income inequality, poverty and growth
Content
“ECONOMIC DEVELOPMENT” FINAL PROJECT
Poverty, Growth and Inequality
Submitted to: Madam Sahanaz
Submitted by: Sehrish Naqvi 070753 Nandana Zubair 070737 Ainn-ul-fatima Sana firdous 070750
Date: 26,April, 2010
Introduction:
A recurring issue in discussions on development is whether the main focus of development strategies should be placed on growth, or poverty, and/or on inequality. This paper argues that this way of formulating the question of development goals poses a false dilemma. Rather, the answer can be simply expressed in two statements: First, the rapid elimination of absolute poverty, under all forms, is a meaningful goal for development. Second, to achieve the goal of rapidly reducing absolute poverty requires strong, countryspecific combinations of growth and distribution policies. These two statements raise conceptual, measurement, theoretical and empirical issues, including clarifying the distinction between absolute and relative poverty. Absolute poverty is defined in reference to a poverty line that has a fixed purchasing power determined so as to cover needs that are physically and socially essential. Setting absolute poverty reduction as the prime development goal is thus simply saying that a fundamental objective of development is to ensure that everybody satisfies his/her basic needs. The poverty line may be multi-dimensional, incorporating both an income poverty line for needs that can be met monetarily, and non-monetary lines for other needs. Absolute poverty lines need not be the same across countries, even after correcting for purchasing power parity for income poverty, as basic needs are bound to differ across societies. Nor do they need to remain fixed over time, as basic needs are likely to evolve. This absolute definition of poverty, in use in many countries, must be contrasted with a relative definition of poverty, where the poverty line is established not in terms of some well defined basic needs, but as a fixed proportion of some income standard in the population, for example the mean or median income. The European Union considers as poor those whose economic resources are below 50 per cent of the mean income in member countries. Of course, one might consider such a relative definition of income poverty as the limit of the absolute definition of poverty when the updating of the poverty line is continuous and explicitly based on mean income changes, rather than being made at rather long time intervals and on a more discretionary basis. But, what matters for the purpose of this paper is that such a relative definition of poverty – sometimes referred to as 'relative deprivation' - becomes in some sense independent of growth. The absolute level of income and therefore a large part of the development process does not matter anymore with such a definition. Only relative incomes, or pure distributional features matter. Fixing the poverty line relative to average income can show rising poverty even when the standard of living of the poor have in fact risen. There is an increasing consensus among economists that relative deprivation matters, but there does not appear to be a consensus that individual welfare depends only on one’s relative position, and not at all on absolute standard of living as determined by incomes. Once it is accepted that the reduction of absolute income poverty is a meaningful development goal, and then a direct link may be established between development, growth and distribution. An arithmetic identity links the growth of the mean income in a given population, with the change in distribution – or in 'relative' incomes - and the reduction of absolute poverty. In other words, poverty reduction in a given country and at a given point of time is fully determined by the rate of growth of the mean income of the population and the change in the distribution of income.
“Poverty-Growth-Inequality (PGI) Triangle”, a development strategy is thus fully determined by the rate of growth and distributional changes in the population. Formally, the relationships implicit behind the PGI triangle are less simple. For instance, the elasticity of poverty with respect to growth for a constant distribution turns out not to be constant across countries with different development levels and distribution and across the various ways of measuring poverty. This also applies to the elasticity of poverty with respect to inequality indicators. The real challenge to establishing a development strategy for reducing poverty lies in the interactions between distribution and growth, and not in the relationship between poverty and growth on one hand and poverty and inequality on the other, which are essentially arithmetic. There is little controversy among economists that growth is essential for (income) poverty reduction under the assumption that the distribution of income remains more or less constant. In fact, much evidence points in this direction. Likewise, much evidence suggests that a worsening of the distribution tends to increase poverty. Yet, the real issue in establishing a development strategy is whether growth and distribution are independent of each other or, strongly inter-related. Is it the case for instance that faster growth tends to reduce inequality or on the contrary, to increase it? Could too much inequality in a given country act to slow or, to accelerate growth? On the distributional consequences of growth, several recently published microeconomicbased case studies indicate clearly that the relationship is at once strong and complex. This is in contrast to the large number of cross-country regressions which find no significant relationship between growth and inequality and on the basis of which it would be tempting to conclude that ‘growth is good for the poor’, whatever its nature. Crosscountry studies are also mostly inconclusive regarding the effects of inequality on growth, and it is difficult to conceive of direct micro-economic evidence that would identify that relationship with precision.
Economic Growth and Income Inequality:
Economic Growth will reduce Income inequality if: 1. Wages of the lowest paid rise faster than the average wage 2. Government benefits, such as; unemployment benefits, sickness benefits and pensions are increased in line with average wages. 3. Economic Growth creates job opportunities, which reduce the level of unemployment. Unemployment and lack of employment is one of the biggest causes of relative poverty. 4. Minimum Wages increased in line with average earnings
Economic Growth May not Reduce Income Inequality and Poverty if: 1. Economic Growth often creates the best opportunities for those who are highly skilled and educated. In recent years, in the UK, we have seen faster wage growth for highly paid jobs than unskilled jobs. 2. Modern economies are creating an increased number of part time / flexible service sector jobs. In these sectors wages have been lagging behind average earnings. 3. In the UK, government benefits have been indexed linked. This means increased in line with inflation. This means that benefit incomes have fallen behind average earnings. Economic Growth will not necessarily solve unemployment. For example, growth cannot solve structural and frictional unemployment; this is unemployment caused by lack of skills and geographical immobilities.
Poverty in Pakistan:
Poverty in Pakistan is a growing concern Although the middle-class has grown in Pakistan to 35 million, nearly one-quarter of the population is classified poor as of October 2006. The declining trend in poverty as seen in the country during the 1970s and 1980s was reversed in the 1990s by poor federal policies and rampant corruption. This phenomenon has been referred to as the poverty bomb. The government of Pakistan with help from the International Monetary Fund (IMF) has prepared an Interim Poverty Reduction Strategy Pape that suggests guidelines to reduce poverty in the country. As of 2007, Pakistan's Human Development Index (HDI) is 0.572, higher than that of nearby Bangladesh's 0.543, which was formerly a part of the country itself. Pakistan's HDI still stands lower than that of neighbouring India's at 0.612. Incidences of poverty in Pakistan rose from 22–26% in the fiscal year 1991 to 32–35% in the fiscal year 1999. They have subsequently fallen to 25–26% according to the reports of the World Bank and the UN Development Program reports. These reports contradict the claims made by the Government of Pakistan that the poverty rates are only 23.1%. Furthermore, the poverty rate declined to 17.2% in 2007-08 according to the World Bank. According to the Human Development Index (HDI), 60.3% of Pakistan's population lives on under $2 a day, compared to 75.6% in nearby India and 81.3% in nearby Bangladesh, and some 22.6% live under $1 a day, compared to 41.6% in India and 49.6% in Bangladesh Wealth distribution in Pakistan is highly uneven, with 10% of the population earning 27.6% of incomeAccording to the United Nations Human Development Report, Pakistan's human development indicators, especially those for women, fall significantly below those of countries with comparable levels of per-capita income. Pakistan also has a higher infant mortality rate (88 per 1000) than the South Asian average (83 per 1000).
Spatial distribution of poverty:
At the time of partition and independence in 1947, Pakistan inherited the most backward parts of South Asia with only one university, one Textile Mill and one Jute Factory. The country has made tremendous progress and its per Capita GNP remains the highest in South Asia. During the last decade poverty elimination programs helped many of the poor to participate and rise up. However the Global financial crisis and other factors like the occupation of Afghanistan have impacted Pakistani growth. Poverty in Pakistan has historically been higher in rural areas and lower in the cities. Out of the total 40 million living below the poverty line, 30 million live in rural areas. Poverty rose sharply in the rural areas in the 1990s and the gap in income between urban and rural areas of the country became more significant. This trend has been attributed to a disproportionate impact of economic events in the rural and urban areas. There are also significant inhomogeneities in the different regions of Pakistan that contribute to the country's rising poverty. In the 1999 Fiscal year, the urban regions of the Sindh province had the lowest levels of poverty, and the rural areas of the North West Frontier Province had the highest. Punjab also has significant gradients in poverty among the different regions of the province.
The North West Frontier Province of Pakistan was one of the most backward regions of the South Asian Subcontinent. Despite this, tremendous progress has been made in many areas. The NWFP now boasts several universities including the Ghulam Ishaq Khan University of Science and Technology.Peshawar a sleep cantonment during British towns is a modern cosmopolitan city. Much more can be done to invest in the social and economic structures. NWFP remains steeped in tribal culture, though the biggest Pathan city is Karachi where the Pakhtuns are one of the richest class of people. The Pakhtuns of the region are heavily involved in the transportation, lumber, furniture and small arts and crafts business. Some deal in cross border arms and drugs smuggling. This smuggling actively encouraged by the West and by Pakistan during the Soviet invasion of neighboring Afghanistan is intact and according to Western reports supported the Taliban regime.] These and other activities have led to a breakdown of law and order in many parts of the region.
Poverty and gender:
The gender discriminatory practices in Pakistani society also shape the distribution of poverty in the country. Traditional gender roles in Pakistan define the woman's place as in the home and not in the workplace, and define the man as the breadwinner. Consequently, the society invests far less in women than men. Women in Pakistan suffer from poverty of opportunities throughout their lives. Female literacy in Pakistan is 43.6% compared to Male literacy at 68.2%, as of 2008. In legislative bodies, women constituted less than 3% of the legislature elected on general seats before 2002. The 1973 Constitution allowed reserved seats for women in both houses of parliament for a period of 20 years, thus ensuring that women would be represented in parliament regardless of whether or not they are elected on general seats. This provision lapsed in 1993, so parliaments elected subsequently did not have reserved seats for women. Reserved seats for women have been restored after the election of 2002 . Female labour rates in Pakistan are exceptionally low.
Economic and social vulnerability:
Un-Employment Rates 1998 Census Administrative 1981 Both Unit Male Female Census Sexes Pakistan Rural Urban NWFP Rural Urban Punjab Rural Urban Sindh Rural Urban Balochistan Rural Urban Islamabad Rural Urban 19.68 20.19 5.05 19.98 20.40 5.50 19.13 19.77 4.49 26.83 27.51 2.58 28.16 28.64 4.00 21.00 22.34 0.74 19.10 19.60 5.50 18.60 19.00 6.00 20.10 20.7 4.70 14.43 14.86 4.69 11.95 12.26 3.70 16.75 17.31 5.40 33.48 34.14 8.67 35.26 35.92 9.81 27.67 28.33 5.35 15.70 16.80 1.70 28.70 29.40 8.20 10.10 11.00 0.80 3.1 2.3 5.2 2.2 2.0 3.7 3.2 2.5 5.0 3.3 1.6 5.8 3.1 3.0 4.0 10.7 13.5 9.0
Unemployment Rate: It is the percentage of persons unemployed (those looking for work and temporarily laid off) to the total economically active population (10 years and above).
Vulnerability" in this case stands for the underlying susceptibility of economically deprived people to fall into poverty as a result of exogenous random shocks. Vulnerable households are generally found to have low expenditure levels. Households are considered vulnerable if they do not have the means to smooth out their expenses in
response to changes in income. In general, vulnerability is likely to be high in households clustered around the poverty line. Since coping strategies for vulnerable households depend primarily on their sources of income, exogenous shocks can increase reliance on non-agricultural wages. Such diversification has not occurred in many parts of Pakistan, leading to an increased dependence on credit. While economic vulnerability is a key factor in the rise of poverty in Pakistan, vulnerability also arises from social powerlessness, political disenfranchisement, and illfunctioning and distortionary institutions, and these also are important causes of the persistence of vulnerability among the poor. Other causes of vulnerability in Pakistan are the everyday harassment by corrupt government officials, as well as their underperformance, exclusion and denial of basic rights to many in Pakistan. Also, lack of adequate health care by the state lead the poor to seek private sources, which are expensive, but still preferable to the possibility of medical malpractice and being given expired medicines in state run medical facilities. Also, the failure by the state to provide adequate law and order in many parts of the country is a factor in the rise of vulnerability of the poor.
Environmental issues:
Environmental problems in Pakistan, such as erosion, use of agro-chemicals, deforestation etc. contribute to rising poverty in Pakistan. Increasing pollution contributes to increasing risk of toxicity, and poor industrial standards in the country contribute to rising pollution
Lack of adequate governance:
By the end of the 1990s, the manner in which power is exercised in the management of a country's social and economic resources for development emerged as Pakistan's foremost developmental problem. Corruption and political instabilities such as various separatist movements in Balochistan and Waziristan resulted in reduction of business confidence, deterioration of economic growth, reduced public expenditure, poor delivery of public services, and undermining of the rule of law . The perceived security threat on the border with India has dominated Pakistan's culture and has led to the domination of military in politics, excessive spending on defense at the expense of social sectors, and the erosion of law and order. Pakistan has been run by military dictatorships for large periods of time, alternating with limited democracy. These rapid changes in governments led to rapid policy changes and reversals and the reduction of transparency and accountability in government. The onset of military regimes have contributed to non-transparency in resource allocation. In particular, the neglect by the Pakistani state of the Balochistan and North Western Frontier Provinces has rendered the region poverty-stricken. Those who do not constitute the political elite are unable to make political leaders and the Government responsive to their needs or accountable to promises. Development priorities are determined not by
potential beneficiaries but by the bureaucracy and a political elite which may or may not be in touch with the needs of the citizens. Political instability and macroeconomic imbalances have been reflected in poor creditworthiness ratings, even compared to other countries of similar income levels, with resulting capital flight and lower foreign direct investment inflows. The current government of Pakistan has professed commitments to reforms in this area. In addition, Pakistan's major cities and urban centres are home to an estimated 1.2 million street children. This includes beggars and scavengers who are often very young. The law and order problem worsens their condition as boys and girls are fair game to others who would force them into stealing, scavenging and smuggling to survive. A large proportion consumes readily available solvents to starve off hunger, loneliness and fear. Children are vulnerable to contracting STDs such as HIV/AIDS, as well as other diseases.
Feudalism:
Pakistan is home to a large feudal landholding system where landholding families hold thousands of acres and do little work on the agriculture themselves. They enlist the services of their serfs to perform the labor of the land. 51% of poor tenants owe money to the landlords. The landlords' position of power allows them to exploit the only resource the poor can possibly provide: their own labor.
Poverty and Support for Militancy:
Poverty and the lack of a modern curriculum have proved destabilizing factors for Pakistani society that have been exploited by militant organizations banned by the government to run schools and produce militant literature. Though many madrassas are benign, there are those that subscribe to the radicalist branches of Sunni Islam, As a result, militant Islamic political parties have become more powerful in Pakistan and have considerable sympathy among the poor. This phenomenon is more pronounced in the North Western Frontier Province
Causes of Poverty in Pakistan:
Pakistan is a poor country. Its economy is facing fluctuations now a day. At the time of independence Pakistan has very low resources and capital, so the processes of progress were very slow. Unfortunately the politicians of Pakistan were all not well aware of modern global system and the progress processes and the needs of country. Due to bad policies today Pakistan is facing a lot of problems. The continuous failure of policies leads the people of country to miserable conditions. The major problem in the country is poverty which is becoming the cause of crime and social disorder. It is difficult to point out all causes of poverty in Pakistan but the major causes of are given below:
Government Policies:
Government is not well aware of present conditions of country. The policies of government are base on the suggestions of officials which do not have awareness about the problems of a common man. After implementation the policies do not get effective result. After the failure of one policy, government does not consider its failure and announces another policy without studying the aftermaths of last one. Heavy taxes and unemployment crushes the people and they are forced to live below poverty line. The suitable medical facilities are not provided to people and they are forced to get treatment for private clinics which are too costly.
Corruption:
Another cause of poverty is corruption. There are two types of corruption. There is not morality and every one is trying to earn more and more by using fair and unfair means. Officials waste their time has low efficiency. Only one relationship that is exists in society is money. One has to pay a heavy cost to get his right. Law and order conditions are out of control and institutions are failed to provide justice to a common man. Justice can be bought by money only. But government is unable to control such type of things. In this whole scenario some corrupt people has been occupying the resources and common man is living in miserable conditions.
Division of Agricultural Land:
Pakistan is an agricultural country. Most of people are farmers by profession. One has land which is fulfilling the needs of his family but he has to divide the land into his children when they got young. After division the land is not sufficient to support a family. Now the families of his children are suffering and spending their lives below poverty line.
Materialism:
In our society social bonding are gradually becomes thinner and thinner. A race of material object has been started even no one tried to understand the problems of others. Every one is gradually changing from human to a bioman which only know about his needs and have no concept about the limitations of others. People are not ready to help each other. At last every one has lose his trust on others which effect our social and economic system and it is another cause of poverty.
Lack of Education:
The literacy rate of Pakistan is very low. Most of people do not have any concept about the modern earning sources. Most people are unable to adopt technology for their business needs, that’s why business do not meet international standards and results as decrease in revenue which lead the society to poor financial conditions.
Large Scale Import:
The import of Pakistan is greater than export. Big revenue is consumed in importing good every year, even raw material has to import for industry. If we decrease import and establish own supply chains from our country natural resources the people will have better opportunities to earn.
Law and Order:
There are lot of problems regarding law and order. Terrorist attacks create uncertainty in stock markets and people earning from stock are getting loss due to which the whole country faces uncertain increase in commodity prices.
Fluctuated Foreign investment:
Foreign investor comes to local markets. They invest millions of dollars in stock markets and stock market gets rise in index. Then the investor withdraws his money with profit and market suddenly collapses. The after math always be faced by poor people.
Privatization:
Government is unable to manage the departments and country has low reserve assets. So the meet the requirements some companies run by government are sold to foreign investors. The commodities or services provided by the companies are becoming costly. For example if government sold a gas plant then prices for gas in country rises.
Moral Culture:
The main reason for poverty is the social dishonesty and irresponsible behavior of people. Every one is trying to get rich by using unfair means. A shop keeper is ready to get whole money from the pocket of customer. People doing jobs are not performing their duties well. In society the man considered brave or respectful who do not pay taxes or continuously violate the laws. This irresponsible behavior continuously increases and produces loss for county
Poverty and Globalization:
Very little rigorous empirical analysis is available on the effects of Globalization on Poverty reduction in Pakistan. Key results from some of the available studies are summarized below. Available analysis7 of the impact of trade liberalization and a decline in foreign remittances on poverty in Pakistan, using a CGE framework, reveals that tariff reduction in the absence of a decline in remittances in Pakistan reduces poverty, as measured by the head count, poverty gap and severity ratios (FGT indicators) in both the rural and urban areas of Pakistan. In terms of welfare, all households appear to gain. The results show that the gain in welfare is larger for urban households than for rural households. In addition, poverty reduced by a larger percentage in urban households than in rural households. In a second set of experiments, it was found that trade liberalisation in the presence of a decline in remittances reduces welfare in urban households but rural households still show an increase in welfare over the base year. According to all FGT indicators, poverty increases in urban households but not in rural households. The combined shock is more harmful to households in the urban areas than for households in the rural areas. However, this welfare gain and reduction in poverty level in rural households is less than the welfare gain and poverty reduction in the presence of trade liberalisation only. Aggregate statistics show that the negative impact of remittance decline dominates the positive impact of trade liberalization in urban areas. On the other hand, in the case of rural areas, the positive impact of trade liberalization dominates the negative impact of a decline inremittances. Kemal and Nazre Hyder (1997) in their influential paper Globalization With Equity - Policies And Growth, had stated that while the WTO agreement might result into higher level of welfare not all the countries are going to benefit from it. They therefore examined the extent to which Pakistan could benefit and the implications for growth, employment and poverty alleviation. The study found that while trade liberalization was expected to reduce the anti-export bias and would help in accelerating growth. Since the exports in a country like Pakistan are expected to be labour intensive, employment and hence the wage rates would tend to increase. Nevertheless, the study warned that liberalization and to some extent globalization could result into lower levels of employment unless special efforts were made. Anwar (2001) in his paper “Impact of globalization and liberalization on Growth, Employment and Poverty: A Case of Pakistan” finds that globalization did not lead to poverty reduction in Pakistan during the 1990s. He finds that despite highly attractive incentives to attract foreign investors to Pakistan foreign investment has remained low. Similarly despite liberalization the author notes that trade performance has been poor.
“The stabilization initially achieved proved to be short lived as the adjustment and reform Process lost its momentum. The repeated attempts to stabilize the economy together with liberalization pushed the economy into a vicious circle. The lowering of tariff rates led to a considerable loss of revenue and resulted in stagnant tax to GDP ratio, resulting in increased need to cut development expenditure to reduce the budget deficit. The Government sought to restrain aggregate demand not only by granting wage increases below the rate of inflation but also by freezing employment in the public sector. These developments together with liberalization led to lower GDP growth, increased indebtedness, higher unemployment and thus higher poverty incidence”. Ordenetal (2006) in their recent study of the impact of global cotton prices in Pakistan evaluate the importance of cotton to the incomes of rural households based on the 2001/02 Household Integrated Economic Survey (HIES). The study distinguishes between landowners and sharecroppers and results are reported separately for Punjab and Sindh, and for the primary cotton-producing districts within each province. Cotton income accounts on average for 32.6% of the total income of landowner households producing cotton in Punjab. Sharecroppers in Punjab are slightly less dependent on their cotton income. Cotton income is more important to landowner and sharecropper households producing cotton in Sindh based on the 2001/02 HIES. Cotton accounts for an average of 53.3% of total income of landowner cotton-producing households in Sindh, and 56.0% for sharecroppers. Among all cotton-producing households, 47.2% are in the lowest two quintiles of the distribution of households within the national population based on per capita consumption expenditures. Among landowner households producing Cotton, 41.2% are in the lowest two quintiles. Sharecropper households producing cotton are more heavily concentrated in the lower end of the national distribution, with 65.5% in the lowest two quintiles. A simulated increase of low cotton prices in 2001/02 back toward the higher levels of earlier years moves a substantial number of cotton farmers out of poverty. The study estimates that an increase of real cotton prices by 20% reduces the poverty rates among landowner cotton households in Punjab and Sindh from initial levels of 32% and 43% respectively, to 25% and 22%. Among sharecropper households producing cotton, a 20% increase in cotton prices lowers rates of poverty from 56–58% in Punjab and Sindh to 38% and 45%, respectively. At the national level, a 20% increase in cotton prices causes poverty among all cotton-producing households to fall from 40% to 28%. The study estimates that this reduces poverty in Pakistan by 1.939 million people.
Problems:
Poverty is one of the major social problems Pakistan is facing. It is one of the most important and sensitive issues not only for our self but also for the whole world. Poverty can cause other social problems like • • • • • • Theft Bribe Corruption Adultery Lawlessness Injustice
To eradicate the evils of society we have to fight with poverty. We can't control theft by enrolling thousands of policemen. Corruption and injustice can't come to an end through tight legislation but by demolishing poverty. A low level of domestic income for an individual results in lack of access to education, health care, and other communal facilities like lake of sanitation, transportation and communication. The poverty of thought is the major social problem. To eradicate poverty in Pakistan we have to fight with the causes and factors of poverty. Unless the causes and factors of poverty will be settled the poverty will never end. Ignorance is one of the important aspects of poverty. Ignorance is lake of information or lake knowledge. In this modern age of scientific revolution we are far behind in the education and most importantly scientific education. Our literacy rate is less than fifty percent the female education rate is even in miserable state. The right kind of education to the individuals is the solution of poverty. The right kind of education to the farmer is the knowledge of scientific ways of agriculture. A progressive and professional thinking is required in the farmers.
Problems and Methdology:
Poverty is an ethical concept, not a statistical one. Inherent in the term “poverty”, when applied to human beings, is the notion of a life situation that should not exist. It is not only lack of roti, kapra aur makan—food, cloth and shelter. Amartya Sen aptly sums up many dimensions of poverty as lack of “capability” capability to overcome violence, hunger, ignorance, illness, physical hardship, injustice and voiceless ness. The World Bank has argued that poverty often lies in the absence of opportunity, empowerment and security, and not just the absence of food on the table. Still, there is a hunger to have a statistic that sums up poverty, something handy both for analysis and for comparison
across groups and among time periods. For this reason there are a variety of statistical measures of poverty. None of them do a very good job of capturing the multidimensional concepts of poverty discussed above. All require severe conceptual compromises to make them comparable either across groups or time. Nevertheless, they provide whatever is available to monitor poverty reduction in a consistent manner. Comparing poverty in the same country at different periods of time raises many difficulties. One is that, often, household income and expenditure surveys change their methods (wording of questions, sampling method, interview technique) that make them difficult to compare. If the poverty line used changes between periods, the results are incomparable. An inescapable problem is that even with no differences in the surveys themselves and in the poverty line, adjusting for prices changes between periods to make poverty lines comparable bristles with difficulties. This is particularly so in Pakistan, where there are serious flaws with the two price indices available. One is the consumerprice index (CPI), which deals with many commodities of consumption but covers only urban areas; it does not capture price changes in rural areas where the bulk of the poor live. The other, the Survey Based Index (SBI) of prices, has the advantage of being collected at the same time from the same households as the consumption data. Unfortunately, it is difficult to estimate price changes for all goods that households consume because prices of non-food items are not available in the survey. These are the two choices. Pakistan should improve its prices indices with a sense of urgency for many reasons. A comparable survey using the same poverty line in 1998-99, 2000-01 and 2004-05, adjusted by both the CPI and SPI revealed the following: According to both measures, poverty headcount had been rising throughout the 1990s and peaked in 200001, a bad drought year. It then fell sharply in 2004-05, a very good agricultural crop year. Under the CPI, poverty headcount dropped by 10.6 per cent, under the SBI it dropped five per cent. Those two estimates probably capture the extremes. A less flawed price index might well find a third estimate in between these extremes. How can poverty drop so sharply in just four years? How can the same data yield such different results due to different estimates of the same thing — price changes? The answer is that incomes of a very large portion of the population are just above and just below the official poverty line. Compared to 2000-01, the consumption distribution has improved substantially in 2004-05, meaning almost all families are better off. The fact that there is an enormous clustering of population around the poverty line means that even small changes in consumption or income can affect poverty headcount ratios dramatically. This is the case in Pakistan, where the improvement in consumption distribution in 2004-05 has led to a sizeable decline in poverty. It also explains why a difference in the estimated rate of price inflation between 2000-01 and 2004-05 of about eight per cent (depending on whether we use CPI or SBI) makes such a huge difference in the estimated fall in poverty; i.e., over 10 per cent in one case and five per cent in the other. This clustering of Pakistan’s population just above and just below the poverty line also implies that families are quite vulnerable to falling into poverty with the slightest run of bad luck. A drought or bad agricultural year, an illness of a breadwinner, rises in prices of basic commodities not compensated by rises in income—all of these can cause families to fall into poverty.
Recommendations:
Sustaining a declining poverty trend requires a concerted effort to improve the capabilities of the poor and vulnerable. It also requires well-designed programmes that help to mitigate the vulnerabilities induced by economic downturns or natural Disasters. Pakistan’s poverty-reduction strategy is consistent with these objectives broad-based rapid growth along with improvements in social services and putting in place a social safety net. The challenge lies in carefully designing and implementing the policies to achieve the desired outcomes. The 2004-05-poverty data show that rapid growth did reduce poverty quite sharply. Whether by five or 10 per cent is somewhat academic. It also points to the urgent need for enhancing capabilities through better social mobilisation, education, public health and rural infrastructure. Finally, strengthening the social-welfare support system that is a notable impulse of Pakistan’s Islamic heritage will help go a long way in reducing poverty and vulnerability in all its dimensions. Last but not least, making data publicly available will not only promote transparency but also allow everyone the opportunity to assess the progress that is being achieved.
Poverty, Growth and Inequality
Submitted to: Madam Sahanaz
Submitted by: Sehrish Naqvi 070753 Nandana Zubair 070737 Ainn-ul-fatima Sana firdous 070750
Date: 26,April, 2010
Introduction:
A recurring issue in discussions on development is whether the main focus of development strategies should be placed on growth, or poverty, and/or on inequality. This paper argues that this way of formulating the question of development goals poses a false dilemma. Rather, the answer can be simply expressed in two statements: First, the rapid elimination of absolute poverty, under all forms, is a meaningful goal for development. Second, to achieve the goal of rapidly reducing absolute poverty requires strong, countryspecific combinations of growth and distribution policies. These two statements raise conceptual, measurement, theoretical and empirical issues, including clarifying the distinction between absolute and relative poverty. Absolute poverty is defined in reference to a poverty line that has a fixed purchasing power determined so as to cover needs that are physically and socially essential. Setting absolute poverty reduction as the prime development goal is thus simply saying that a fundamental objective of development is to ensure that everybody satisfies his/her basic needs. The poverty line may be multi-dimensional, incorporating both an income poverty line for needs that can be met monetarily, and non-monetary lines for other needs. Absolute poverty lines need not be the same across countries, even after correcting for purchasing power parity for income poverty, as basic needs are bound to differ across societies. Nor do they need to remain fixed over time, as basic needs are likely to evolve. This absolute definition of poverty, in use in many countries, must be contrasted with a relative definition of poverty, where the poverty line is established not in terms of some well defined basic needs, but as a fixed proportion of some income standard in the population, for example the mean or median income. The European Union considers as poor those whose economic resources are below 50 per cent of the mean income in member countries. Of course, one might consider such a relative definition of income poverty as the limit of the absolute definition of poverty when the updating of the poverty line is continuous and explicitly based on mean income changes, rather than being made at rather long time intervals and on a more discretionary basis. But, what matters for the purpose of this paper is that such a relative definition of poverty – sometimes referred to as 'relative deprivation' - becomes in some sense independent of growth. The absolute level of income and therefore a large part of the development process does not matter anymore with such a definition. Only relative incomes, or pure distributional features matter. Fixing the poverty line relative to average income can show rising poverty even when the standard of living of the poor have in fact risen. There is an increasing consensus among economists that relative deprivation matters, but there does not appear to be a consensus that individual welfare depends only on one’s relative position, and not at all on absolute standard of living as determined by incomes. Once it is accepted that the reduction of absolute income poverty is a meaningful development goal, and then a direct link may be established between development, growth and distribution. An arithmetic identity links the growth of the mean income in a given population, with the change in distribution – or in 'relative' incomes - and the reduction of absolute poverty. In other words, poverty reduction in a given country and at a given point of time is fully determined by the rate of growth of the mean income of the population and the change in the distribution of income.
“Poverty-Growth-Inequality (PGI) Triangle”, a development strategy is thus fully determined by the rate of growth and distributional changes in the population. Formally, the relationships implicit behind the PGI triangle are less simple. For instance, the elasticity of poverty with respect to growth for a constant distribution turns out not to be constant across countries with different development levels and distribution and across the various ways of measuring poverty. This also applies to the elasticity of poverty with respect to inequality indicators. The real challenge to establishing a development strategy for reducing poverty lies in the interactions between distribution and growth, and not in the relationship between poverty and growth on one hand and poverty and inequality on the other, which are essentially arithmetic. There is little controversy among economists that growth is essential for (income) poverty reduction under the assumption that the distribution of income remains more or less constant. In fact, much evidence points in this direction. Likewise, much evidence suggests that a worsening of the distribution tends to increase poverty. Yet, the real issue in establishing a development strategy is whether growth and distribution are independent of each other or, strongly inter-related. Is it the case for instance that faster growth tends to reduce inequality or on the contrary, to increase it? Could too much inequality in a given country act to slow or, to accelerate growth? On the distributional consequences of growth, several recently published microeconomicbased case studies indicate clearly that the relationship is at once strong and complex. This is in contrast to the large number of cross-country regressions which find no significant relationship between growth and inequality and on the basis of which it would be tempting to conclude that ‘growth is good for the poor’, whatever its nature. Crosscountry studies are also mostly inconclusive regarding the effects of inequality on growth, and it is difficult to conceive of direct micro-economic evidence that would identify that relationship with precision.
Economic Growth and Income Inequality:
Economic Growth will reduce Income inequality if: 1. Wages of the lowest paid rise faster than the average wage 2. Government benefits, such as; unemployment benefits, sickness benefits and pensions are increased in line with average wages. 3. Economic Growth creates job opportunities, which reduce the level of unemployment. Unemployment and lack of employment is one of the biggest causes of relative poverty. 4. Minimum Wages increased in line with average earnings
Economic Growth May not Reduce Income Inequality and Poverty if: 1. Economic Growth often creates the best opportunities for those who are highly skilled and educated. In recent years, in the UK, we have seen faster wage growth for highly paid jobs than unskilled jobs. 2. Modern economies are creating an increased number of part time / flexible service sector jobs. In these sectors wages have been lagging behind average earnings. 3. In the UK, government benefits have been indexed linked. This means increased in line with inflation. This means that benefit incomes have fallen behind average earnings. Economic Growth will not necessarily solve unemployment. For example, growth cannot solve structural and frictional unemployment; this is unemployment caused by lack of skills and geographical immobilities.
Poverty in Pakistan:
Poverty in Pakistan is a growing concern Although the middle-class has grown in Pakistan to 35 million, nearly one-quarter of the population is classified poor as of October 2006. The declining trend in poverty as seen in the country during the 1970s and 1980s was reversed in the 1990s by poor federal policies and rampant corruption. This phenomenon has been referred to as the poverty bomb. The government of Pakistan with help from the International Monetary Fund (IMF) has prepared an Interim Poverty Reduction Strategy Pape that suggests guidelines to reduce poverty in the country. As of 2007, Pakistan's Human Development Index (HDI) is 0.572, higher than that of nearby Bangladesh's 0.543, which was formerly a part of the country itself. Pakistan's HDI still stands lower than that of neighbouring India's at 0.612. Incidences of poverty in Pakistan rose from 22–26% in the fiscal year 1991 to 32–35% in the fiscal year 1999. They have subsequently fallen to 25–26% according to the reports of the World Bank and the UN Development Program reports. These reports contradict the claims made by the Government of Pakistan that the poverty rates are only 23.1%. Furthermore, the poverty rate declined to 17.2% in 2007-08 according to the World Bank. According to the Human Development Index (HDI), 60.3% of Pakistan's population lives on under $2 a day, compared to 75.6% in nearby India and 81.3% in nearby Bangladesh, and some 22.6% live under $1 a day, compared to 41.6% in India and 49.6% in Bangladesh Wealth distribution in Pakistan is highly uneven, with 10% of the population earning 27.6% of incomeAccording to the United Nations Human Development Report, Pakistan's human development indicators, especially those for women, fall significantly below those of countries with comparable levels of per-capita income. Pakistan also has a higher infant mortality rate (88 per 1000) than the South Asian average (83 per 1000).
Spatial distribution of poverty:
At the time of partition and independence in 1947, Pakistan inherited the most backward parts of South Asia with only one university, one Textile Mill and one Jute Factory. The country has made tremendous progress and its per Capita GNP remains the highest in South Asia. During the last decade poverty elimination programs helped many of the poor to participate and rise up. However the Global financial crisis and other factors like the occupation of Afghanistan have impacted Pakistani growth. Poverty in Pakistan has historically been higher in rural areas and lower in the cities. Out of the total 40 million living below the poverty line, 30 million live in rural areas. Poverty rose sharply in the rural areas in the 1990s and the gap in income between urban and rural areas of the country became more significant. This trend has been attributed to a disproportionate impact of economic events in the rural and urban areas. There are also significant inhomogeneities in the different regions of Pakistan that contribute to the country's rising poverty. In the 1999 Fiscal year, the urban regions of the Sindh province had the lowest levels of poverty, and the rural areas of the North West Frontier Province had the highest. Punjab also has significant gradients in poverty among the different regions of the province.
The North West Frontier Province of Pakistan was one of the most backward regions of the South Asian Subcontinent. Despite this, tremendous progress has been made in many areas. The NWFP now boasts several universities including the Ghulam Ishaq Khan University of Science and Technology.Peshawar a sleep cantonment during British towns is a modern cosmopolitan city. Much more can be done to invest in the social and economic structures. NWFP remains steeped in tribal culture, though the biggest Pathan city is Karachi where the Pakhtuns are one of the richest class of people. The Pakhtuns of the region are heavily involved in the transportation, lumber, furniture and small arts and crafts business. Some deal in cross border arms and drugs smuggling. This smuggling actively encouraged by the West and by Pakistan during the Soviet invasion of neighboring Afghanistan is intact and according to Western reports supported the Taliban regime.] These and other activities have led to a breakdown of law and order in many parts of the region.
Poverty and gender:
The gender discriminatory practices in Pakistani society also shape the distribution of poverty in the country. Traditional gender roles in Pakistan define the woman's place as in the home and not in the workplace, and define the man as the breadwinner. Consequently, the society invests far less in women than men. Women in Pakistan suffer from poverty of opportunities throughout their lives. Female literacy in Pakistan is 43.6% compared to Male literacy at 68.2%, as of 2008. In legislative bodies, women constituted less than 3% of the legislature elected on general seats before 2002. The 1973 Constitution allowed reserved seats for women in both houses of parliament for a period of 20 years, thus ensuring that women would be represented in parliament regardless of whether or not they are elected on general seats. This provision lapsed in 1993, so parliaments elected subsequently did not have reserved seats for women. Reserved seats for women have been restored after the election of 2002 . Female labour rates in Pakistan are exceptionally low.
Economic and social vulnerability:
Un-Employment Rates 1998 Census Administrative 1981 Both Unit Male Female Census Sexes Pakistan Rural Urban NWFP Rural Urban Punjab Rural Urban Sindh Rural Urban Balochistan Rural Urban Islamabad Rural Urban 19.68 20.19 5.05 19.98 20.40 5.50 19.13 19.77 4.49 26.83 27.51 2.58 28.16 28.64 4.00 21.00 22.34 0.74 19.10 19.60 5.50 18.60 19.00 6.00 20.10 20.7 4.70 14.43 14.86 4.69 11.95 12.26 3.70 16.75 17.31 5.40 33.48 34.14 8.67 35.26 35.92 9.81 27.67 28.33 5.35 15.70 16.80 1.70 28.70 29.40 8.20 10.10 11.00 0.80 3.1 2.3 5.2 2.2 2.0 3.7 3.2 2.5 5.0 3.3 1.6 5.8 3.1 3.0 4.0 10.7 13.5 9.0
Unemployment Rate: It is the percentage of persons unemployed (those looking for work and temporarily laid off) to the total economically active population (10 years and above).
Vulnerability" in this case stands for the underlying susceptibility of economically deprived people to fall into poverty as a result of exogenous random shocks. Vulnerable households are generally found to have low expenditure levels. Households are considered vulnerable if they do not have the means to smooth out their expenses in
response to changes in income. In general, vulnerability is likely to be high in households clustered around the poverty line. Since coping strategies for vulnerable households depend primarily on their sources of income, exogenous shocks can increase reliance on non-agricultural wages. Such diversification has not occurred in many parts of Pakistan, leading to an increased dependence on credit. While economic vulnerability is a key factor in the rise of poverty in Pakistan, vulnerability also arises from social powerlessness, political disenfranchisement, and illfunctioning and distortionary institutions, and these also are important causes of the persistence of vulnerability among the poor. Other causes of vulnerability in Pakistan are the everyday harassment by corrupt government officials, as well as their underperformance, exclusion and denial of basic rights to many in Pakistan. Also, lack of adequate health care by the state lead the poor to seek private sources, which are expensive, but still preferable to the possibility of medical malpractice and being given expired medicines in state run medical facilities. Also, the failure by the state to provide adequate law and order in many parts of the country is a factor in the rise of vulnerability of the poor.
Environmental issues:
Environmental problems in Pakistan, such as erosion, use of agro-chemicals, deforestation etc. contribute to rising poverty in Pakistan. Increasing pollution contributes to increasing risk of toxicity, and poor industrial standards in the country contribute to rising pollution
Lack of adequate governance:
By the end of the 1990s, the manner in which power is exercised in the management of a country's social and economic resources for development emerged as Pakistan's foremost developmental problem. Corruption and political instabilities such as various separatist movements in Balochistan and Waziristan resulted in reduction of business confidence, deterioration of economic growth, reduced public expenditure, poor delivery of public services, and undermining of the rule of law . The perceived security threat on the border with India has dominated Pakistan's culture and has led to the domination of military in politics, excessive spending on defense at the expense of social sectors, and the erosion of law and order. Pakistan has been run by military dictatorships for large periods of time, alternating with limited democracy. These rapid changes in governments led to rapid policy changes and reversals and the reduction of transparency and accountability in government. The onset of military regimes have contributed to non-transparency in resource allocation. In particular, the neglect by the Pakistani state of the Balochistan and North Western Frontier Provinces has rendered the region poverty-stricken. Those who do not constitute the political elite are unable to make political leaders and the Government responsive to their needs or accountable to promises. Development priorities are determined not by
potential beneficiaries but by the bureaucracy and a political elite which may or may not be in touch with the needs of the citizens. Political instability and macroeconomic imbalances have been reflected in poor creditworthiness ratings, even compared to other countries of similar income levels, with resulting capital flight and lower foreign direct investment inflows. The current government of Pakistan has professed commitments to reforms in this area. In addition, Pakistan's major cities and urban centres are home to an estimated 1.2 million street children. This includes beggars and scavengers who are often very young. The law and order problem worsens their condition as boys and girls are fair game to others who would force them into stealing, scavenging and smuggling to survive. A large proportion consumes readily available solvents to starve off hunger, loneliness and fear. Children are vulnerable to contracting STDs such as HIV/AIDS, as well as other diseases.
Feudalism:
Pakistan is home to a large feudal landholding system where landholding families hold thousands of acres and do little work on the agriculture themselves. They enlist the services of their serfs to perform the labor of the land. 51% of poor tenants owe money to the landlords. The landlords' position of power allows them to exploit the only resource the poor can possibly provide: their own labor.
Poverty and Support for Militancy:
Poverty and the lack of a modern curriculum have proved destabilizing factors for Pakistani society that have been exploited by militant organizations banned by the government to run schools and produce militant literature. Though many madrassas are benign, there are those that subscribe to the radicalist branches of Sunni Islam, As a result, militant Islamic political parties have become more powerful in Pakistan and have considerable sympathy among the poor. This phenomenon is more pronounced in the North Western Frontier Province
Causes of Poverty in Pakistan:
Pakistan is a poor country. Its economy is facing fluctuations now a day. At the time of independence Pakistan has very low resources and capital, so the processes of progress were very slow. Unfortunately the politicians of Pakistan were all not well aware of modern global system and the progress processes and the needs of country. Due to bad policies today Pakistan is facing a lot of problems. The continuous failure of policies leads the people of country to miserable conditions. The major problem in the country is poverty which is becoming the cause of crime and social disorder. It is difficult to point out all causes of poverty in Pakistan but the major causes of are given below:
Government Policies:
Government is not well aware of present conditions of country. The policies of government are base on the suggestions of officials which do not have awareness about the problems of a common man. After implementation the policies do not get effective result. After the failure of one policy, government does not consider its failure and announces another policy without studying the aftermaths of last one. Heavy taxes and unemployment crushes the people and they are forced to live below poverty line. The suitable medical facilities are not provided to people and they are forced to get treatment for private clinics which are too costly.
Corruption:
Another cause of poverty is corruption. There are two types of corruption. There is not morality and every one is trying to earn more and more by using fair and unfair means. Officials waste their time has low efficiency. Only one relationship that is exists in society is money. One has to pay a heavy cost to get his right. Law and order conditions are out of control and institutions are failed to provide justice to a common man. Justice can be bought by money only. But government is unable to control such type of things. In this whole scenario some corrupt people has been occupying the resources and common man is living in miserable conditions.
Division of Agricultural Land:
Pakistan is an agricultural country. Most of people are farmers by profession. One has land which is fulfilling the needs of his family but he has to divide the land into his children when they got young. After division the land is not sufficient to support a family. Now the families of his children are suffering and spending their lives below poverty line.
Materialism:
In our society social bonding are gradually becomes thinner and thinner. A race of material object has been started even no one tried to understand the problems of others. Every one is gradually changing from human to a bioman which only know about his needs and have no concept about the limitations of others. People are not ready to help each other. At last every one has lose his trust on others which effect our social and economic system and it is another cause of poverty.
Lack of Education:
The literacy rate of Pakistan is very low. Most of people do not have any concept about the modern earning sources. Most people are unable to adopt technology for their business needs, that’s why business do not meet international standards and results as decrease in revenue which lead the society to poor financial conditions.
Large Scale Import:
The import of Pakistan is greater than export. Big revenue is consumed in importing good every year, even raw material has to import for industry. If we decrease import and establish own supply chains from our country natural resources the people will have better opportunities to earn.
Law and Order:
There are lot of problems regarding law and order. Terrorist attacks create uncertainty in stock markets and people earning from stock are getting loss due to which the whole country faces uncertain increase in commodity prices.
Fluctuated Foreign investment:
Foreign investor comes to local markets. They invest millions of dollars in stock markets and stock market gets rise in index. Then the investor withdraws his money with profit and market suddenly collapses. The after math always be faced by poor people.
Privatization:
Government is unable to manage the departments and country has low reserve assets. So the meet the requirements some companies run by government are sold to foreign investors. The commodities or services provided by the companies are becoming costly. For example if government sold a gas plant then prices for gas in country rises.
Moral Culture:
The main reason for poverty is the social dishonesty and irresponsible behavior of people. Every one is trying to get rich by using unfair means. A shop keeper is ready to get whole money from the pocket of customer. People doing jobs are not performing their duties well. In society the man considered brave or respectful who do not pay taxes or continuously violate the laws. This irresponsible behavior continuously increases and produces loss for county
Poverty and Globalization:
Very little rigorous empirical analysis is available on the effects of Globalization on Poverty reduction in Pakistan. Key results from some of the available studies are summarized below. Available analysis7 of the impact of trade liberalization and a decline in foreign remittances on poverty in Pakistan, using a CGE framework, reveals that tariff reduction in the absence of a decline in remittances in Pakistan reduces poverty, as measured by the head count, poverty gap and severity ratios (FGT indicators) in both the rural and urban areas of Pakistan. In terms of welfare, all households appear to gain. The results show that the gain in welfare is larger for urban households than for rural households. In addition, poverty reduced by a larger percentage in urban households than in rural households. In a second set of experiments, it was found that trade liberalisation in the presence of a decline in remittances reduces welfare in urban households but rural households still show an increase in welfare over the base year. According to all FGT indicators, poverty increases in urban households but not in rural households. The combined shock is more harmful to households in the urban areas than for households in the rural areas. However, this welfare gain and reduction in poverty level in rural households is less than the welfare gain and poverty reduction in the presence of trade liberalisation only. Aggregate statistics show that the negative impact of remittance decline dominates the positive impact of trade liberalization in urban areas. On the other hand, in the case of rural areas, the positive impact of trade liberalization dominates the negative impact of a decline inremittances. Kemal and Nazre Hyder (1997) in their influential paper Globalization With Equity - Policies And Growth, had stated that while the WTO agreement might result into higher level of welfare not all the countries are going to benefit from it. They therefore examined the extent to which Pakistan could benefit and the implications for growth, employment and poverty alleviation. The study found that while trade liberalization was expected to reduce the anti-export bias and would help in accelerating growth. Since the exports in a country like Pakistan are expected to be labour intensive, employment and hence the wage rates would tend to increase. Nevertheless, the study warned that liberalization and to some extent globalization could result into lower levels of employment unless special efforts were made. Anwar (2001) in his paper “Impact of globalization and liberalization on Growth, Employment and Poverty: A Case of Pakistan” finds that globalization did not lead to poverty reduction in Pakistan during the 1990s. He finds that despite highly attractive incentives to attract foreign investors to Pakistan foreign investment has remained low. Similarly despite liberalization the author notes that trade performance has been poor.
“The stabilization initially achieved proved to be short lived as the adjustment and reform Process lost its momentum. The repeated attempts to stabilize the economy together with liberalization pushed the economy into a vicious circle. The lowering of tariff rates led to a considerable loss of revenue and resulted in stagnant tax to GDP ratio, resulting in increased need to cut development expenditure to reduce the budget deficit. The Government sought to restrain aggregate demand not only by granting wage increases below the rate of inflation but also by freezing employment in the public sector. These developments together with liberalization led to lower GDP growth, increased indebtedness, higher unemployment and thus higher poverty incidence”. Ordenetal (2006) in their recent study of the impact of global cotton prices in Pakistan evaluate the importance of cotton to the incomes of rural households based on the 2001/02 Household Integrated Economic Survey (HIES). The study distinguishes between landowners and sharecroppers and results are reported separately for Punjab and Sindh, and for the primary cotton-producing districts within each province. Cotton income accounts on average for 32.6% of the total income of landowner households producing cotton in Punjab. Sharecroppers in Punjab are slightly less dependent on their cotton income. Cotton income is more important to landowner and sharecropper households producing cotton in Sindh based on the 2001/02 HIES. Cotton accounts for an average of 53.3% of total income of landowner cotton-producing households in Sindh, and 56.0% for sharecroppers. Among all cotton-producing households, 47.2% are in the lowest two quintiles of the distribution of households within the national population based on per capita consumption expenditures. Among landowner households producing Cotton, 41.2% are in the lowest two quintiles. Sharecropper households producing cotton are more heavily concentrated in the lower end of the national distribution, with 65.5% in the lowest two quintiles. A simulated increase of low cotton prices in 2001/02 back toward the higher levels of earlier years moves a substantial number of cotton farmers out of poverty. The study estimates that an increase of real cotton prices by 20% reduces the poverty rates among landowner cotton households in Punjab and Sindh from initial levels of 32% and 43% respectively, to 25% and 22%. Among sharecropper households producing cotton, a 20% increase in cotton prices lowers rates of poverty from 56–58% in Punjab and Sindh to 38% and 45%, respectively. At the national level, a 20% increase in cotton prices causes poverty among all cotton-producing households to fall from 40% to 28%. The study estimates that this reduces poverty in Pakistan by 1.939 million people.
Problems:
Poverty is one of the major social problems Pakistan is facing. It is one of the most important and sensitive issues not only for our self but also for the whole world. Poverty can cause other social problems like • • • • • • Theft Bribe Corruption Adultery Lawlessness Injustice
To eradicate the evils of society we have to fight with poverty. We can't control theft by enrolling thousands of policemen. Corruption and injustice can't come to an end through tight legislation but by demolishing poverty. A low level of domestic income for an individual results in lack of access to education, health care, and other communal facilities like lake of sanitation, transportation and communication. The poverty of thought is the major social problem. To eradicate poverty in Pakistan we have to fight with the causes and factors of poverty. Unless the causes and factors of poverty will be settled the poverty will never end. Ignorance is one of the important aspects of poverty. Ignorance is lake of information or lake knowledge. In this modern age of scientific revolution we are far behind in the education and most importantly scientific education. Our literacy rate is less than fifty percent the female education rate is even in miserable state. The right kind of education to the individuals is the solution of poverty. The right kind of education to the farmer is the knowledge of scientific ways of agriculture. A progressive and professional thinking is required in the farmers.
Problems and Methdology:
Poverty is an ethical concept, not a statistical one. Inherent in the term “poverty”, when applied to human beings, is the notion of a life situation that should not exist. It is not only lack of roti, kapra aur makan—food, cloth and shelter. Amartya Sen aptly sums up many dimensions of poverty as lack of “capability” capability to overcome violence, hunger, ignorance, illness, physical hardship, injustice and voiceless ness. The World Bank has argued that poverty often lies in the absence of opportunity, empowerment and security, and not just the absence of food on the table. Still, there is a hunger to have a statistic that sums up poverty, something handy both for analysis and for comparison
across groups and among time periods. For this reason there are a variety of statistical measures of poverty. None of them do a very good job of capturing the multidimensional concepts of poverty discussed above. All require severe conceptual compromises to make them comparable either across groups or time. Nevertheless, they provide whatever is available to monitor poverty reduction in a consistent manner. Comparing poverty in the same country at different periods of time raises many difficulties. One is that, often, household income and expenditure surveys change their methods (wording of questions, sampling method, interview technique) that make them difficult to compare. If the poverty line used changes between periods, the results are incomparable. An inescapable problem is that even with no differences in the surveys themselves and in the poverty line, adjusting for prices changes between periods to make poverty lines comparable bristles with difficulties. This is particularly so in Pakistan, where there are serious flaws with the two price indices available. One is the consumerprice index (CPI), which deals with many commodities of consumption but covers only urban areas; it does not capture price changes in rural areas where the bulk of the poor live. The other, the Survey Based Index (SBI) of prices, has the advantage of being collected at the same time from the same households as the consumption data. Unfortunately, it is difficult to estimate price changes for all goods that households consume because prices of non-food items are not available in the survey. These are the two choices. Pakistan should improve its prices indices with a sense of urgency for many reasons. A comparable survey using the same poverty line in 1998-99, 2000-01 and 2004-05, adjusted by both the CPI and SPI revealed the following: According to both measures, poverty headcount had been rising throughout the 1990s and peaked in 200001, a bad drought year. It then fell sharply in 2004-05, a very good agricultural crop year. Under the CPI, poverty headcount dropped by 10.6 per cent, under the SBI it dropped five per cent. Those two estimates probably capture the extremes. A less flawed price index might well find a third estimate in between these extremes. How can poverty drop so sharply in just four years? How can the same data yield such different results due to different estimates of the same thing — price changes? The answer is that incomes of a very large portion of the population are just above and just below the official poverty line. Compared to 2000-01, the consumption distribution has improved substantially in 2004-05, meaning almost all families are better off. The fact that there is an enormous clustering of population around the poverty line means that even small changes in consumption or income can affect poverty headcount ratios dramatically. This is the case in Pakistan, where the improvement in consumption distribution in 2004-05 has led to a sizeable decline in poverty. It also explains why a difference in the estimated rate of price inflation between 2000-01 and 2004-05 of about eight per cent (depending on whether we use CPI or SBI) makes such a huge difference in the estimated fall in poverty; i.e., over 10 per cent in one case and five per cent in the other. This clustering of Pakistan’s population just above and just below the poverty line also implies that families are quite vulnerable to falling into poverty with the slightest run of bad luck. A drought or bad agricultural year, an illness of a breadwinner, rises in prices of basic commodities not compensated by rises in income—all of these can cause families to fall into poverty.
Recommendations:
Sustaining a declining poverty trend requires a concerted effort to improve the capabilities of the poor and vulnerable. It also requires well-designed programmes that help to mitigate the vulnerabilities induced by economic downturns or natural Disasters. Pakistan’s poverty-reduction strategy is consistent with these objectives broad-based rapid growth along with improvements in social services and putting in place a social safety net. The challenge lies in carefully designing and implementing the policies to achieve the desired outcomes. The 2004-05-poverty data show that rapid growth did reduce poverty quite sharply. Whether by five or 10 per cent is somewhat academic. It also points to the urgent need for enhancing capabilities through better social mobilisation, education, public health and rural infrastructure. Finally, strengthening the social-welfare support system that is a notable impulse of Pakistan’s Islamic heritage will help go a long way in reducing poverty and vulnerability in all its dimensions. Last but not least, making data publicly available will not only promote transparency but also allow everyone the opportunity to assess the progress that is being achieved.
