Abstract:
This study estimates a set of fixed effects/random effects models to
ascertain the long-run relationships between poverty, income inequality, and
growth using pooled data from eight household income and expenditure surveys
conducted between 1992/93 and 2007/08 in Pakistan. The results show that
growth and inequality play significant roles in affecting poverty, and that the effect
of the former is substantially larger than that of the latter. Furthermore, growth
has a significant positive impact on inequality. The results also show that the
absolute magnitude of net growth elasticity of poverty is smaller than that of gross
growth elasticity of poverty, suggesting that some of the growth effect on poverty is
offset by the rise in inequality. The analysis at a regional level shows that both the
gross and net growth elasticity of poverty are higher in rural areas than in urban
areas, whereas the inequality elasticity of poverty is higher in urban areas than in
rural areas. At a policy level, we recommend that, in order to reduce poverty, the
government should implement policies focusing on growth as well as adopting
strategies geared toward improving income distribution.
