A STUDY OF INCOME DISTRIBUTION AND PER CAPITA INCOME OF PAKISTAn

A STUDY OF INCOME DISTRIBUTION AND PER CAPITA INCOME OF PAKISTAN
Contents
Chapter 1.....................................................................................................................................................3
Introduction.................................................................................................................................................3
Chapter 2...................................................................................................................................................10
2.1 Literature Review................................................................................................................................10
Chapter 3 3.1 Theoretical Framework.......................................................................................................25
3.2 Inflation Behavior and Prospects.................................................................................................25
3.3 Impact of rise in food prices on poverty......................................................................................27
3.4 Employment – Poverty Scenario..................................................................................................28
3.5 Global Prospects..........................................................................................................................28
3.6 PRSP‐II – Profile of Pro‐poor Expenditure....................................................................................29
3.7 Other Initiatives to Alleviate Poverty.................................................................................................32
3.7.1 Benazir Income Support Program (BISP)...................................................................................32
3.7.2 Reforms of the targeting process: poverty survey –a paradigm shift........................................33
3.7.3 Emergency Relief Packages.......................................................................................................34
3.7.4 The Rights Source (Waseela‐e‐Haq) Initiative...........................................................................34
3.7.5 Vocational Training Product......................................................................................................34
3.7.6 Health Insurance.......................................................................................................................35
3.7.7 Peoples’ Works Program (PWP) ‐I & II......................................................................................35
3.7.8 Pakistan Bait‐ul‐ Mal (PBM)......................................................................................................35
3.7.9 Employees’ Old Age Benefits Institution (EOBI)........................................................................36
3.7.10 Zakat.......................................................................................................................................36
3.7.11 Microfinance...........................................................................................................................37
3.11 Poverty‐inequality‐household consumption..............................................................................38
3.9 Achievement of MD Goal 1. Eradicate extreme poverty & hunger......................................................38
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UNIVERSITY OF CENTRAL PUNJAB
3.9.1 Target: Halve between 1990 and 2015, the proportion of people whose income is less than $ 1 a
day ‐‐‐‐ Pakistan case.........................................................................................................................38
3.9.2MD Goal 1 (Poverty & Hunger) in South Asian Perspective.......................................................39
3.9.3 Remittances, Implications for Poverty......................................................................................40
Chapter 4...................................................................................................................................................42
4.1 Methodology.......................................................................................................................................42
Chapter 5...................................................................................................................................................43
5.0 Analysis................................................................................................................................................43
5.1 Reliability.....................................................................................................................................43
5.2 Regression Analysis......................................................................................................................43
5.3 Correlation Analysis.............................................................................................................................45
5.4 Interpretation..............................................................................................................................46
5.4.1 Questionnaire Analysis..............................................................................................................47
5.4.1 Questionnaire Analysis..............................................................................................................47
Chapter 6...................................................................................................................................................73
Conclusions and Recommendations..........................................................................................................73
6.1 Conclusion...........................................................................................................................................73
6.2 Recommendations...............................................................................................................................74
Bibliography..............................................................................................................................................75
Annexure I.................................................................................................................................................78
Questionnaire..........................................................................................................................................78
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Chapter 1
Introduction
"Whatever spoils given by Allah to His Messenger from townspeople belongs to Allah and to
the Messenger, and to the nearest of kin, and to the orphans, and the indigent, and the
wayfarer, so that it may not circulate amongst the rich of you. And what the Messenger gives
you, take it then; but forsake what he forbids you. And venerate Allah, for He is stern in
retribution." Holy Qur'an (59:7)
Poverty is about denial of opportunities and fulfillment of human wants and needs. There is a
close relationship between poverty and inequality of income distribution. Moreover, inequality
of income distribution appears to have been on the rise worldwide in recent decades at both
national and international levels. More than 80 percent of the world’s population lives in
countries where an income differential is increasing. According to United Nations Development
Program, the poorest 40 percent of the world’s population account for only 5 percent of global
income. On the other hand, the richest 20 percent account for 75 percent of world income.
According to a study conducted by the Centre for Research on Poverty and Income Distribution
(CRPID), 63 per cent of poor in Pakistan fall in the category of 'transitory poor'. The State Bank
of Pakistan (SBP) has also admitted in its annual reports that the standard definition of 'transitory
poor' includes those households that are below the poverty line for most of the time, but not
always, during a defined period.
The remaining 32 per cent and five per cent of the population that subsist below the poverty line
are 'chronic' and 'extremely poor', respectively. 'Chronic' and 'extremely' poor are those
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households that are below the poverty line all the time during a defined period. Similarly, on the
other side, 13 per cent and 21 per cent of total non-poor (above the poverty line) are classified as
'transitory vulnerable' and 'transitory non-poor', respectively.
This portrays an alarming situation, as more and more people are moving from the 'transitory'
category to the 'chronic category', courtesy inequitable distribution of income and wealth,
monopoly over assets and regressive tax policies. Rulers in Pakistan have never showed any
commitment to economic and social justice as their primary political goal. One wonders if the
new government is aware of this state of affairs and is devising some practical ways to help
improve the situation.
Political economy is the theory of wealth, and of how wealth is created and shared within the
society. Its key concepts are production, distribution, exchange and consumption. Historically,
political economy is a response to the rise of capitalism and capitalist society. Its concepts are
refined, redefined and added to as capitalism progresses from the mercantile or merchant
capitalism of the sixteenth and seventeenth centuries to the agricultural and manufacturing
capitalism of the eighteenth century; to the industrial capitalism of the nineteenth century to the
rise of a uni-polar world power in the twentieth century; to the quest for monopolies in the
twenty-first century.
In the last five years, unfortunately, no one has conducted a comprehensive research to determine
all the dimensions of the rich-poor divide in Pakistan. Various studies, wherein inequality-
measuring criteria like the Lorenz Curve and the Gini Coefficient have been used, however,
provide estimates of inequality in Pakistan. According to A R Kemal, studies on income
inequality in Pakistan show different estimates because of the following five important factors:
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One, different studies use different data sets -- some are based on Household Income and
Expenditure Surveys, others make use of income tax data and still others splice the two sets of
data. Two, while some studies consider inequalities in income, others consider inequalities in the
consumption expenditures. Three, while some studies are done for Pakistan as a whole, others
examine income inequalities in both the rural and urban areas. Four, while some studies report
income inequalities across households, others report inequalities across population or earners.
Five, some researchers classify data by deciles prior to the estimation of the Gini Coefficient;
while others employ the income intervals that are not uniform.
All studies, however, confirm that income inequality in 2000-2007 was more than in any other
time period in the history of Pakistan. The poorest 30 per cent lost their share, while the richest
20 per cent gained in both the urban and rural areas during the Musharraf-Shaukat era. The Gini
Coefficient is named after Corrado Gini, an Italian economist who introduced it in 1912. The
Gini Coefficient is derived from a statistical formula, and expresses the degree of evenness or
unevenness of any set of numbers as a number between 0 and 1.
A Gini Coefficient of 0 would indicate equal income for all earners. A Gini Coefficient of 1
would mean that one person had all the income and nobody else had any. Thus, a lower Gini
Coefficient indicates more equitable distribution of wealth in a society, while higher a Gini
Coefficient means that wealth is concentrated in the hands of a few people. Sometimes, the Gini
Coefficient is multiplied by 100 and expressed as a percentage between 0 and 100 ('Gini Index').
According to a US State Department report, released in 2006, the Gini Coefficient for Pakistan is
68.0.
Income inequalities in Pakistan, as elsewhere, largely reflect inequalities in the distribution of
assets. Since the poor have virtually no assets and the lower middle-class owns very few assets,
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income distribution is skewed. Distribution of state land; development of plots and houses for the
common people at affordable rates; the sale of shares of public enterprises in smaller lots; human
resource development; and credit to micro-, small- and medium-enterprises are some of the ways
that might help the poor in acquiring assets. However, the role of various official bodies set up
by federal and provincial governments in this regard has been poor to say the least.
The income inequality in Pakistan has increased drastically in the last eight years and the trend
continues unabated despite all claims of poverty reduction. The main factors that govern personal
income distribution include distribution of assets; functional income distribution; transfers from
other households, government and rest of the world; and tax and expenditure structure of the
government.
However, the single most devastating factor for increased income and wealth inequalities in
Pakistan remains the regressive tax system. Incidence of tax on the poor in the last 10 years has
increased substantially (by about 35 per cent), while the rich are paying almost no direct tax on
their colossal income and wealth. Study of Pakistan from this political economy perspective is
very crucial, as our society is fast adopting dehumanizing characteristics. We are faced with
economic disparities, shortage of food and lack of essentials services. The great divide between
the rich and the poor in today's Pakistan is assuming alarming proportions, and may eventually
lead to a civil war if preventive measures are not adopted immediately.
Poverty reduction has always been an important objective for the Asian Development Bank
(ADB), and the Bank's Poverty Reduction Strategy, approved in November 1999 further
articulated poverty reduction as ADB's overarching goal. The Pakistan Resident Mission (PRM)
has carried out a poverty assessment for Pakistan as part of the process of developing a medium
term Country Strategy and Program (CSP) for the country. This assessment is the prime input in
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the preparation of the CSP. The assessment was finalized after a series of consultations with key
stakeholders, over a period of more than a year.
As the report shows, more than 12 million people were added to the ranks of the poor in Pakistan
between 1993 and 1999. During this period, the level of poverty worsened from 26% of the
population falling below the poverty line in 1993 to 32% below the line in 1999. The number of
people falling below the poverty line is expected to have further increased after 1999, as growth
has slowed, development spending has declined and the country has experienced a severe
drought. Thus it would not be an exaggeration to say that more than a third of the country's
population is currently living in poverty. Inequality has also intensified in the 1990s, with
income distribution in urban areas being consistently more unequal than rural areas. In 1997, the
income share of the bottom 20 percent of households had declined to 6.9 percent from 7.9
percent in 1987, and the income share of the bottom 40 percent of households declined from 20
percent to 18 percent. During the same period, the ratio of the share of the top quintile to that of
the bottom quintile increased to 6.5 from 5.2 for all areas.
While poverty has intensified in the last decade, the country's long term prospects for achieving
high growth are also being compromised by the low level of social sector investment. The
UNDP's Human Development Index (HDI) shows that Pakistan's level of human development is
low for its level of income. Pakistan's education indicators are the worst in South Asia - the fact
that the education index in Nepal and Bangladesh, two countries with significantly lower per
capita incomes than Pakistan, is 10 to 20 percent higher than Pakistan is a clear indicator of the
low priority accorded to education in Pakistan's development policies. Pakistan's public sector
spending on education and health, at barely 2.1 percent of GDP, is significantly lower than that
of other countries in the region. At the same time, experience in Pakistan shows that accelerating
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human development is as much an issue of increasing expenditure on social sectors as of
improving the effectiveness of spending through better governance, and future social
development initiatives must be designed keeping this in mind. The report also analyses the links
between poverty and vulnerability in Pakistan, and concludes that, in general, the capacity of the
poor in Pakistan to access public entitlements like political processes, or goods and services
which determine human development contrasts strikingly with that of the rich.
The report provides a comprehensive commentary on the causes of the increase in poverty in the
1990s, and hypothesizes that poor governance is the key underlying cause of poverty in Pakistan.
Corruption and political instability, which are both manifestations of governance problems, have
resulted in waning business confidence, deteriorating economic growth, declining public
expenditure on basic entitlements, low efficiency in delivery of public services, and a serious
undermining of state institutions and rule of law, which in turn translates into lower investment
levels and growth. The effects of poor governance have compounded the economic causes of
rising poverty such as decline in GDP growth rate, increasing indebtedness, inflation, falling
public investment and poor state of physical infrastructure. At the same time, social factors such
as the highly unequal distribution of land, low level of human development, and persistent ethnic
and sectarian conflicts are also obstacles to the achievement of long term sustained development.
Environmental degradation is also closely interlinked with increasing poverty and has impacts on
the health of the poor as on the un sustainability of their livelihoods.
The report also analyzes responses to poverty in the country. Foremost among the Government's
governance related reforms are the Devolution Plan. Under this plan, the delivery of services in
the social and other poverty-focused sectors has been decentralized, with the elected local
governments given the mandate and responsibility to manage and run these services. The
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Government is also in the process of introducing important reforms to improve the functioning of
judicial institutions to enhance equitable access of the citizenry to justice. Other poverty
alleviation measures of the Government include the introduction of microfinance banks, the
institution of a small civil works program in the form of the Khushhal Pakistan Program, and a
revamping of the Zakat system. ADB is assisting the Government in implementation of these
poverty alleviation initiatives through key initiatives such as the $300 million Devolution
Support Program loan being processed this year, which will enhance service delivery capacity in
local governments; the $350 million Access to Justice Program loan, approved in December
2001, which aims to bring about reform in the lower judiciary and police, and the $150 million
loan, approved in December 2000, for setting up the Khushhali Bank, which provides
microfinance to poor households.
Poverty alleviation has to be effected not only through macroeconomic policies, but also by
bringing about significant improvements in the structure and functioning of systems of
governance. The Government's ambitious governance reform agenda is at the core of its strategy
for reviving growth, reducing poverty, and accelerating social development. In some areas, such
as devolution, public expenditure management, anti-corruption initiatives, and the independence
of the State Bank of Pakistan, appreciable progress has been made. In others, such as reform in
the tax administration, the justice system, the police, and the civil service, the process, although
started, is at a relatively early stage. However, for the success of the proposed development
agenda it will be critical to consolidate the reforms in the first category, and accelerate the
process in the second.
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Chapter 2
2.1 Literature Review

Most previous studies were studies of international inequality in the sense that they calculated
what would be inequality in the world if the world were populated by representative individuals
from all countries, that is by people having mean income of their countries. The most notable
examples are several studies by Theil (Theil, 1979; Theil & Seale, 1994; Theil H. , 1996) who
decomposed international inequality into regional components in order to show, among other
things, decomposability properties of the Theil index of inequality. For income, these studies
used GDP per capita, not survey data.
The second group of studies is better in the sense that they acknowledge the fact that the world is
not populated by representative individuals from each country, and try somehow to take into
account income distributions within countries. However, since they do not have access to the
survey data, which alone provide information on distribution, such studies use countries' Gini
coefcients or other indicators of inequality in order to estimate the entire distribution from a
single statistic. A good example of this type of work is a recent paper by [ CITATION Sch98 \l
1033 ]. His analysis is based on a betweencountry component which reflects differences in
Purchasing power parity (PPP) GDPs per capita, and a within-country component where an
inequality measure (log variance) for each individual country was obtained from a regression
analysis using the [ CITATION Dei96 \l 1033 ] data base. A very similar approach was adopted by
[ CITATION Cho97 \l 1033 ]. They use the GDP per capita (in PPP terms) and the Gini coeficient for
each country (also obtained from the Deininger and Squire data base), and assume that income
distributions of all countries follow a log-normal pattern. They thus obtain estimates of within-
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country income distributions needed to derive world inequality. The approach followed by these
studies is unsatisfactory for two reasons. First, distributions cannot be well predicted from a
single inequality statistic, nor is it acceptable to assume that all distributions follow the same
pattern. Indeed, this is a pis-aller, explicitly acknowledged by Chotikapanich et al. when they
observe that `information on the income distributions, or, at least, the population and income
shares for a number of income classes [by countries]¼is not available. Second, GDP is an
imperfect indicator of household disposable income or expenditures, both because it often fails to
account for home consumption, which is particularly important in poor countries, and includes
(eg) undistributed profits or increase in stocks, which do not directly affect current welfare of the
population. Moreover, as we shall see below, there is a systematic relationship between the ratio
of income or expenditures obtained from household surveys (HS) to GDP, and level of GDP per
capita.
Any theoretical or empirical study of income inequality begins by accounting for the earliest and
most cited work of Kuznets(1955) migration-based model where he first presented an
explanation for the mechanism through which level of economic development, measured by per
capita GDP, affects the distribution of income. In his two-sector model of inter-sectoral
migration, he described growth as the transition from the traditional agricultural sector to modern
sector. He stated that the increase in inequality at the early stage of economic development is
caused by migration of the abundant labor from the low-income agricultural sector to high-
income industrial sector. He suggested that income inequality first rises in the early stage of
economic development but after reaching a pick declines thereafter resulting in an inverted-U
pattern of relationship between income inequality and the level of economic development.
Studies that tried to verify the inverted-U hypothesis, provided mixed conclusions.
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While [ CITATION Fie80 \l 1033 ] , [ CITATION Ram91 \l 1033 ] [ CITATION Ana93 \l 1033 ] and
(Deininger & Squire, 1996) failed to support the hypothesis, [ CITATION Ahl76 \l 1033 ], [ CITATION
Pap86 \l 1033 ], [ CITATION Cam88 \l 1033 ] supported the hypothesis. A few studies have tried to
reconcile the conflicting results. Mohtadi (1988) showed that when impact of excess capacity is
incorporated into testing
the Kuznet's hypothesis, it receives statistical support. Fields (1994) argued that inverted U
pattern arises in previous studies because of the use of ordinary least square method with data
that has more than one observation for a country. He showed that when fixed effects estimation
is used the inverted-U pattern disappear.
[ CITATION Per96 \l 1033 ] explains that the theoretical literature on income distribution and growth
has expanded enormously in recent years. On the empirical side, however, progress has been
much slower. Probably the most important reason has been the perceived limitations of existing
cross-section data on income distribution, both in terms of availability of observations and in
terms of their quality. A discussion of the income distribution datasets currently used and of their
comparative properties is therefore fundamental for an evaluation of the existing empirical
evidence. Practically all this evidence consists of reduced-form estimates that add income
distribution variables to the set of independent variables of otherwise standard growth
regressions. In the vast majority of these estimates, equality has a positive impact on growth. The
second important issue studied in this paper is precisely the robustness of this positive reduced-
form relationship between equality and grow. The theoretical literature provides an array of very
different explanations for the positive correlation between equality and growth. By its nature, a
reduced-form estimate cannot shed light on the underlying mechanisms. Hence, the importance
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of the third issue – evaluating the specific channels of operation of income distribution by
estimating the structural models behind the reduced form.
Atkinson & Brandolini (2010) explains that people are keen to know whether world inequality is
growing or declining. They want to monitor progress toward eradicating world poverty, as in the
UN Millennium Development Goals. There are three reasons why a reexamination is necessary.
First, differences between incomes are much larger on a world scale than nationally. [ CITATION
Bou02 \l 1033 ] Data show the decline ratio (the ratio of the top to bottom decline groups) for all
the world’s inhabitants in 1992 as 24.
The second reason is the need to consider the relationship between measuring income inequality
and measuring poverty. People are interested in both world inequality and world poverty, but the
two literatures are separate with an uneasy relationship between them. The same criticism applies
to studies at the national level, but it is easier to avoid a confrontation between the two concepts
when they are moving in the same direction. At a global level, however, the proportion of the
world population living on less than $1 a day is falling while the world Gini coefficient remains
stubbornly high. The third reason for a reexamination is that on a global scale, absolute as well
as relative differences need to be considered. In 2005 the real per capita income of China was
$4,091, or one-tenth the $41,674 of the United States. This means that China has to grow 10
times faster than the United States to achieve the same absolute increase in the production of
goods and services per person. Even if China grows faster in relative terms, the absolute gap may
widen. For example, with annual per capita growth rates of 5 percent in China and 2 percent in
the United States, the absolute income gap between the two countries would widen for 49 years
before starting to narrow, finally disappearing after 80 years. Concern for the absolute dimension
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of economic growth has far-reaching implications for assessing its distributive consequences,
both between and within countries
[ CITATION Gup98 \l 1033 ] Showed that high and rising level of corruption increases the level of
income inequality through its negative impact on growth, efficiency, and perpetuating an unequal
distribution of asset ownership and formation of human capital. Durham (1999), in his
econometric analysis of income distribution that incorporated institutional determinants, found
that more decentralized countries have greater equality. On their latest examination of the
income inequality and growth, using data on distribution of land as a proxy for distribution of
assets, (Deininger & Squire, 1996) showed that there is a strong relationship between initial
inequality in asset distribution and long-term Growth. They tested the arguments of both the
median voter theorem and the imperfect credit market on the mechanism through which the
effect of initial inequality is transmitted. They argued that if the median voter argument is true
they would find inequality to affect growth more in democratic nations than in undemocratic
nations.[ CITATION Fig98 \l 1033 ], [ CITATION Spi99 \l 1033 ] emphasize a country's initial factor
endowment as a factor contributing to inequality. For example, skill labor abundant countries
have more equal income distribution. Finally, [ CITATION Bul98 \l 1033 ] found that price stability
and financial deepening improve income inequality.
Two recent challenges have been offered to world-system research. First, findings that
dependency increases income inequality have been criticized for their failure to control for the
curvilinear effects of development [ CITATION Wee80 \l 1033 ]. Second, the observed effects of
dependency on rates of per capita economic growth have been claimed to be artifacts of
inadequate measures of growth and resulting heteroscedasticity [ CITATION Jac80 \l 1033 ].
Countries, while in core countries, although the upper regions continued to have the largest
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shares, proportionately more income accrued to the middle regions. This was argued to be
evidence of a small labor aristocracy in the periphery and a relatively strong middle class in the
core, as predicted in world-system/dependency theory. [ CITATION Wee80 \l 1033 ], however, has
challenged these findings by questioning Rubinson's control for the effects of development on
income distribution. According to Weede, a second-order polynomial is necessary, and
Rubinson's use of the log of development is inadequate as a control because economists have
long maintained that development has a curvilinear non monotonic effect on inequality. At low
levels of development, growth may actually increase inequality, whereas growth at higher levels
reduces it. To demonstrate that dependency has an effect on inequality independent of the simple
effects of development, therefore, it is necessary to use a control that will detect this expected
reversal in the direction of the relationship. However, when [ CITATION Wee80 \l 1033 ] attempted
to replicate [ CITATION Rub76 \l 1033 ] analysis employing polynomial controls, all the regression
coefficients for Rubinson's indicators of dependency failed to reach significance at even the .10
level. From this, Weede concluded that Rubinson's results were due to his "misspecification" of
the economic model and rejected the hypothesis that position in the world economy affects
economic inequality net of economic development.
Another growing strand of the literature focuses on the examination of the effect of economic
policies such as trade liberalization and devaluation on income inequality. [ CITATION Cor87 \l
1033 ] argued that since less developed countries have a comparative advantage in labor intensive
products, trade liberalization policy will increase the demand for and the reward of labor and
raise overall employment. They also argued that protection benefits the urban population relative
to rural population and given the fact that average income of the rural population in many less
developed countries is lower than that of the urban, protection would most likely increase the
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income gap between urban and rural population thereby increasing income inequality. Despite
the clear assertions of the trade theory, the empirical findings on the relationship between trade
liberalization and income inequality in both less developed and developed countries is mixed.
However, [ CITATION Sav98 \l 1033 ] reported that trade openness increased income inequality in
less developed countries.
[ CITATION Hus07 \l 1033 ] Argues that there are several studies examining the poverty-reducing
impacts of rural–agricultural development interventions, including irrigation. Most of these
studies assess poverty impacts using ‘‘with and without’’ frameworks, often combined with
econometric estimations. The studies comparing poverty measures across ‘‘with and without’’
irrigation situation show that poverty is much higher in settings without irrigation. For example,
evidence from studies shows that poverty incidence varied from around 17 to 64% in irrigated
settings and from 23 to 77% in adjoining non-irrigated settings. On average, poverty incidence is
over 21% less in irrigated than in non-irrigated settings, with substantial variation in poverty
incidence across systems. Further, the studies indicate that intensity of poverty is also
significantly higher in non-irrigated settings than in irrigated settings. Similarly, the studies using
econometric techniques show that irrigation and agricultural output are positive determinants of
incomes/expenditures and negative determinants of poverty. Households and communities
having access to irrigation are less likely to be poor compared to those with little or no access to
irrigation.
In his analysis of the causes of the East Asian miracle, [ CITATION Bul98 \l 1033 ] reported that one
of the main reasons that enabled these countries to achieve both economic growth and more
equitable income distribution was the high level of participation of the poorest farmers in the
expanding rural industries and services. Since these rural industries and services were highly
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labor-intensive, their expansion led to increase in the demand for and employment of the surplus
unskilled labor thereby increasing its income. He also noted the fact that these countries' initial
emphasis on literacy through focus on education has contributed to their success. Similarly,
[ CITATION Bir95 \l 1033 ] in their examination of income inequality and growth in East Asian
countries, concluded that export oriented growth path stimulated economic growth and reduced
inequality. They also argued that, in addition to the key role played by education, a development
strategy that promotes the agricultural sector and labor-intensive export sector enabled these
countries to achieve economic growth with declining income inequality. They concluded that the
East Asian experience reject the conventional view that high level of income inequality is a
prerequisite for growth. [ CITATION Eva98 \l 1033 ] argued that favorable institutional factors,
particularly business-government relations, have also played an important role for the success of
these countries.
The traditional view that inequality should be growth-enhancing is based on three arguments.
The first is the classical hypothesis, formalized by Stiglitz (1969) that the marginal propensity to
save out of profits is higher than that out of wages .As a result, the saving propensity of richer
individuals (i.e. those with more capital income) is greater than that of poorer individuals, and
since more savings result in more investment in physical capital, more unequal economies are
bound to grow faster than economies with a more equitable distribution of income. A second
reason why inequality may enhance growth has to do with investment indivisibilities: investment
projects, in particular the setting up of new industries or the implementation of innovations, often
involve large sunk costs. In the absence of well-functioning capital markets, wealth needs to be
sufficiently concentrated in order for an individual to be able to cover such large sunk costs and
thereby initiate a new industrial activity. Hence a sufficiently concentrated distribution of wealth
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is a pre-requisite for growth. Lastly, the idea that there is necessarily a trade-off between
productive efficiency and equality is based on incentive considerations, formalized by [ CITATION
Mir71 \l 1033 ]. Namely, when individual output depends on the unobservable effort borne by
agents, rewarding these with a constant wage independent from output performance will
discourage them from investing any effort. Income dispersion, on the contrary, will provide
incentives to exert effort.
All these approaches imply that more unequal societies will grow faster. Note, however, that in
these early models these effects were only present during the transition to the steady state, since
the long-run rate of growth was determined exclusively by the rate of exogenous technological
change and hence was unaffected by savings, investment or effort. The “new growth literature”
has opened new avenues through which inequality may affect growth, both because long-run
growth is seen as endogenous but also because a new range of variables are now seen as crucial
determinants of output growth. The idea that income inequality is necessary to foster effort
remains central in the new growth literature. However, the recent literature has refuted the first
two arguments presented above on the grounds that, even though they might be important at the
early stages of development, in modern industrialized economies capital markets are sufficiently
developed for investments in physical capital not to be constrained by personal wealth or
domestic savings. Nevertheless, the idea that credit constraints are important has been explored
in relation to investments in human capital and, as we will see, has yielded very different
conclusions from those found in the early literature.
Maddison (2001) argues that Globalization has its roots in the second half of the eighteenth
century. The period 1870 to 2000 is classified into: the first wave of globalization 1870-1913, the
de-globalization period of 1913-1950, the golden age of 1950-1973, and the second wave of
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globalization of 1973 onwards. The empirical evidence shows that during the first wave of
globalization convergence in per capita income and real wages took place within the Atlantic
economy. The de-globalization period is characterized as a widening disparity between the
richest and the poorest regions, and within the Atlantic economy. The golden age was a period of
rapid growth, relative stability and declining inequality.
In recent years, research on the link between globalization and world inequality has been intense.
Economic growth has often been given priority as an anti-poverty measure, while the negative
links between growth and inequality have been largely ignored by policy makers. Cornia &
Court (2001) in a policy brief covering the second wave of globalization, highlight five main
issues. First, inequality has risen since the early-mid 1980s. Second, the traditional common
factors causing inequality, such as land concentration, urban bias and inequality in education are
not responsible for worsening the situation. Third, the persistence of inequality at high levels
makes poverty reduction difficult. Fourth, a high level of inequality can depress the rate of
growth and have undesirable political and social impacts. Fifth, developments in Canada and
Taiwan show that low inequality can be maintained at a fast growth rate.
The non-traditional new causes of inequality are identified as liberal economic policy regimes
and the way in which economic reform policies have been carried out. Land reform, expanding
education and active regional policy are recommended as measures to reduce inequality. The
new development approach called the ‘Post-Washington Consensus’ includes measures to offset
the impacts of new technologies and trade, macroeconomic stability, careful financial
liberalization and regulation, equitable labour market policies, and innovative tax and transfer
policies [ CITATION Sti98 \l 1033 ].
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Quah (1996) explains that the empirical finding of convergence in the growth literature is
contrary to the evidence of global divergence in the inequality literature. Solimano (2001)
explains the puzzle by the conditional convergence requirement that all countries share similar
values for the determinants of growth and the same steady state value of long run income per
capita. In his view the strong assumptions of equality of determinant factors whose differences
are the core of differential growth performance across countries and international inequality
limits the usefulness of conditional convergence. Heterogeneous development has given rise to
uneven and complex regional convergence and divergence in GDP per capita and growth rates
increases the world inequality which are driven by international or between country inequalities.
To narrow global inequality it is required that a sustained acceleration in the rate of economic
growth of low and middle income regions combined with the decline in domestic or within
country inequality to improve the welfare position of the world’s poor. It is pointed out by
Solimano (2001) that income inequality exploded since the early 19th century. This evolution is
essentially due to the increase in inequality among countries or regions of the world. The
contribution from the between country component have more impacts on the world distribution
of income inequality than the within country component. This is also confirmed by Bourguignon
and Morrisson (2002) who find evidence of convergence process among European countries but
also divergence among regions and an increasing concentration of world poverty in some regions
of the world such as sub-Saharan Africa and South Asia.
At the regional level the dynamics of inequality among eight European countries using LIS data
is considered by [ CITATION Iac98 \l 1033 ]. He investigates whether inequality converges to a
steady state level of income inequality during the process of economic growth and to identify the
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variables that influences the process of convergence. However, Iacoviella does not reach to a
conclusion about the exact nature of the relationship between income and inequality movements.
He investigates whether inequality converges to a steady state level of income inequality during
the process of economic growth and to identify the variables that influences the process of
convergence. However, Iacoviella does not reach to a conclusion about the exact nature of the
relationship between income and inequality movements.
Earlier Quah (1996b) in analyzing the regional convergence clusters across Europe found that
physical location and geographical spillover matter more for convergence than do macro factors
and account for substantial amount of regional income distribution dynamics. Based on a larger
sample of 66 countries recently Ravallion (2003) found that within-country income inequalities
have been slowly converging since the 1980s. Inequality is tending to fall (rise) in countries with
initially high (low) inequality. The speed of convergence was not sensitive to measurement error
in the initial inequality measurement. In Epstein and Spiegel (2002) when divergence from
acceptable (natural) level of inequality occurs, both lower or higher production levels and
economic growth may be expected. The direction of changes is ambiguous. In sum the empirical
findings in the literature, based on large sample of countries and relatively long time period, in
general indicate presence of convergence in per capita income, at least among countries with
more homogenous development or sharing same regional location, but also significant
divergence in income inequality. There is evidence of strong convergence process among more
homogenous and integrated European countries and a weak within-country (between-region)
convergence among Indian states, divergence among Chinese regions but also divergence among
countries or regions of the world. The between-country contribution is much higher then within
country contribution to the world inequality. Lack of convergence might be explained by various
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national and global factors such as the absence of regional price indices, infrastructure for
development, economic reforms and redistributive policies which affects regions differently.
The determinants of the degree of income inequality in a country include social and political
forces as well as economic ones. In particular, government transfers and taxes play an important
redistributive role, suggesting that even if growth matters in shaping the distribution of income,
policy choices are also crucial. In rich industrialized economies, taxes and transfers reduce the
Gini coefficient by about a third. Moreover, differences across countries in the extent of
redistribution account for a large fraction of overall differences in income inequality. In
2000/2001, the Gini coefficient for market incomes was similar in Germany, Australia and the
US: around 48%. The Gini of disposable income was, respectively, 28, 32, and 37, placing
Germany amongst the most equal and the US amongst the most unequal of the high income
economies [ CITATION Bra08 \l 1033 ]
What determines the degree of redistribution, or, more generally, the size of the welfare state?
[ CITATION Bén05 \l 1033 ] studies a model where inequality, human capital accumulation, and the
welfare state are jointly determined. Suppose that growth is driven by the accumulation of
human capital, and that individuals are endowed with different levels of human capital (or
education) and of random ability. These endowments, together with the degree of redistribution τ
, determine an individual’s disposable income. There are two key elements is his analysis. First,
some individuals are credit constrained and hence invest in the education of their offspring less
than they would in the absence of credit constraints. Second, individuals vote over the extent of
redistribution, and do so before knowing their children’s ability. As is common in this literature,
the tax schedule depends only on individual income and not on her education or ability.
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In this context, there are two negative relationships between the degree of human capital
inequality and the degree of redistribution that individuals vote for. The first follows from the
fact that individuals want some redistribution as it provides insurance against random ability, but
the amount of redistribution they prefer depends on the dispersion of ability relative to that of
human capital. When human capital is equally distributed, all differences in income are due to
random ability. As a result, individuals vote for a highly redistributive policy to insure against
ability shocks. When human capital is unequally distributed, insurance becomes costly for
individuals with high human capital, because both those with high human capital and low ability
and those with high ability and low human capital receive a transfer. As a result, there is less
support for redistributive policies. The second relationship governs the process of human capital
accumulation. Greater redistribution relaxes the credit constraint of the poor, allowing them to
increase the educational attainment of their children which in turn results in a lower degree of
long-run inequality. Since the two relationships are decreasing, they may intersect more than
once and give rise to two stable equilibrium for the same preferences and technology. One
equilibrium is characterized by low inequality and high redistribution, while the other exhibits
high inequality and low redistribution. This approach has a number of implications. First, the
equilibrium relationship between inequality and redistribution will be negative, since,
paradoxically, more equal societies choose to redistribute more. Second, different sources of
inequality have different impacts on the extent of redistribution. If inequality is mainly due to
differences in human capital endowments, the support for redistributive policies will be weak.
When inequality is largely due to random ability shocks, there will be a greater demand for
redistribution. Third, which of the two equilibria results in faster growth is ambiguous. It
depends on the distortions created by redistribution— in terms of employment or effort—and the
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positive effect of a greater investment in education by the poor. Bénabou’s framework can be
used to examine the consequences of European integration for welfare policy. The key element
in his analysis is the trade-off between the deterministic component of income—education,
which agents can choose— and the random component—which affects equally all individuals. In
Bénabou’s original setup, the random term is innate ability, but it can be given an alternative
interpretation. Suppose that the random term represents aggregate demand in the sector in which
the individual works, which in turn depends on price volatility. Suppose also that monetary union
entails a reduction in price uncertainty and hence in the dispersion of the random term of
individual income. As we have seen, if uncertainty is smaller, support for redistributive policies
will be weaker, and in equilibrium there will be a smaller degree of redistribution and a more
unequal distribution of human capital and income. That is, economic integration would result in
lower uncertainty, which in turn results in lower redistribution and hence higher inequality. The
analysis by Bertola (1993) addresses precisely this issue. He examines the effect of European
integration on inequality by asking whether the European Monetary Union (EMU) has affected
the distribution of household incomes within national states. His evidence indicates that EMU
was associated with a small increase in post-tax household income inequality, most likely due to
the constraints on public spending imposed by the various European treaties. Constraints on the
government’s capacity to incur a deficit will result in a larger Gini coefficient for disposable
income. [ CITATION Ber061 \l 1033 ] conclusions come as a surprise given the strong emphasis that
the European integration process has put on social cohesion and regional convergence. If average
incomes in regions across Europe and, in particular, within European countries have been
converging, presumably this would have reduced the degree of national household income
inequality. One possibility is that policy changes have been strong enough to offset any
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underlying regional converge in productivity. This raises two questions. The first is whether such
convergence has occurred. Second, we would like to know to what extent European integration
has shifted preferences towards redistribution, in line with the mechanism described above, and
resulted in a lower degree of redistribution in member states.
Chapter 3
3.1 Theoretical Framework
While the world economic situation has been improving since the past six months, the global
economic recovery is expected to remain sluggish, while un‐employment rates are expected to
stay high. Developing countries, especially those in Asia, are expected to show the strongest
recovery in 2010. Nonetheless, growth is expected to remain well below potential and the pre‐
crisis levels of performance in the developing world. As a consequence, it will take more time
and greater efforts to make up for the significant setbacks in the progress towards poverty
reduction and the fight against hunger, as well as the other Millennium Development Goals. The
crisis has impacted severely, on low‐income countries and the most vulnerable. Even given the
signs of economic recovery, many are still facing declines in household incomes, rising
unemployment and the effects of dwindling government revenue on social services. Where these
adverse impacts cannot be countered because of weak social safety nets and lack of fiscal space
to protect social spending and promote job creation there is a high risk of long‐lasting setbacks to
human development.
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3.2 Inflation Behavior and Prospects

Just as the sharp rise in food and fuel prices generated a rapid acceleration of headline inflation
in both high income and developing countries during 2008, and the un‐precedented slowdown in
the global economy witnessed a mixed trend of inflation during 2008‐09. The median rate of
year‐over‐year consumer price inflation in high income countries, which peaked at 5.2 percent in
mid 2008, turned negative in July, but was 0.6 percent in November 2009. The median inflation
rate in developing countries has declined from a peak of 12.4 percent in mid‐2008 to only 2.6
percent. Notwithstanding the declines in headline inflation, core inflation has remained relatively
stable in high‐income countries. Inflation developments have changed drastically among middle
and low‐income countries. Median inflation in low‐income countries peaked at 15.4 percent in
the middle of 2008, but as of October 2009 it was 1.2 percent well below the levels observed
before the food and fuel boom. However, food inflation in developing countries has not been
falling as rapidly as overall prices in the two‐thirds of developing countries for which data are
available through May 2009. As a result, by the end of May 2009, food prices in developing
countries had risen about 8 percent faster than non‐food prices, when compared with January
2003. This suggests that the poor in these countries may not be benefiting from lower
international food prices to the same degree as the poor in richer countries and that a significant
portion of the 130 million pushed into extreme poverty during the food price spike may not have
exited poverty as might have been expected given the fall in international food prices.
Table 3.2.0-1
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3.3 Impact of rise in food prices on poverty

The rise in food prices is worrisome precisely because food price inflation is the most aggressive
of all taxes – it hurts the poor the most. The effects of rising food prices will differ across
households. There will be some households that may benefit from higher prices; there may be
households that are adversely affected. Rising food prices may lead to income gains for net
producers who are in rural areas. The food price increase should contribute to higher incomes for
these net surplus producers. However, to the extent that net surplus producers tend to be the
relatively well‐off, rising food prices may be expected to adversely affect even the rural poor.
Certainly the urban poor, who are food consumers and unlikely to be food producers, can be
expected to suffer more from rising food prices. In this context, it is important to examine how
different groups will be affected by rising food prices. It is also important to investigate what
would be the net impact of food price increases on poverty. Concerns over high prices are
mounting because inflation eats into real incomes and expenditures and can undermine the gains
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from poverty reduction and human development that developing counties have achieved over the
last decade or so.
In order to gain a sense of the varying impact of increases in food prices on different subgroups of the
population, food expenditure shares by income quintile are examined in table below in case of
Bangladesh, India, Indonesia and Philippines which may serve as a fair proxy for Pakistan. The average
share of food in total expenditure is inversely related to income across quintile groups, as seen from
household expenditure survey data from Bangladesh, India, Indonesia, and Philippines. It is perfectly
clear that poorer population subgroups spend a larger share of their total expenditures on food than richer
ones. In each of the four countries, a clear majority of the expenditure of the poorest 20% is on food. In
contrast, the share of food in total expenditure tends to be around 25 percentage points less for the richest
20%. As a result, the poorer population subgroups are more vulnerable to rising food prices.
To the extent that some households produce (and consume) their own food, they will tend to be
relatively shielded from increases in food prices. In fact, those with a marketable surplus may
even benefit. Nevertheless, the household expenditure survey data used here suggest that for all
quintile groups in all four countries, a majority of food consumption is purchased. In the case of
rice, for example, typically an average of around 70% or more of total rice expenditures is
purchased in any given quintile group in rural areas. A smaller percentage is purchased for some
quintile groups in rural Bangladesh (a little les than 60%). However, this is for the top two
quintiles.
3.4 Employment – Poverty Scenario

As a stylized fact, strong positive correlation exists between employment generation and poverty
reduction. Increasing opportunities for decent work is central to shaping an enabling
environment for the achievement of the goals of the Millennium Declaration. This will entail
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crucial choices about the pattern of development. Dialogue, involving trade unions, employers’
organizations and others, is vital to finding the right balance of policies for employment creation,
productivity growth, and poverty reduction.
3.5 Global Prospects

Labor market will remain weak in the outlook. The experience of previous recessions shows that
employment recovery typically lags output growth by a significant margin. During the last two
recessions in the United States (in 1991 and 2001), for instance, output started to recover after
eight months, while it took 30 and 48 months, respectively, before unemployment rates were
back to pre‐crisis levels. Recovery from the present crisis has only just begun and large output
gaps remain characteristic of the situation in most major economies. This will slow new hiring
until output growth has become more robust.
Labour market conditions in developing countries are expected to remain difficult in the outlook
for three main reasons. First most of the 47 million new workers who enter labour markets
worldwide each year will be searching for jobs in developing countries. In Asia alone for
increase an estimated 51 million additional jobs will need to be created to absorb that region’s
growing labour force during 2010 and 2011.
Second, as in developed countries, employment creation in developing countries is expected to
lag output recovery.
Third, the shift to informal sector jobs during the crisis will likely be long lasting for many
workers. This adds considerable pressure on earnings for those in vulnerable employment and
will keep the level of working poverty high, especially in rural areas where job opportunities are
already scarce. In addition, on top of vulnerable employment, as social protection coverage is
relatively limited and working poverty levels will increase. This will be difficult to reverse as
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observed in previous crises. As regards Pakistan, whereas labor force employed in agriculture
and industry increased in percentage terms it has decreased in the services sector in the year
2008‐09 over the year 2007‐08. This is a significant development in the employment perspective;
given the highest employment elasticity in the services sector. However, the Services sector has
recovered to a growth rate of 4.56%. Share of agriculture, industry and services sector in
Pakistan was 44.6% 20.1% and 35.3% during 2007‐08 compared with the respective.
3.6 PRSP‐II – Profile of Pro‐poor Expenditure

PRSP pro‐poor expenditures are reported regularly under five broad categories i.e.
i) Market Access and Community Services;
ii) Human Development;
iii) Rural Development;
iv) Safety Nets; and
v) Governance.
These five categories cover 17 pro‐poor sectors for tracking of budgetary expenditures.
Pro‐Poor spending is significantly rising over recent years; from 3.77 percent of GDP in FY
2001‐02 to7.46 percent of GDP in FY 2008‐09 which remained well above the projected
expenditure of Rs.760 billion for the year. Aggregate pro‐poor spending for the first nine months
of current financial year 2009‐10 amounts to Rs. 651.2 billion which has increased from Rs.
618.0 billion in the corresponding period of the previous financial year 2008‐09, showing an
uptrend of 5.4 percent. An amount of Rs 860.0 billion was projected to be spent in FY 2009/10
which would be 6.01 percent of GDP. Actual expenditure during July‐March FY 2009‐10
represents 75 percent of the projected pro‐poor expenditure for the whole FY 2009‐10 and
represents 4.3 percent of estimated GDP for the current financial year. An upward trend is
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observed in the expenditures of three categories, Human Development (17.0 percent), Rural
Development (14.49 percent) and Governance (45.62 percent) between FY 2008‐09 (July‐
March) and FY 2009‐10 (July‐March). An amount of Rs. 234.6 billion was incurred on Human
Development during July‐March, 2009‐10 as compared to Rs. 200.5 billion in the corresponding
period of previous financial year. In Human Development, all three sectors, Education, Health
and Population Planning registered growth, with Health representing the maximum YoY increase
of 27.6 percent followed by Education expenditure depicting a YoY increase of 14.12 percent. A
recurring pattern is the rise in expenditure related to Governance, from Rs. 104.7 billion during
July‐March 2009‐10 relative to Rs. 71.9 billion during the same period of FY 2008‐09, largely
attributable to increase in Law & Order expenditure explained by the internal conflict and
militancy compelling higher outlays on public safety and security.
Safety Net shows a significant YoY decrease, 18.28 percent which is mostly concentrated in
Subsidies, showing 26.96 percent YoY decrease. Within Safety Net, in FY 2009‐10, Social
Security& Welfare record an impressive growth of 56.6 percent over the corresponding period of
previous year. Expenditure on Safety Net moved down from Rs. 203.5 billion in FY 2008‐09
(July‐March) to Rs. 166.3 billion in FY 2009‐ 10 (July‐March) while on Social Security &
Welfare, it increased from Rs. 17.3 billion in FY 2008‐9 to 27.1 billion in FY 2009‐10.
Consistent decline in the outlays on Subsidies reflect a shift in resources towards programs
comprising Social Security and Welfare. Under the IMF Stand By Arrangement in place since
November 2008, the Government of Pakistan is committed to gradually replace the subsidies
with direct and targeted assistance to the poor and needy.
The proportionate shares of respective expenditure categories in Pro‐Poor spending for FY 2009‐
10 illustrate a change from FY 2008‐09 (Table 9.9). During July‐March, FY 2008‐09, Safety
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Nets holds the maximum percentage share, 32.93 percent, followed closely by Human
Development, 32.44 percent. Rural Development holds the third largest share, 13.28 percent.
Table 3.6.2
During nine months of current financial year, 2009‐10, Human Development holds the maximum
proportionate share i.e. 36.02 percent, 3.58 percent points higher than the previous year,
followed by Safety Nets, 25.53 percent, representing a decline of 7.4 percent points over the
same period in previous financial year. Shares of Governance i.e. 16.08 percent and Rural
Development i.e. 14.43 percent represent an increase over the previous financial year. Market
Access and Community Service holds the smallest share compared to other categories, in both
the years.
3.7 Other Initiatives to Alleviate Poverty
3.7.1 Benazir Income Support Program (BISP)

Benazir Income Support Program (BISP) caters to the needs of the ‘poorest of the poor’ of the
society not only in terms of cash assistance for day to day subsistence but also enabling them to
exit the vicious cycle of poverty. An amount of Rs. 70 million was allocated for the current
financial year, 2009‐10 to target 5 million families. Expenditures amounting to Rs 17.8 billion
(32)
were incurred up till March, 2010. In FY 2008/09, a total of Rs. 14 billion was disbursed to 1.76
million beneficiaries in the shape of the cash grant of Rs 1000 per month. Initially, the targeting
of the beneficiaries was carried out through Federal and provincial parliamentarians since there
was no poverty data in the country. Since, there was an urgent need to provide relief to the poor,
it was decided by the Management board that the targeting may be done through the
Parliamentarians to identify beneficiary families. However, an inclusion and exclusion criteria
was devised, based on the information available with NADRA. The said criteria were used by
NADRA while processing the BISP’s application forms recommended by the parliamentarians.
3.7.2 Reforms of the targeting process: poverty survey –a paradigm shift

In pursuance of the international best practices, it was felt that a more objective method of
targeting the beneficiary families is needed. Therefore, with the help of World Bank the
Government has decided to reform the targeting process to minimize the inclusion and exclusion
errors and give equal chance to each one for applying to the program for benefits. The World
Bank approved instrument named “Poverty Scorecard” based on Proxy Means Testing which has
been adopted and a nationwide Poverty Survey was planned to identify the poor families. Hence
beneficiary identification through Parliamentarians was stopped on 30th of April 2009. In this
context, a test phase of the survey, financed by Government of Pakistan has already been
conducted in sixteen districts in four provinces and AJK/GB. The survey is carried out house to
house thus providing an equal opportunity to all to apply for the BISP’s benefits. The
questionnaire, which includes questions about the household members, household characteristics
and assets, is used to determine their poverty status. Data entry of the 15 surveyed districts has
been completed and a cut‐off score has been decided by the BISP Management Board at 16.17.
All those falling at or below the cut off point will be paid BISP benefits. Approximately 600,000
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beneficiary families have been identified during the Pilot Phase of the Survey in the fifteen
Districts. Such present beneficiaries in these districts who fall below the cut‐off score will
continue to be BISP beneficiaries, but others have been eliminated. A nationwide survey is
targeted to be launched by June 2010 with the financial support of the World Bank. Request for
proposals (RFPs) have been issued to shortlisted survey firms. However in view of the fact that
GOP is implementing a “Aghaz‐e‐Huqooq Balochistan”, it has been decided to complete the
survey in the Balochistan by 31st May 2010. Population Census Organization has been entrusted
the task. For the Poverty Survey, the whole country, except Balochsitan, has been divided into
five clusters namely; Upper Punjab & AJK, Southern Punjab, Sindh, Khyber Pukhtunkhwa &
Gilgit‐Baltistan & FATA. The clusters have been offered for competitive biding to conduct the
survey. Five firms, one for each cluster, are being hired following Quality and Cost Selection
(QCBS) method. During the targeting process, number of evaluation activities will be carried out
ensuring therein that participating Organizations have followed the process outlined in the
Targeting Manual of the BISP. To carry out the evaluation processes, quantitative and qualitative
assessments will be made through hiring of separate firms for both the exercises.
3.7.3 Emergency Relief Packages

BISP is also implementing an Emergency Relief Package for Internally Displaced Persons
(IDPs) of FATA, Swat and earthquake affectees of Balochistan. A total of Rs. 28 billion has
been paid to 3,965 families from FATA and Bajaur and Rs. 34 billion has been paid to 3,729
earthquake affected families in Balochistan.
3.7.4 The Rights Source (Waseela‐e‐Haq) Initiative

BISP also initiated "Waseela‐e‐Haq" programme for providing the poor an opportunity of self
employment. One beneficiary has been selected out of the each sub group through a
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computerized draw for award of a cash loan of Rs. 300,000/‐. This one time loan is conditional
and the beneficiary will have to spend it for some income generating purpose. Six draws have
been held so far. As a result, 4,526 beneficiaries have been pre‐selected during these draws and
those falling below the cut off score will be eligible for the loan. In this regard implementation in
case of 20 beneficiaries was started in April, 2010.
3.7.5 Vocational Training Product

In order to transform the poor segment of society from depending upon the government’s
monthly financial assistance to self‐reliance, one member from each qualifying household will be
equipped with technical and vocational skills making them the earning hands. The second phase
of the skill development program will be provision of microfinance for poor families to help
them run small businesses.
3.7.6 Health Insurance

Health insurance is also a major component of this program and will cover the entire family
including household head and spouse, children up to 18 years, dependent parents, and unmarried
daughters aged 18 and above. The policy benefit will cover full hospitalization, pregnancy,
daycare treatment and diagnostic tests. This insurance policy will also provide accident
compensation for earning members of the family. For this, consultations with different ministries
and provincial governments are in process.
3.7.7 Peoples’ Works Program (PWP) ‐I & II

People’s Works Program‐I & II cover small development schemes for provision of electricity,
gas, farm to market roads, telephone, education, health, water supply, sanitation and bulldozers
hour’s facilities to the rural poor. Budget allocated for FY 2009/10 stood at Rs 35.0 billion out of
which Rs 31. billion has been utilized during July‐March, FY 2009/10 compared to an
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expenditure of Rs.26.8 billion during the same period in FY 2008‐09, reflecting a YoY increase
of 15.7 percent. Up till March, 2010, 904 schemes were approved under PWP I, with the highest
number of schemes under Road i.e. 320 followed by 272 schemes related to Water Supply and
209 electrification schemes.
3.7.8 Pakistan Bait‐ul‐ Mal (PBM)

Pakistan Bait‐ul‐Mal (PBM) disburses to the destitute, needy, widows, orphans, invalids and
infirm irrespective of their gender, caste, creed or race. PBM provides assistance under different
program and schemes such as Food Support Program (FSP), Individual Financial Assistance
(IFA), Institutional Rehabilitation through Civil Society Wing (CSW), National Center for
Rehabilitation of Child Labor (NCRCL), Vocational Training Institutes/ Dastkari Schools
(VTIs). PBM disbursed an amount of Rs. 1.65 billion during July‐March FY 2009‐10 relative to
Rs. 2.7 billion incurred in the corresponding period of FY 2008‐09, marking a decrease of 38.9
percent. This reflects a decline in number of beneficiaries by 22.8 percent from 1,437,569 during
July‐March FY 2008‐09 to 1,110,264 over the same period in the current financial year. The
decline in disbursements and number of beneficiaries is caused by the merger of Food Support
Scheme, a major component of Pakistan Baitul‐ Mal into Benazir Income Support Program since
FY 2008‐09.
3.7.9 Employees’ Old Age Benefits Institution (EOBI)

Employees’ Old Age Benefits Institution (EOBI) provides monetary benefits to the old age
workers through different programs including Old Age Pension, Invalidity Pension, Survivors
Pension and Old Age Grants. During the first half of FY 2009‐10, EOBI disbursed an amount of
Rs. 3.2 billion compared to Rs. 2.7 billion over the same period in the previous financial year,
representing YoY increase of 16 percent. Number of beneficiaries up‐till third quarter of current
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financial year increased to 590,246 from 549,449 during the same period in the previous
financial year, showing an upward trend of 7.42 percent. During July‐March, FY 2009‐10, about
65 percent of the total amount was distributed through Old Age Pension, 33.16 percent through
Survivors’ Pension, 1.49 through Invalidity Pension and .29 through Old Age Grants.
3.7.10 Zakat
Zakat provides financial assistance such as Guzara Allowance, Educational Stipends, Health
Care, Social Welfare/rehabilitation, Eid grants, and Marriage assistance through Regular Zakat
Program and other Zakat Program and National Level Schemes. A total of Rs.768.7 million was
disbursed under different programs of Zakat during July‐March FY 2009‐10 as compared to Rs.
1,421 million during the same period, FY 2008/09 registering a decrease of 46 percent. Number
of beneficiaries recorded a decrease of 25 percent, from 538,050 during July‐March in the
previous financial year to 404,124 in the same period of current financial year. Of the total Zakat
disbursements, 52.7 percent was disbursed under Regular Zakat Programmes, 17.25 percent
under Other Zakat Programmes and 30 percent under National Level Schemes during July‐
March, FY 2009‐10.
3.7.11 Microfinance
Microfinance is recognized as an effective tool to pull the poor and vulnerable out of poverty and
vulnerability. It enables the poor to enhance their income earning capacity and empower them,
especially women. Microfinance comprises Microcredit, Micro‐savings and Micro‐Insurance. It
is provided as package through Microfinance Banks (MFBs), Microfinance Institutions (MFIs),
Rural Support Programmes (RSPs), and Others including Commercial Financial Institutions
(CFIs) and Nongovernment Organizations (NGOs). Credit disbursements under Microcredit,
amounting to Rs 21.7 billion were made during July‐December, FY 2009‐10 as compared to Rs
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18.7 billion during the same period, FY 2008‐09 showing an improvement of 16.04 percent.
Number of active borrowers increased by 5.38 percent during July‐December, FY2009‐10, from
1,732,879 number of beneficiaries up till second quarter of previous financial year to 1,826,045
number of beneficiaries during the corresponding period of the current financial year. Micro‐
Savings and Micro‐Insurance components of Microfinance depict growth in terms of number of
active savers and policy holders. Micro‐Savings recorded an increase of 58.8 percent during
July‐December FY 2009‐10 over the same period in the previous financial year. This translates
into an increase of 34.8 percent in the number of active savers. Micro Insurance registered a YoY
increase of 47.52 percent in the number of active policy holders while the value of sum insured
has moved up from Rs. 34,340 during July‐December FY 2008‐09 to Rs. 43,539 million during
July‐December of the current financial year.
3.11 Poverty‐inequality‐household consumption

Rising inequality can adversely affect the speed of poverty reduction with growth. Table 9.10
shows that the Gini coefficient increased between 1990 and the mid‐2000s in 9 of 15 countries
examined, the increase was higher in urban than in rural areas. Table 10 shows that in all but
three countries the rate of GDP growth exceeded the rate of growth of per capita household
consumption during the period considered. The three exceptions were the Philippines where both
grew at the same rate and urban Indonesia and Pakistan where average household consumption
grew faster than per capita GDP. On the other hand the rate of growth of household consumption
was zero or negative in three countries the Islamic Republic of Iran, Kazakhstan and the Russian
Federation
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3.9 Achievement of MD Goal 1. Eradicate extreme poverty & hunger

3.9.1 Target: Halve between 1990 and 2015, the proportion of people whose income is less
than $ 1 a day ‐‐‐‐ Pakistan case.
Pakistan is committed to the achievement of interalia, MD goal 1: As shown in table below; poverty
reduction based on national poverty line was on track up to 2005‐06 and estimated to be so hence after
up to 2007‐08. Prospects for further reduction were shadowed by the world economic crisis and as in
case of most world economies; the speed of poverty reduction would have been faster in the absence of
the world economic crisis.
Table 3.9.1.1
3.9.2MD Goal 1 (Poverty & Hunger) in South Asian Perspective

South Asia is the developing sub‐region with the largest number of poor people: 43 percent of the
developing world’s i.e. 1.4 billion poor people live in South Asian countries. The absolute number of
people living in extreme poverty increased from 548.3 million to 595.6 million between 1981 and 2005.
Rates of population growth in these countries have remained high and have led to an enlargement of
both the total population as well as the numbers living in extreme poverty. In recent years, economic
growth has been relatively high in the three largest countries in the region, India, Bangladesh and
(39)
Pakistan, which recorded annual rates of growth of G DP per capita above 5 percent in 2000‐06. As a
result, the sub‐region saw the proportion of those living in extreme poverty decline in relative terms,
from a high of 59 percent in 1981 to 40 percent in 2005. However, such growth has not been sufficiently
inclusive and pro‐poor to reduce the absolute number of persons living in poverty. Income inequalities
have grown steadily in India since the early 1980s, in both urban areas. The same pattern can be
observed in Bangladesh. South Asian countries have been unable to generate sufficient decent
work opportunities to lift working poor people out of poverty.
The headcount index declined in almost all countries with data on income poverty, with the
exception of Bangladesh, where the estimated proportion of people living below the $1.25 a day
poverty line increased from 44 percent in 1981 to 51 percent in 2005. In India alone, the poverty
headcount fell by 18 percentage points, from 60 percent in 1981 to 42 percent in 2005. Pakistan
also experienced a decline in the headcount index from 73 to 23 percent during the same period.
Yet, Table‐12 shows that, in terms of progress in meeting the Millennium Development Goal
target of halving extreme poverty by 2015, several countries in the region, including Bangladesh,
India, Nepal and Sri Lanka and Pakistan will need higher rates of poverty reduction to meet the
challenge.
3.9.3 Remittances, Implications for Poverty

Overseas migration and the resulting remittances have served dual objectives world wide; ie,
easing pressure on employment market and providing foreign exchange for balance of payments
as well as budgetary support. Remittances supplement the household income, uplift life standard
and thus reduce absolute poverty. It is in this context that countries like Philippine have
promoted overseas migration as an industry. Remittances help the household to increase their
(40)
consumption expenditure on food, develop expenditure on housing, skill development and
establishment of small businesses thus improving the scope for higher future income.
Remittances from expatriate Pakistanis are believed and empirically proved to have had a major
impact on the reduction in the incidence of poverty. The total remittances inflows between 1990‐
99 and 2009‐ 10 have amounted to $62.0 billion. Jump in remittances is more likely to have been
a result of Government intervention such as the Pakistan. Remittance initiative which
encouraged transmittal of remittances through formally recorded channels. Also the depreciation
of the Pakistan rupee attracted remittance inflows for investment purposes
Chapter 4
4.1 Methodology
Based on the above literature, we proposed the following model.
SL= β0 + β1 (INF) + β 2 (PI) + β 3 (PG) + β 4 (CR) + β 5 (INJ) + β7 (GB) +
β 7(LEP) +β 8 (GS) + β 9 (ILL)
Where,
SL= Standard of Living
INF= Inflation
PI= Political instability
PG= Population Growth
CR= Corruption
INJ= Injustice
GB= Globalization
LEP= Liberal Economic Policy
GS= Government Strategies

(41)
ILL= Illiteracy
(42)
Chapter 5
5.0 Analysis
5.1 Reliability
In order to evaluate the reliability of the scale, Cronbach’s alpha was used. In this study, α was
equal to 0.738 which is good and satisfying because it is more than the acceptable value of 0.70
Table 5.1.1
Reliability Statistics
Cronbach's
Alpha N of Items
.738 10
5.2 Regression Analysis

Table 5.2.1
Model Summary
Adjusted R Std. Error of the

Model R R Square Square Estimate
1 .786a .618 .561 .25156
a. Predictors: (Constant), ILL, GB, GS, CR, PI, PG, INF, INJ, LEP
Regression analysis is used to examine the impact of one variable on other variable. In this study,
regression analysis is used to examine the impact of Political Instability, population growth,
inflation, injustice, liberal economic policies, corruption, government strategies, globalization
(43)
and illiteracy on living standard of people. Whereas, R square (.618) shows that independent
variables are explaining 62% of the dependent variables.
Table 5.2.2
Coefficientsa
Standardized
Unstandardized Coefficients Coefficients
Model B Std. Error Beta t Sig.
1 (Constant) 1.971 .420 4.695 .000
INF -.346 .114 -.367 -3.039 .004
PI .009 .062 .014 .142 .888
PG .178 .096 .209 2.864 .067
CR .107 .095 .119 1.134 .261
INJ .444 .127 .495 3.498 .001
GB .431 .060 .652 7.137 .000
LEP .002 .154 .003 .010 .992
GS -.137 .109 -.287 -1.261 .212
ILL -.235 .094 -.358 -2.496 .015
a. Dependent Variable: LS
Regression table shows that Inflation (β= -3.67, t= -3.039), Population Growth (β= .209, t=
2.864), Injustice (β= .495, t= 3.498), Globalization (β= .652, t= 7.137) and illiteracy (β= -.358, t=
-2.496) is having a significant impact on the living standard of the people. Whereas, Political
instability (β= .014, t= .142), Corruption (β= .119, t= 1.134), Liberal economic Policies (β= .003,
t= .010) and Government strategies (β= -.287, t= -1.261) have been determined insignificant.
(44)
5.3 Correlation Analysis

Table 5.3.1
Correlations
LS INF PI PG CR INJ GB LEP GS ILL
LS Pearson Correlation 1
Sig. (2-tailed)
INF Pearson Correlation -.091 1
Sig. (2-tailed) .452
PI Pearson Correlation .054 -.111 1
Sig. (2-tailed) .655 .360
PG Pearson Correlation .118 .373** .103 1
Sig. (2-tailed) .332 .001 .397
CR Pearson Correlation .060 .366** -.100 .517** 1
Sig. (2-tailed) .619 .002 .408 .000
INJ Pearson Correlation .262* .290* .312** .270* .025 1
Sig. (2-tailed) .029 .015 .009 .024 .834
GB Pearson Correlation .600** .356** .014 .077 .101 .235 1
Sig. (2-tailed) .000 .002 .908 .526 .406 .050
LEP Pearson Correlation -.168 .681** .008 .523** .432** .406** .103 1
Sig. (2-tailed) .164 .000 .949 .000 .000 .000 .395
GS Pearson Correlation -.048 .546** -.015 .194 .098 .553** .203 .791** 1
Sig. (2-tailed) .691 .000 .903 .108 .419 .000 .091 .000
ILL Pearson Correlation -.049 .180 .497** .410** .228 .520** .021 .343** .060 1
Sig. (2-tailed) .684 .135 .000 .000 .058 .000 .863 .004 .623
*. Correlation is significant at the 0.05 level (2-tailed).
**. Correlation is significant at the 0.01 level (2-tailed).
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5.4 Interpretation
Result of correlation given above, shows negative correlation between Living standard and
inflation, Liberalized economic policies, Government strategies and illiteracy. While, injustice
and Globalization are significantly correlated with Living standard. Whereas, Political
instability, Population Growth and Corruption are found correlated with living standard.
Table 5.4.1
Descriptive Statistics
N Minimum Maximum Mean Std. Deviation
LS 70 3.00 5.00 3.6762 .37951
INF 70 2.60 4.40 3.3971 .40360
PI 70 1.50 4.00 2.7214 .59973
PG 70 2.50 4.50 3.5714 .44466
CR 70 3.00 4.67 3.6714 .41893
INJ 70 2.33 4.00 3.0667 .42316
GB 70 2.00 4.50 3.4786 .57380
LEP 70 2.00 4.50 3.4714 .60124
GS 70 1.00 5.00 3.2571 .79282
ILL 70 1.33 3.67 2.5429 .57922
Valid N (listwise) 70
The above table has shown the mean and standard deviation of each variable taken for research.
The data was collected through questionnaires. The collected data is indicating that all responses
are tilt towards Agree and strongly agree options with low standard deviation values.
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5.4.1 Questionnaire Analysis

Table 5.4.1.1
My living standard is increased during the last year
Cumulative
Frequency Percent Valid Percent Percent
Valid Strongly Disagree 1 1.4 1.4 1.4
Disagree 2 2.9 2.9 4.3
Neutral 35 50.0 50.0 54.3
Agree 28 40.0 40.0 94.3
Strongly Agree 4 5.7 5.7 100.0
Total 70 100.0 100.0
Figure 5.4.1.1
6 percent of respondents strongly agree that their living standard is increased as compared to
previous year. 40 percent of respondents agree that their living standard has become better than
previous year. 50 percent of respondents are indifferent while 3 percent of respondents disagree
and 1 percent of respondents strongly disagree.
(47)
Table 5.4.1.2
I am satisfied with my current income
Cumulative
Valid Neutral 21 30.0 30.0 30.0
Agree 30 42.9 42.9 72.9
Strongly Agree 19 27.1 27.1 100.0
Total 70 100.0 100.0
Figure 5.4.1.2
27 percent of respondents strongly agree that they are satisfied with their current income, 43
percent of respondents agree that they are satisfied with their current income while 30 percent of
respondents are indifferent about their current income.
(48)
Table 5.4.1.3
I can meet my all expenses with my income
Cumulative
Valid Disagree 8 11.4 11.4 11.4
Neutral 18 25.7 25.7 37.1
Agree 35 50.0 50.0 87.1
Total 70 100.0 100.0
Figure 5.4.1.3
13 percent of respondents strongly agree that they can meet their expenses with their income. 50
percent of respondents agree, while 11 percent disagree. However, 26 percent of respondents are
indifferent that they can meet their expenses.
(49)
Table 5.4.1.4
I would like to switch my profession (Job to Business)
Cumulative
Disagree 1 1.4 1.4 4.3
Neutral 21 30.0 30.0 34.3
Agree 40 57.1 57.1 91.4
Total 70 100.0 100.0
Figure 5.4.1.4
9 percent of respondents strongly agree that they will switch their profession (job to business). 57
percent of respondents agree, 30 percent of respondents are neutral while 1 percent of disagree
and 3 percent of respondents strongly disagree that they will switch their profession.
(50)
Table 5.4.1.5
My Income is sufficient for my family
Cumulative
Neutral 20 28.6 28.6 32.9
Agree 40 57.1 57.1 90.0
Total 70 100.0 100.0
Figure 5.4.1.5
10 percent of respondents strongly agree that their income is sufficient for their family, 57
percent of respondents agree, while 4 percent disagree while 28 percent are indifferent.
(51)
Table 5.4.1.6
I usually go outside for dinner with my family
Cumulative
Neutral 14 20.0 20.0 34.3
Agree 41 58.6 58.6 92.9
Total 70 100.0 100.0
Figure 5.4.1.6
7 percent of respondents strongly agree that they go outside for dinner with their family. 59
percent of respondents agree while 14 percent of respondents disagree and 20 percent of
respondents are indifferent.
(52)
Table 5.4.1.7
Food prices decreased from previous year prices
Cumulative
Neutral 28 40.0 40.0 42.9
Agree 30 42.9 42.9 85.7
Strongly Agree 10 14.3 14.3 100.0
Total 70 100.0 100.0

Figure 5.4.1.7
14 percent of respondents strongly agree that food prices have become higher than previous year
prices. 43 percent of respondents agree, 3 percent disagree while 40 percent of respondents are
neutral.
(53)
Table 5.4.1.8
I spend less amount on food as compared to previous years
Cumulative
Disagree 16 22.9 22.9 24.3
Neutral 34 48.6 48.6 72.9
Agree 18 25.7 25.7 98.6
Total 70 100.0 100.0
Figure 5.4.1.8
26 percent of respondents agree that they spend fewer amounts on food than last year, 1 percent
strongly agree, 22 percent of respondents disagree while 1 percent of respondents strongly
disagree.
(54)
Table 5.4.1.9
Higher prices have affected by shopping habit
Cumulative
Neutral 30 42.9 42.9 44.3
Agree 28 40.0 40.0 84.3
Strongly Agree 11 15.7 15.7 100.0
Total 70 100.0 100.0
Figure 5.4.1.9
16 percent of respondents strongly agree that their shopping habit is changed because of higher
prices, 40 percent of respondents agree, 43 percent are indifferent while 1 percent disagree about
their shopping habit.
(55)
Table 5.4.1.10
I have cut down my shopping expense
Cumulative
Disagree 8 11.4 11.4 12.9
Neutral 34 48.6 48.6 61.4
Agree 22 31.4 31.4 92.9
Total 70 100.0 100.0
Figure 5.4.1.10
7 percent of respondents strongly agree that they have cut down their shopping expenses, 31
percent of respondents agree, 49 percent are neutral, 11 percent disagree while 1 percent strongly
disagree.
(56)
Table 5.4.1.11
Now I usually avoid going shopping
Cumulative
Disagree 8 11.4 11.4 12.9
Neutral 37 52.9 52.9 65.7
Agree 20 28.6 28.6 94.3
Total 70 100.0 100.0
Figure 5.4.1.11
6 percent of respondents strongly agree that they now avoid shopping now, 29 percent of
respondents agree while 53 percent or respondents are neutral, 11 percent disagree while 1
percent strongly disagree.
(57)
Table 5.4.1.12
The current political scenario of country is good for economy
Cumulative
Disagree 30 42.9 42.9 72.9
Neutral 19 27.1 27.1 100.0
Total 70 100.0 100.0
Figure 5.4.1.11
30 percent of respondents strongly disagree, while 43 percent disagree and 27 percent are neutral
that current political scenario of Pakistan is good for economy
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Table 5.4.1.13
Political decisions have an impact on economic growth
Cumulative
Neutral 24 34.3 34.3 52.9
Agree 20 28.6 28.6 81.4
Strongly Agree 13 18.6 18.6 100.0
Total 70 100.0 100.0
Figure 5.4.1.13
18 percent of respondents disagree, 34 percent of respondent’s neutral, while 28 percent of
respondents agree and 18 percent of respondents strongly agree that political decisions have an
impact on economic growth.
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Table 5.4.1.14
Increase in population is causing inequality of income distribution
Figure Cumulative
Disagree 2 2.9 2.9 4.3
Neutral 35 50.0 50.0 54.3
Agree 28 40.0 40.0 94.3
Total 70 100.0 100.0

5.4.1.14
1 percent of respondents strongly disagree, 3 percent of respondents disagree, 50
percent of respondent’s are neutral, while 28 percent of respondents agree and 6 percent of
respondents strongly agree increase in population is causing income distribution
(60)
Table 5.4.1.15
Corruption is now part of our daily routine life
Cumulative
Neutral 20 28.6 28.6 32.9
Agree 40 57.1 57.1 90.0
Total 70 100.0 100.0
Figure 5.4.1.15
4 percent of respondents disagree, 28 percent of respondent’s are
neutral, while 57 percent of respondents agree and 10 percent of respondents strongly corruption
is now part of our daily routine life
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Table 5.4.1.16
Corruption is one of the important factor which affects economic growth
Cumulative
Neutral 28 40.0 40.0 42.9
Agree 30 42.9 42.9 85.7
Strongly Agree 10 14.3 14.3 100.0
Total 70 100.0 100.0
Figure 5.4.1.16
3 percent of respondents disagree, 40 percent of respondent’s are neutral, while 43 percent of
respondents agree and 14 percent of respondents strongly corruption is one of the important
factors affects economic growth
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Table 5.4.1.17
Corruption influences our living standard
Cumulative
Neutral 13 18.6 18.6 32.9
Agree 42 60.0 60.0 92.9
Total 70 100.0 100.0
Figure 5.4.1.17
14 percent of respondents disagree, 18 percent of respondent’s are neutral, while 60 percent of
respondents agree and 7 percent of respondents strongly corruption influences our living
standard.
(63)
Table 5.4.1.18
Security is the major concern on everyone now
Cumulative
Disagree 8 11.4 11.4 12.9
Neutral 37 52.9 52.9 65.7
Agree 20 28.6 28.6 94.3
Total 70 100.0 100.0
Figure 5.4.1.18
1 percent of respondents strongly disagree, 11 percent of respondent’s disagree, 53 percent are
neutral, while 27 percent of respondents agree and 6 percent of respondents strongly agree that
security is major concern of everyone now.
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Table 5.4.1.19
I have trust on the judiciary system of my country
Cumulative
Disagree 30 42.9 42.9 72.9
Neutral 19 27.1 27.1 100.0
Total 70 100.0 100.0
Figure 5.4.1.19
30 percent of respondents strongly disagree, 42 percent of
respondent’s disagree, 27 percent are neutral that they have trust of the judiciary system on
country
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Table 5.4.1.20
Injustice is causing inequality of income distribution
Cumulative
Valid Neutral 21 30.0 30.0 30.0
Agree 30 42.9 42.9 72.9
Strongly Agree 19 27.1 27.1 100.0
Total 70 100.0 100.0
Figure 5.4.1.20
30 percent are neutral, while 43 percent of respondents agree and 27percent of
respondents strongly agree that injustice is causing inequality of income distribution.
(66)
Table 5.4.1.21
Global economy is affecting Pakistan’s economy
Cumulative
Disagree 8 11.4 11.4 12.9
Neutral 34 48.6 48.6 61.4
Agree 22 31.4 31.4 92.9
Total 70 100.0 100.0
Figure 5.4.1.21
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Table 5.4.1.22
liberal economic policy is causing unequal income distribution
Cumulative
Neutral 28 40.0 40.0 42.9
Agree 30 42.9 42.9 85.7
Strongly Agree 10 14.3 14.3 100.0
Total 70 100.0 100.0
Figure 5.4.1.22
3 percent of respondents disagree, 40 percent of respondent’s
are neutral, while 43 percent of respondents agree and 14 percent of respondents strongly agree
that liberal economic policy is causing unequal income distribution.
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Table 5.4.1.23
Government is making strategies to over come the unequal distribution of income
Cumulative
Disagree 8 11.4 11.4 12.9
Neutral 37 52.9 52.9 65.7
Agree 20 28.6 28.6 94.3
Total 70 100.0 100.0
Figure 5.4.1.23
Government is making strategies to over come the unequal distribution of income.
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Table 5.4.1.24
illiteracy in country is increasing day by day
Cumulative
Neutral 28 40.0 40.0 42.9
Agree 30 42.9 42.9 85.7
Strongly Agree 10 14.3 14.3 100.0
Total 70 100.0 100.0
Figure 5.4.1.24
3 percent of respondents disagree, 40 percent are neutral, while 43 percent of respondents agree
and 14 percent of respondents strongly agree that illiteracy in country is increasing day by day.
(70)
Table 5.4.1.25
I can get good moony after good education
Cumulative
Disagree 30 42.9 42.9 72.9
Neutral 19 27.1 27.1 100.0
Total 70 100.0 100.0
Figure 5.4.1.25
30 percent of respondents strongly disagree, 43 percent of
respondent’s disagree, 27 percent are neutral, that they can get good money after good
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Table 5.4.1.26
Educated people can contribute more towards economic growth of country
Cumulative
Disagree 30 42.9 42.9 72.9
Neutral 19 27.1 27.1 100.0
Total 70 100.0 100.0
Figure 5.4.1.26
neutral, that they can get good money after good education.
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Chapter 6
Conclusions and Recommendations
6.1 Conclusion
In this research I have conducted primary and secondary research, as far as primary research is
concerned the factors that were taken namely are living standard of people, Inflation, Political
Instability, Population growth, Corruption, Injustice, Globalization, Liberal economic policies,
Government strategies and Illiteracy. The variables that have been included in questionnaire, all
are supported by literature. Ordinary least square and Correlation techniques have been applied
in this research. Regression table shows that Inflation (β= -3.67, t= -3.039), Population Growth
(β= .209, t= 2.864), Injustice (β= .495, t= 3.498), Globalization (β= .652, t= 7.137) and illiteracy
(β= -.358, t= -2.496) is having a significant impact on the living standard of the people. Whereas,
Political instability (β= .014, t= .142), Corruption (β= .119, t= 1.134), Liberal economic Policies
(β= .003, t= .010) and Government strategies (β= -.287, t= -1.261) have been determined
insignificant. As out of nine variables five variables are significant and four are insignificant. So,
model is a good fit model. The alpha value of questionnaire is 0.73 that is above than the
accepted value 0.70 which is used as benchmark to determine fitness of questionnaire.
Correlation analysis shows that Inflation, Liberalized economic policies, Government strategies
and Illiteracy are correlated with living standard. Moreover injustice and Globalization are found
significant correlated. Whereas political instability, population growth, corruption are found
insignificant.
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6.2 Recommendations
 Government should form such policies that can insure equality in the society.
 To control hyper inflation in the country authorities should take proactive measures.
 Economic policies must be revised as per need of the hour.
 Strategies of government should be consistent and long term.
 Education policy needs revision and there is extreme need of expansion in education
budget especially for rural areas.
 Judiciary system should be free from any influence to get speedy justice for common
man.
 Economy of the country needs more global expansion to increase the GDP (Gross
Domestic Products) as well as GNI (Gross National Income).
 Democracy with real political norms should be ensured for smooth running of all pillars
of country.
 Corruption should not be no longer in existence to ensure true and fair picture of
economy.
 There is great need of hour to improve management of pubic sectors.
 Entrepreneur must be encouraged to bring innovation in all the sectors of economy for
betterment of economy.
 Down sizing for right sizing must be done to reduce the operating expense and increase
after tax profit in all sectors of the economy.
 Unnecessary regulation regarding foreign direct investment should be eliminated.
 Incentives must give to exports sectors because it helps in bringing more foreign exchange in
the country.
(74)
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Annexure I
QUESTIONNAIRE
Name: ________________________
1. Age (Please tick your age group)
20-25 26-30 31-35 36-40 41-45 46 65
Gender
Male Female
Martial Status
Single Married Divorced
Education
Graduation Post Graduate Masters Other
Your Monthly Income (in Rs)
10,000 -20,000 20,000-30,000 30,000 – 50,000 More than 50,000
Your Family Income
10,000-20,000 20,000-30,000 30,000-50,000 More than 50,000
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SDA DA N A SA
My living standard is increased during the last year

I am satisfied with my current income
I can meet my all expenses with my income
I would like to switch my profession (Job to Business)
My Income is sufficient for my family
I usually go outside for dinner with my family
Food prices decreased from previous year prices
I spend less amount on food as compared to previous years
Higher prices have affected by shopping habit
I have cut down my shopping expense
Now I usually avoid going shopping
The current political scenario of country is good for economy
Political decisions have an impact on economic growth
Population of Pakistan is increasing abnormally
Increase in population is causing inequality of income distribution
Corruption is now part of our daily routine life
Corruption is one of the important factor which affects economic
growth
Corruption influences our living standard
Security is the major concern on everyone now
I have trust on the judiciary system of my country
Injustice is causing inequality of income distribution
Do you agree globalization causes unequal distribution
liberal economic policy is causing unequal income distribution
Government is making strategies to over come the unequal
distribution of income
Government strategies are effective in overcoming the problems of
unequal income distribution
illiteracy in country is increasing day by day
I can get good money after good education
Educated people can contribute more towards economic growth of
country
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A STUDY OF INCOME DISTRIBUTION AND PER CAPITA INCOME OF PAKISTAn

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A STUDY OF INCOME DISTRIBUTION AND PER CAPITA INCOME OF PAKISTAN

2.1 Literature Review................................................................................................................................10

Chapter 3 3.1 Theoretical Framework.......................................................................................................25

3.2 Inflation Behavior and Prospects.................................................................................................25

3.3 Impact of rise in food prices on poverty......................................................................................27

3.4 Employment – Poverty Scenario..................................................................................................28

3.5 Global Prospects..........................................................................................................................28

3.6 PRSP‐II – Profile of Pro‐poor Expenditure....................................................................................29

3.7 Other Initiatives to Alleviate Poverty.................................................................................................32

3.7.1 Benazir Income Support Program (BISP)...................................................................................32

3.7.2 Reforms of the targeting process: poverty survey –a paradigm shift........................................33

3.7.3 Emergency Relief Packages.......................................................................................................34

3.7.4 The Rights Source (Waseela‐e‐Haq) Initiative...........................................................................34

3.7.5 Vocational Training Product......................................................................................................34

3.7.6 Health Insurance.......................................................................................................................35

3.7.7 Peoples’ Works Program (PWP) ‐I & II......................................................................................35

3.7.8 Pakistan Bait‐ul‐ Mal (PBM)......................................................................................................35

3.7.9 Employees’ Old Age Benefits Institution (EOBI)........................................................................36

3.11 Poverty‐inequality‐household consumption..............................................................................38

3.9 Achievement of MD Goal 1. Eradicate extreme poverty & hunger......................................................38

3.9.2MD Goal 1 (Poverty & Hunger) in South Asian Perspective.......................................................39

3.9.3 Remittances, Implications for Poverty......................................................................................40

5.2 Regression Analysis......................................................................................................................43

5.3 Correlation Analysis.............................................................................................................................45

5.4.1 Questionnaire Analysis..............................................................................................................47

5.4.1 Questionnaire Analysis..............................................................................................................47

Conclusions and Recommendations..........................................................................................................73

retribution." Holy Qur'an (59:7)

countries where an income differential is increasing. According to United Nations Development

always, during a defined period.

'transitory vulnerable' and 'transitory non-poor', respectively.

improve the situation.

provide estimates of inequality in Pakistan. According to A R Kemal, studies on income

unevenness of any set of numbers as a number between 0 and 1.

Income inequalities in Pakistan, as elsewhere, largely reflect inequalities in the distribution of

lead to a civil war if preventive measures are not adopted immediately.

stakeholders, over a period of more than a year.

human development is as much an issue of increasing expenditure on social sectors as of

resulted in waning business confidence, deteriorating economic growth, declining public

the health of the poor as on the un sustainability of their livelihoods.

microfinance to poor households.

bringing about significant improvements in the structure and functioning of systems of

as devolution, public expenditure management, anti-corruption initiatives, and the independence

process in the second.

2.1 Literature Review

used GDP per capita, not survey data.

1033 ]. His analysis is based on a betweencountry component which reflects differences in

most cited work of Kuznets(1955) migration-based model where he first presented an

incorporated into testing

is used the inverted-U pattern disappear.

cross-section data on income distribution, both in terms of availability of observations and in

comparative properties is therefore fundamental for an evaluation of the existing empirical

estimating the structural models behind the reduced form.

the world’s inhabitants in 1992 as 24.

both between and within countries

econometric analysis of income distribution that incorporated institutional determinants, found

and financial deepening improve income inequality.

inadequate measures of growth and resulting heteroscedasticity [ CITATION Jac80 \l 1033 ].

core, as predicted in world-system/dependency theory. [ CITATION Wee80 \l 1033 ], however, has

income distribution. According to Weede, a second-order polynomial is necessary, and

economic inequality net of economic development.

less developed countries.

impacts of rural–agricultural development interventions, including irrigation. Most of these