Dynamics of Growth, Poverty, and Inequality in Pakistan [with Comments]

Understanding of the relationship between growth, inequality and poverty is important for chalking out a way to reduce poverty. Growth per se may not be enough to reduce poverty because impact of growth on poverty may be constrained by many institutional factors and moderating variables for several reasons. These factors may change slowly over time. Therefore analysis of long-run relationship between growth, poverty and inequality is essential. This paper analyses the long-run relationship between growth, poverty and inequality in context of Pakistan. Consistent time series on poverty measures are constructed separately for rural and urban areas using all the 14 Household Income and Expenditure Surveys conducted in Pakistan from 1963-64 to 1994-95. Income poverty lines defined in Malik (1988) are used as benchmark with adjustment for inflation. Pooling the rural and urban data on poverty and using within-sample average household income as proxy for growth in order to overcome the problem of stochastic regressors, we are able to obtain consistent estimators for long-run elasticities of poverty with respect to growth and inequality. It is found that growth, ceteris peribus, has helped poverty reduction. Growth has worsened income inequality at national level but more so in the rural areas. Increase in inequality, keeping growth unchanged, has contributed to rise in poverty more in the urban areas than in the rural areas. On the whole, the dominant effect of growth has been of poverty reduction.