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Poverty, Income Inequality, and Growth in Pakistan: A Pooled Regression Analysis

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  • Ahmed Raza Cheema

    ()
    (Lecturer in Economics, Department of Economics, University of Sargodha, Pakistan.)

  • Ahmed Raza Cheema

    ()
    (Foreign Faculty Professor, Department of Economics, University of Sargodha, Pakistan.)

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    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.

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    Bibliographic Info

    Article provided by Department of Economics, The Lahore School of Economics in its journal Lahore Journal of Economics.

    Volume (Year): 17 (2012)
    Issue (Month): 2 (July-Dec)
    Pages: 137-157

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    Handle: RePEc:lje:journl:v:17:y:2012:i:2:p:137-157

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    Keywords: Poverty; inequality; growth; pooled data; Pakistan.;

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    References

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    1. Augustin Kwasi Fosu, 2009. "Inequality and the Impact of Growth on Poverty: Comparative Evidence for Sub-Saharan Africa," Journal of Development Studies, Taylor & Francis Journals, vol. 45(5), pages 726-745.
    2. Hongyi Li & Lyn Squire & Tao Zhang & Heng-fu Zou, 1999. "A Data Set on Income Distribution," CEMA Working Papers 575, China Economics and Management Academy, Central University of Finance and Economics.
    3. Pervez Zammurad Janjua & Usman Ahmad Kamal, 2011. "The Role of Education and Income in Poverty Alleviation: A Cross-Country Analysis," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 16(1), pages 143-172, Jan-Jun.
    4. Li, Hongyi & Zou, Heng-fu, 1998. "Income Inequality Is Not Harmful for Growth: Theory and Evidence," Review of Development Economics, Wiley Blackwell, vol. 2(3), pages 318-34, October.
    5. Lombardo, Vincenzo, 2008. "Growth and inequality effects on poverty reduction in Italy," MPRA Paper 14351, University Library of Munich, Germany.
    6. Klaus Deininger & Lyn Squire, 1996. "A New Data Set Measuring Income Inequality," CEMA Working Papers 512, China Economics and Management Academy, Central University of Finance and Economics.
    7. Ravallion, Martin & Shaohua Chen, 1996. "What can new survey data tell us about recent changes in distribution and poverty?," Policy Research Working Paper Series 1694, The World Bank.
    8. Rati Ram, 2007. "Roles of income and equality in poverty reduction: recent cross-country evidence," Journal of International Development, John Wiley & Sons, Ltd., vol. 19(7), pages 919-926.
    9. Dollar, David & Kraay, Aart, 2002. " Growth Is Good for the Poor," Journal of Economic Growth, Springer, vol. 7(3), pages 195-225, September.
    10. Ximing Wu & Jeffrey M. Perloff & Amos Golan, 2006. "Effects Of Government Policies On Urban And Rural Income Inequality," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 52(2), pages 213-235, 06.
    11. Kristin J. Forbes, 2000. "A Reassessment of the Relationship between Inequality and Growth," American Economic Review, American Economic Association, vol. 90(4), pages 869-887, September.
    12. Bhagwati, Jagdish N., 1988. "Poverty and public policy," World Development, Elsevier, vol. 16(5), pages 539-555, May.
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