INTRODUCTION

Poverty is a debated concept and a human

phenomenon that does not seem to go away. Much has been

written on poverty in Pakistan over the last several decades.

The economy of Pakistan is passing through a phases of

stagnation. Poverty is a multidimensional phenomenon, so

varieties of factor determine the nature and direction of

poverty and inequality. These could be economic, social or

political. There are many causes of poverty but agriculture

growth rate, unemployment rate; remittances, trade openness

and inflation involve a lot. Poverty exists where people are

deprived to satisfy their basic needs to their survival. Many

works on the subject of poverty become so technical that it is

very difficult to draw conclusions from them or to employ them

in policy-making endeavors. The important factor with

definitions of poverty is that definitions drive policies. How

poverty is defined and measured tends to determine the types

and directions of policies aimed at reducing it. An

understanding of the cause of poverty and devising strategies

to reduce it is a central component of the definition of

poverty. Recognition thereof reinforces appreciation of the

difficulties of the problem and serves as a reminder that a

search for strategies and an understanding of poverty draws on

the wider body of knowledge accumulated in the general field

of development.

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The magnitude of poverty in any country depends

upon two factors, the average level of national income and

degree of inequality in its distribution. Here income means

the minimum income required to purchase those items that

society considers necessary to maintain reasonable living.

Therefore here I shall also examine the determinants of

inequality. The study will seek to understand the determinants

of poverty and inequality in Pakistan.

Poverty depends on inequality but the relationship

between poverty and income inequality is not simple. In

Pakistan only a few studies have been attempted to estimate

the long run relationship between poverty and inequality.

Poverty is totally out of control in the rural areas of the

Pakistan, where people are in a state of deficiency with

regards to incomes, clothing, housing, health care and

education facilities. So I will try to estimate the

determinants of poverty and inequality.

LITERATURE REVIEW

Tietz and Chappell (1998) discussed the causes of inner city

poverty. In this paper they discuss the eight major

hypotheses: structural shift in the economy, inadequate human

capital, gender discrimination, adverse cultural and

behavioral factors, racial and income segregation, impacts of

migration, lack of endogenous growth and adverse consequences

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of public policy. They conclude that all the explanations may

be relevant to urban poverty.

Ali and Tahir (1999) discussed the dynamics of growth, poverty

and inequality in Pakistan. Education, health and social

services are the variables that have been used in this study.

This paper has been analyzed the long run relationship between

growth, poverty and inequality in the context of Pakistan.

They used the HIES data from 1963-64 to 1994-95. Regression

and even history method has been used in this study to

analysis the inter relationship between growth, poverty and

inequality. This study concluded that there is a long run

relationship between growth, poverty and income distribution.

Ahmed (2001), troughs light on income inequality among various

occupations in Pakistan. The study is based on individual

household data of the household Integrated Economic Survey

(HIES) 1992-93 being conducted by the Federal Bauru of

Statistic. He used the measures of inequality is the

Statistical Package for Social Science (SPSS). He concludes

that with in various occupations in Pakistan, the highest

level of inequality is observed among skilled workers and

lowest level of inequality is seen among professionals. He

also says that the similar pattern is observed with in all the

provinces of Pakistan.

Piachaud (2002) examine “Capital and the determinants of

poverty and Social exclusion”. This study has emphasized the

importance an interaction of different forms of capital like

financial capital, public infrastructure, physical capital,

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human capital and social capital. The conclusion of this

discussion is that there are not only gains from but also a

need for broadening the concept of capital in order to

understand poverty and social exclusion better.

Anwar and Tahir (2002) examine the “Trends in absolute poverty

in Pakistan”. The primary data of HIES for the year 1991-90

and PIHS for the year 1998-99 and 2001 has been used to

examine the poverty trends in Pakistan. FGT (1984) poverty

measures have been used. Malnutrition, poor housing, health

and education facilities and clothing are the variables that

have been used in this study. To estimate the poverty line, a

calorie expenditure function has been estimated by OLS in this

study. In their conclusion they say that the head count

measure of poverty has increased from 17.2 per cent in 1990-91

to 30.4 percent 1998-99 and to 35.6 percent in 2000. This

pattern of poverty trends differs sharply from the World

Bank’s conclusion reported in World Bank Report (2002).

Blume (2005) discussed the “Determinants of poverty among

immigrants to Denmark and Sweden”. Explanatory variables

include in this research measures of years since immigration,

demographic characteristics and variables measuring country of

origin. Panel data has been used of Swedish and Denmark for

the years of 1984 to 1997. In concluding remarks they say

during the 1980’s poverty rate among the native born were at

the same low level in the two countries. In the 1990’s the

level among native born remained low in Denmark while it was

increasing in Sweden following the macroeconomic shock to the

Swedish economy in the early 1990’s. 4

Khalid et al (2005) examined the determinants of poverty in

Pakistan. He discussed the food poverty that is the severe and

main determinant of poverty in Pakistan. Although a large

share of the household budget is spent on food, the incidence

of food poverty remained high, about one third of households

were living below the food poverty line. The study used the

1998-99 Pakistan Socio Economic Survey (PSES) data set. He

used the variables like food poverty, education and

employment. He used the Logit regression model. He also used

the head count ratio and dummy variables. Their results have

been indicated that on average 40 per cent of households are

poor at the national level. In rural areas poverty is

comparatively higher with 46 per cent of the households

falling below the poverty line, which in urban areas 41 per

cent of households are poor. Their analysis further indicates

that the age of the head of household is an important

determinant of food poverty.

Chaudhry et al (2006) explored the rural poverty in Pakistan.

This paper is an empirical analysis and investigates some

related concepts and issues of rural poverty by looking at

agriculture and rural economy. The significant contribution of

this paper is to explain the macro determinants of rural

poverty in Pakistan. They used the data for the year of 1963

to 1999. Multivariate regression analysis has been used in

this study to examine the determinants of rural poverty in

Pakistan. Agriculture growth rate, gross domestic product

growth rate, consumer price index, unemployment rate,

remittances, per capita income and Gini coefficient are the

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explanatory variables that have been used in this study

against the dependent variable of rural poverty. The results

suggest that inflation, unemployment and growth rates have the

significant effects to alleviate rural poverty in Pakistan.

Sabir et al (2006) describes the determinants of small

farmer’s poverty in the central Punjab. In this paper they

present the empirical findings on the poverty status and its

causes among small farmers in the central Punjab. The data

used in this paper are based on the survey conducted for the

years 2003-04. Samples of 300 small farmers from the three

districts of central Punjab, Faisalabad, Jhang and T.T Singh,

have been taken. They have been used the variables; the lower

form productivity, old age of the head, lower prices of

outputs, bigger household size, lack of infrastructure and

high dependency ratio. The results reveal the incidence, depth

and severity of poverty of small farmers of Faisalabad, Jhang

and T.T Sing 48, 59 and 56% respectively, were below poverty

line. So the large majority of the farmers are living below

the official poverty line.

Dawood et al (2008) discussed the analysis of major

determinants of poverty in agriculture sector of Pakistan.

They used the data set of PIHS 2001-02 and LSM survey 2004-05.

These survey detailed information on food and nonfood

consumption items of households. Only those households include

in the analyses that have reported food consumption

expenditure along with other non food consumption expenditure.

Simple regression OLS model has been used in this study.

Education, employment, agriculture specific physical assets,6

infrastructure and demographic variables, they have been used

in their study. In their conclusion they pointed out the

reason that the inflation is the base of poverty. The results

indicate the importance of investment in increasing the

productivity of land and live stock to help people in poverty

reduction in the agriculture sector and to invest in

infrastructure for overall decrease in poverty.

Usman (2009) explored the socio-economic determinants of

poverty; a case study of Pakistan. Gender disparity,

inequality, spatial dimensions, political instability, week

intuitions, and lack of spiritual capital are the variables

that have been used in this study. Head count Index has been

used to measure the proportion of poverty from the total

population. In his results he says that the poor have less

access to education and health facilities, difficult

livelihood and have large family. The root of this poverty

tree is illiteracy, week intuitions, political disputes and

poor governance.

Batool (2009) examined the causes and consequences of poverty

in Pakistan. She says that although there is a long list of

causes of poverty in Pakistan but the lack of good governance,

negligence of energy sector, market distortion, trade deficit,

corruption and education are the major cause of poverty in

Pakistan. In her results she says that poverty is a global

phenomenon that’s psychological effects are more than socio

economic implications. Poverty and ignorance is a very

dangerous combination. It can trap people in inescapable

circles and could lead to frustration and despair. She also7

says that government should take some strong measures for

human development program like education, health, employment

opportunities, sanitation, nutrition and population etc.

government has to establish technical and vocational training

centers where by our youth get some practical training and may

be able to find job for themselves. She conclude that 37%

Pakistani has been living below the poverty line and poverty

can only be alleviated by sharpening the human capital by

improving literacy and investing in skill development, good

governance and long term economic growth.

Chaudhry (2009), discussed the poverty alleviation in Southern

Punjab, an empirical evidence from the project area of Asian

Development Bank. He investigated the factor affecting rural

poverty using the Logit regression model based on primary

source of data. According to the results, rural poverty can be

alleviated by lowering the household’s size, person per room

and dependency ratio, improving education, more female labor

force participation, higher household’s participation rate,

improving assets and households’ access to market. The

Government should pay special attention to basic

infrastructure and market access facilities beside some other

socio-economic and demographic variables to alleviate rural

poverty in remote areas of Pakistan. His area of study is

Southern Punjab especially the areas of Cholistan. He has been

using the data from 2001-2002. He also used the methodology of

dummy variables 0,1. =1 if household is poor and =0 if

household is non poor.

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Dawood et al (2009), discussed about absolute poverty in

Pakistan. In this study an attempt has been made to draw a

comparable absolute poverty line and to figure out sect oral

concentration of poverty using data set of Pakistan Integrated

Household Survey 2001-02 and Pakistan Living Standard

Measurement Survey 2004-05. Attempt has also been made to

figure out the regional concentration of poverty that may

serve as an input for policy makers in designing and refining

their poverty alleviation agenda. This study used the official

poverty line which is defined as the level of consumption or

income that provides enough food to generate 2350 calories per

adult equivalent per day (GOP 2002). The results showed that

the decrease in incidence of poverty is almost half as

reported in official documents. The low value of poverty gap

and severity of poverty suggest clustering of poor around the

poverty line. Poverty measures and concentration index suggest

that is mainly a rural issue in Pakistan.

Jamal (2009) examine the income inequality in Pakistan;

trends, determinants and impact. Land ownership, level of

education of bread winners and multidimensional regional

disparities are the variables that have been used in this

study. Gini coefficient has been used to check the inequality.

This research provides evidence of income inequality from

1988- to 2005 using household level data from four household

surveys. The key findings of this study present the magnitude

of income and non income inequalities and also evaluate the

role of income inequality in poverty reduction.

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Ali and Saboor (2010) discussed the cross-sectional trends and

dynamics of economic inequality in Pakistan. It is a

comprehensive estimation includes a variety of social and

economic dimensions. This study encompasses the time horizon

from 1998-99 to 2004-05 for estimating inequality across

regions and over time. HIES and FBS are the data sources that

have been used in this research. A two stage stratified sample

design was adopted for these surveys. According to their

results inequality appeared to be relatively high in urban

areas as compared to its rural counterparts. During 2001-02 to

2004-05, overall and urban inequality continued to increase

while rural inequality remained unchanged.

Serwar and Iqbal (2010) discussed the determinants of urban

poverty. They have been examined the determinants of urban

poverty in Sargodha, a medium size city of Pakistan. They used

the variables employment in public sector, investment in human

capital, greater household size and female dominated

households. They recommended greater investment in human

capital and public amenities as a strategy for poverty

alleviation. They used the primary data of household level.

They used binomial logistic regression model in which the

dependent variable is dichotomous.

Cheema and Sial (2012) examined the poverty, income inequality

and growth in Pakistan. This study estimates a set of models

to ascertain the long run relationships between poverty,

income inequality and growth using pooled data from eight

household income and expenditure surveys conducted from 1992-

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93 to 2007-08 in Pakistan. The results show that growth and

inequality play significant roles in affecting poverty.

Nosheen et al (2012) discussed the determinants of poverty;

cross country evidence. They used the data from 1990 to 2009

of the selected South Asian and Latin Americans developing

countries. They used the macroeconomic variables; public

expenditure, inflation, income levels and output growth and

the real exchange rate. They have been used the estimation

method of simple cross-section, time series OLS regression

model with fixed effects. Their results show that countries

have been successful in terms of economic growth are also very

likely to have been successful in reducing poverty.

Sekhampu (2013) explores the determinants of poverty in a

South African Township. A logistic regression was estimated

based on this data with the economic status that is poor and

non poor, as the dependent variable a set of demographic

variables as the explanatory variables have been used in this

study. The results show that household size, age and the

employment status of the household head significantly explain

the variation in the likely hood of being poor. The age and

employment status of household head reduce the probability of

being poor, where as household size is associated with an

increased probability of being poor. The strongest of poverty

status is the employment status of the household head.

Perviz and Rizvi (2014), examined the determinants of poverty

in case of Pakistan. They used the variables agriculture,

remittances and inflation. They used time series annually

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observations. Their study employed Johansen co integration

methodology to test for the existence of a long run

relationship between variables. Their study concluded that all

the variables have negative and significant effect on poverty

while inflation has positive and significant effect on

poverty.

Ansa (2014) made a survey on poverty and public perception.

Agriculture sector, social safety nets, access to education,

health financing, favorable policies for labor market, skill

development, micro financing, provision of houses, improvement

in governance, investment in human capital and reforms in

Pakistan Bait- ul- mal are the variables that have been used

in this study. Primary data has been used in this study. In

her conclusion she says that in Pakistan poverty is increasing

due to government policies which are not pro poor and data

also shows the role of government is still poor.

STATEMENT OF PROBLEM

The key aim of current study is to explore different

determinants of poverty and inequality in Pakistan. The

research will find out some sort of relationship between the

variables of poverty and inequality in Pakistan. This study

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will be focused on the determinants of poverty and inequality

in Pakistan. The current research will also highlight the

importance of the determinants in order to achieve desired

growth rate of the economy. As Pakistan is a labor abundant

country so Pakistan must has to overcome the main causes of

poverty and inequality, in order to make his labor force more

productive. So the study will have to be conducted to see the

impact of these variables on poverty and inequality.

SIGNIFICANCE OF STUDY

The significance of current research is to evaluate the

determinants of poverty and inequality in Pakistan. Most of

the researchers have worked on the subject of determinants of

poverty and inequality but the key distinction of the current

research that I will take poverty and inequality as dependent

variables and some other factors as the independent variables.

In order to justify my argument I will show the impact of

these variables on poverty and inequality in Pakistan.

OBJECTIVES OF STUDY

To estimate the determinants of poverty in Pakistan.

To estimate the determinants of inequality in Pakistan.

To fill a critical gape in the literature by analyzing

the determinants of poverty and inequality in Pakistan.

RESEARCH QUESTIONS

In the current research I have to address the following

questions in order to make the study more relevant.

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What are the determinants of poverty in Pakistan?

What are the determinants of inequality in Pakistan?

At what level the determinants of poverty and inequality

are desired for inequality poverty alleviation?

THEORETICAL FRAMEWORK

In this section I shall develop a theoretical frame work to

analyze the impact of agriculture growth, unemployment rate,

remittances, trade openness and household size on poverty in

Pakistan and likely to analyze the impact of per capita

income, education, age of household and gender disparity on

inequality in Pakistan.

In this section my concern is to define the variables which I

will use for model building. Poverty and inequality is

determined by various economic, social and political factors.

Here I also hypothesized these variables to determine the

poverty and inequality in Pakistan.

SUGGESTED MODLE:

POVERTY = f (AGR, UNR, RIMTT, TOPN, INF)

Where,

POVERTY = (Dependent Variable)

AGR = Agriculture Growth rate (Independent Variable)

UNR = Unemployment rate (Independent Variable)

RIMTT = Remittances (Independent Variable)

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TOPN = Trade Openness (Independent Variable)

INF = Inflation (Independent Variable)

INEQUALITY = f (PCI, EDU, LER, GDIS)

Where,

INEQUALITY = (Dependent Variable)

PCI = Per capita income (Independent Variable)

EDU = Education (Literacy Rate) (Independent Variable)

LER = Life Expectancy Rate (Independent Variable)

GDIS = Gender Disparity (Independent Variable)

These are the explanatory variables that will be used:

The theoretical framework can be under stand by the following

figure.

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Figure : 1

16

POVERTYTrade Openness Remittances Inflation

Figure : 2

After explaining all the variables to be included in the

current research, I shall be able to derive a theoretical

function that will define the interdependence of dependent and

independent variables.

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Inequality

RESEARCH METHODOLOGY

After explaining all the variables in theoretical

framework and reviewing a detailed literature at this stage

times comes to establish a model in order to see results

findings. For this purpose I shall require a comprehensive and

authentic data set.

DATA SOURCES

In order to show a relationship between poverty and

independent variables, inequality and indipendent variables,

secondary sources of data will be required.

The data will be taken from annual observation on Pakistan and

its provinces for the period of 1982-2012. The main sources of

data for different variables in current study are;

Pakistan Economic Survey

Hand Book of Statistics on Pakistan Economy

Pakistan Socio Economic Survey(PSES)

Pakistan Integrated Household Survey (PIHS)

Pakistan Living Standard Measurement Survey(PLSMS)

Federal Bauru of Statistic (FBS)

Statistical Package for Social Science (SPSS)

MODEL SPECIFICATION

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To examine the relationship between poverty and inequality and

above said variables I will employ the method of ordinary

least square (OLS). Poverty and inequality are the dependent

variable while agriculture growth, unemployment rate,

remittances, trade openness, household size, per capita

income, education, age of household and gender disparity are

the independent variables of the current model. Regression

errors in equation of proposed model will be tasted Durbin

Watson(DW) test statistic. The econometric model of the

selected variables used in this current study is given as

under.

Y = f (X1,X2,X3, …, Xk)

Y is dependent variable and X1, X2, X3 and Xk are the explanatory

variables.

The economic model is given as under,

Y = α0+ α1X1+ α2X2+ α3X3………….+ αkXk+ µ

and

Y = β0 + β1X1+ β2 X2+……… + βk Xk + €

Where, α0, α1, α2, α3, αk, β0, β1, β2, βk, are the coefficients and µ,€ is

the error term which satisfies all OLS assumptions.

Considering the above mention technique, our specified models

are given in the following functional forms;

POVERTY = f (AGR, UNR, RIMTT, TOPN, INF)

and

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INEQUALITY = f (PCI, EDU, LER, GDIS)

Now we have formulated these models;

POVERTY = α0+ α1(AGR)+ α2(UNR )+ α3(RIMTT)++α4(TOPN)+ α5 (INF ) + µ

and

INEQUALITY = β0 + β1(EDU)+ β2 (LER)+ β3 (GDIS) + β4 (PCI) + €

OLS technique will be used to estimate relationship between

the variables. If the problem of autocorrelation is found in

running the above equation. It will be handled by using auto

regressive and moving average method of different order.

DELIMITATIONS OF STUDY

The study is delimited to subject must meet in order to be

included in study. Only sub national level of poverty and

inequality and its relevant variables from Pakistan and its

provinces.

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