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Devaluation and income inequality: Evidence from Pakistan

Author

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  • Muhammad, Shahbaz
  • Faridul, Islam
  • Muhammad Sabihuddin, Butt

Abstract

The paper examines the impact of nominal devaluation on income distribution in Pakistan. In the empirical model we include economic growth, measured per capita; trade-openness; foreign direct investment (FDI); unemployment and inflation rates which appear well justified in the particular context of the economy of Pakistan. The Auto Regressive Distributed Lag (ARDL) bounds testing approach to cointegration has been employed for the long run relation; and the Vector Error Correction Model (VECM) for the short run dynamics. We also test the Kuznets inverted-U relation between income inequality and economic growth. We find long run relationship among the series; and that nominal devaluation worsens income inequality. Though economic growth appears to deteriorate income distribution, the non-linear link between the variables depicts Kuznets’ (1955) type inverted-U relationship. This is reassuring for Pakistan in the long run. We also find FDI and trade-openness worsens income distribution. Inflation lowers income inequality but unemployment aggravates it in Pakistan.

Suggested Citation

  • Muhammad, Shahbaz & Faridul, Islam & Muhammad Sabihuddin, Butt, 2011. "Devaluation and income inequality: Evidence from Pakistan," MPRA Paper 35522, University Library of Munich, Germany, revised 21 Dec 2011.
    • Handle: RePEc:pra:mprapa:35522
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    References listed on IDEAS

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    2. Fitzenberger, Bernd & Doerr, Annabelle, 2016. "Konzeptionelle Lehren aus der ersten Evaluationsrunde der Branchenmindestlöhne in Deutschland (Conceptual lessons from the evaluation studies on sectoral minimum wages in Germany)," Journal for Labour Market Research, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 49(4), pages 329-347.
    3. Fitzenberger, Bernd & Doerr, Annabelle, 2016. "Konzeptionelle Lehren aus der ersten Evaluationsrunde der Branchenmindestlöhne in Deutschland (Conceptual lessons from the evaluation studies on sectoral minimum wages in Germany)," Journal for Labour Market Research, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 49(4), pages 329-347.
    4. Kashif MUNIR & Maryam SULTAN, 2017. "Macroeconomic determinants of income inequality in India and Pakistan," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(4(613), W), pages 109-120, Winter.
    5. Anciaes, Paulo & Jones, Peter, 2020. "Transport policy for liveability – Valuing the impacts on movement, place, and society," Transportation Research Part A: Policy and Practice, Elsevier, vol. 132(C), pages 157-173.
    6. Amjad Ali & Nooreen Mujahid & Yahya Rashid & Muhammad Shahbaz, 2015. "Human Capital Outflow and Economic Misery: Fresh Evidence for Pakistan," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 124(3), pages 747-764, December.
    7. M A B Siddique & Heru Wibowo & Yanrui Wu, 2014. "Fiscal Decentralisation and Inequality in Indonesia: 1999-2008," Economics Discussion / Working Papers 14-22, The University of Western Australia, Department of Economics.
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    More about this item

    Keywords

    Devaluation; Income Inequality; EKC; ARDL;
    All these keywords.

    JEL classification:

    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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