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 : 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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