National Income
Senior 5 · Economics
National Income
Lesson 5 of 5
50 min
NISR put Rwanda's GDP per head in 2025 at Frw 1,652,000, about US$1,156. Divided equally, that would be some Frw 4,500 per person per day. But income is not divided equally. NISR's household survey for 2023–24 (EICV7) found that 27.4% of Rwandans lived below the national poverty line in 2024, down from an estimated 39.8% in 2017 on the same method. It also measured how unequal consumption was: a Gini coefficient of 37.0 for the country, 43.8 in urban areas, 26.3 in rural areas and 44.5 in the City of Kigali. This lesson asks how far national income tells us about living standards, how inequality is measured, and why income per head in Rwanda is still low.
The standard of living is the level of material welfare people enjoy: the goods and services they consume, and their access to health care, education, housing, water, energy and security. Real national income per head is the most widely used single indicator of it, because more output per person usually means more goods and services per person. But per capita income can mislead:
| Reason | Why per capita income may not reflect welfare |
|---|---|
| Distribution | An average says nothing about who receives the income. A rise may go mostly to the richest. |
| Composition of output | Spending on defence, or on capital goods for the future, raises GDP but not today's consumption. |
| Non-market output | Subsistence food, housework and community work add to welfare but are estimated badly or not at all. |
| Hours and conditions of work | Output gained through longer hours, child labour or dangerous conditions raises GDP while lowering welfare. |
| Externalities | Pollution, soil erosion and lost forests are not subtracted. |
| Prices and exchange rates | Converting at market exchange rates understates incomes in countries where many goods are cheap; purchasing power parity (PPP) corrects for this. |
| Quality of life | Freedom, security, health, life expectancy and social cohesion are not counted. |
For this reason economists also use broader measures: the Human Development Index (HDI) of the United Nations Development Programme, which combines life expectancy, years of schooling and GNI per head at PPP; poverty rates; and indicators such as access to electricity, clean water and health insurance.
Definition
Functional distribution of income: how national income is shared among the factors of production, as wages, rent, interest and profit.
Personal (size) distribution of income: how income is shared among individuals or households, from poorest to richest, regardless of its source.
Lorenz curve: a graph of the cumulative percentage of income received against the cumulative percentage of households, ranked from poorest to richest. The 45° diagonal is the line of equality; the further the curve sags below it, the more unequal the distribution.
Gini coefficient: the area between the line of equality and the Lorenz curve (A), divided by the whole area under the line of equality (A + B). It runs from 0 (everyone has the same income) to 1 (one household has everything); it is often multiplied by 100.
Worked example 1: drawing a Lorenz curve and estimating the Gini coefficient
In country X the five quintiles (each 20% of households, poorest first) receive 6%, 10%, 15%, 21% and 48% of income (illustrative).
Step 1: cumulate. The points are (20, 6), (40, 16), (60, 31), (80, 52), (100, 100).
Step 2: area B, under the curve, is a set of trapezia, each 0.2 wide (using proportions):
Step 3 the whole triangle under the diagonal has area 0.5, so .
For country Y (9, 13, 18, 23, 37%), the same steps give and Gini : a more equal distribution, and a curve closer to the diagonal.
Worked example 2: a simple ratio of inequality
In country X the richest fifth receives 48% of income and the poorest fifth 6%.
The average household in the top fifth has 8 times the income of the average household in the bottom fifth. In country Y the ratio is . Quintile ratios are easy to explain, but unlike the Gini coefficient they ignore the middle 60% of households.
Warning
Read the Gini coefficient carefully. NISR's 37.0 is based on consumption per adult equivalent, not income; consumption is usually more equal than income because the rich save more. Comparing it with a country's income-based Gini can mislead. Also, two very different Lorenz curves can cross and give the same Gini: always look at the shape as well as the number.
| Cause | Evidence and explanation |
|---|---|
| Low productivity in agriculture | Many households farm small plots by hand for their own food. In 2025 agriculture produced 20.3% of GDP while still employing 39.1% of the employed (excluding subsistence food producers), so output per worker there is low (NISR). |
| A large informal sector | 81.3% of the employed worked in informal units in 2025 (NISR, LFS), mostly small, with little capital and few skills. |
| Rapid population growth | About 2.3% a year between the 2012 and 2022 censuses (NISR). Output must grow by that much just to keep income per head constant, and many dependants per worker lower saving. |
| Low domestic saving | Gross national saving was 23.1% of GDP in 2025, against investment of 34.1% (NISR), so investment depends heavily on foreign finance. |
| Being landlocked | Goods travel over 1,000 km by road to and from the ports of Mombasa and Dar es Salaam, raising the cost of imports and exports. |
| A narrow export base and a trade deficit | Exports of goods and services covered only 61% of imports in 2025 (NISR); export earnings depend on a few primary products with volatile prices. |
| Shortages of skills, capital and energy | Limited technical skills, costly electricity and limited access to credit hold back industry. |
| Unemployment | 12.4% of the labour force was unemployed in 2025 (NISR, LFS), and many more were underemployed. |
| History | The 1994 Genocide against the Tutsi destroyed lives, skills, institutions and property, and the economy had to be rebuilt from a very low base. |
| Climate shocks | Floods, landslides and dry spells damage crops, homes and roads. |
Important
Discuss. Rwanda's national Gini is 37.0, but 43.8 in urban areas and 26.3 in rural areas (EICV7). Suggest two reasons why inequality is so much higher in towns. As more people move to towns, what would you expect to happen to the national Gini coefficient, and why?
EconplusDal, "Lorenz Curve and Gini Coefficient: Measures of Income Inequality" (about 8 minutes). Watch how he labels areas A and B, then use his method to check the Gini coefficient of country Y in worked example 1.
Practice
Further reading
Sources and credits
Written by Ganzaa: the text, the Lorenz diagram, the tables, the worked examples and the practice items. Countries X and Y are illustrative.
