise of forecasting income inequality for the South Asian region. The present study has used time-series data of income inequality (Gini) and per capita gross domestic product (GDP) of the South Asian region for the period 1960–2020 to forecast income inequality for the time period 2021 to 2035. Initially, the study has carried out a separate univariate forecasting analysis (autoregressive integrated moving average (ARIMA)) for economic growth. On the basis of these projected values of economic growth, a bivariate forecasting analysis of income inequality by the AutoRegressive Integrated Moving Average with eXogenous (ARIMAX) variables is then performed. Results of the study suggest that income inequality will show some positive regular significant growth in South Asia during the period 2021–2035.