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Public Sector StrategiesTrends in Inequality, Welfare,and Growth in Pakistan,1963-64 to 2004-05
Nadia ZakirMuhammad Idrees
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Group Members
Sadaf Bashir 110802
Sundas Nadeem 110807
Sahar Tariq 110817
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Table of Contents
1. Introduction
2 . Literature Review
3. The Data and Methodological Issues3.1. Data Source3.2. Welfare Indicator3.3. Frame of Reference3.4. Selection of Measures
4. Results and Discussion4.1. Income and Consumption Inequalities4.2. Growth in Income and Consumption4.3. Income and Consumption Welfare
5. Summary
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Abstract
The study investigates the trends in inequality, welfare, and growthbased on per capita household income/consumption in Pakistan, bothits rural and urban areas
The study finds fluctuating trends in inequality, and rising trends inboth welfare and growth
Inequality, welfare, and growth remain higher in the urban areas
The study finds income inequality to be more severe as compared toconsumption inequality
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Introduction
Inequality , welfare and growth are related variables
Inequality mainly rises due to uneven distribution of gains from growth
On the other hand increased inequality can result in lower growthrates
So growth can never sustain without a proper income distribution inthe country
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In Pakistan, there is a basic problem of unsustainable growth over theyears
To fulfill the needs of rapidly growing population and for their well
being sustainable growth is required
High inequality has a direct, negative effect on welfare
This fact has forced many researchers to conduct income distributionand welfare studies to suggest policies accordingly
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This study investigates inequality, welfare and growth based on percapita household income/consumption in Pakistan and its rural-urbanareas by employing a consistent methodology
This consistency is in terms of welfare indicator, unit of measurementand measures employed
In specific the main objective of the present study is to present aconsistent time series of (income and consumption) inequalities,
welfare and growth in Pakistan and its rural-urban areas from 1963-64 to 2004-05
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Literature Review
A large number of studies have been conducted on the measurementof income or consumption inequalities in Pakistan
The choice of income unit has been another issue of debate in themeasurement of income inequalities
Another difference lies in the choice of economic well-being indicator
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Table 1
All studies are conducted for a short period of time and
their findings to some extent are not comparable with eachother due to differences in measure of inequality,data source, indicator of well-being
and unit of measurement
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Table 2
It clearly reveals contradiction among various studies
These differences are due to differences in methodology adopted by
different studies
Hence the results of earlier studies are not comparable
So a consistent series of the estimates of income and consumptioninequalities is required
The present study is an attempt to bridge this gap
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The Data And Methodological Issues
3.1 Data Source
The present study is based on published data sets of HouseholdIntegrated Economic Surveys (HIES)
To give a consistent long-term analysis of income distribution andwelfare we need the data for all years in the same format
The objective of presenting a long-term trend in inequality and welfarefrom the last four decades in Pakistan can be fulfilled only by groupeddata
The area coverage of the study is overall Pakistan and its rural-urbanareas
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3.2 Welfare Indicator
The two most important and commonly used indicators of welfare areincome and consumption
In this study, both indicators of welfare are used
Both has pros and cons
Income may leads to under reporting
Consumptions shows better picture
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3.3 Frame of Reference (Aggregate household and per capita household)
The household as the frame of reference ignores the household sizewhile per capita measure takes household size into account
In the present study, measured inequality using per capita householdas the frame of reference
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3.4 Selection of Measures
3.4.1 Inequality Measure
Gini coefficient is the most widely used measure of inequalitybecause it has neat statistical and graphical Interpretation
Gini coefficient is the ratio of the area between the line of absoluteequality and the Lorenz curve to the total area below the line ofabsolute equality
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3.4.2 Welfare Measure
For the measurement of welfare Sens welfare index (1974) isused which takes into account both the size and the distribution
of income
Thus one of the advantages of using Sen welfare index is thatit is Gini-based. It is defined as:
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3.4.3 Real Mean Income and Consumption
The variations in real income / consumption show the true variations
in purchasing power of income units
They are obtained by inflating / deflating nominal mean figures withconsumer price indices
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Results and Discussion 4.1. Income and Consumption Inequalities
This section presents results on household per capita income andconsumption inequalities for Pakistan and its rural-urban segments
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Income does not always necessarily reflect the true living standards.The households with high per capita income do not always necessarilyenjoy high living standards
Consumption expenditure under such cases can be a better indicator ofliving standards
Moreover there are less chances of under-reporting in consumptionexpenditures as compared to income levels
In the present study it was, therefore, felt worthwhile to measureconsumption inequalities along with income inequalities
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Inequality was generally higher in the urban areas
May be because urban wages are more unevenly distributed due tothe more variations in the skills and education of the urban labor force
Increased urbanization can be another factor responsible for higherinequalities in urban areas
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4.2. Growth in Income and Consumption
The figures of per capita household real mean income and consumptionin general show rising trends
However possibly due to high inflation rates the figures decline for fewyears
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4.3. Income and Consumption Welfare
Sen welfare index is mean biased as far as the Gini coefficientassumes a value less than 0.5
In case of Pakistan Gini never reached this value so trend in welfareis almost same as that of growth in real mean income
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Summary
The estimates of per capita household income inequality showed fluctuatingtrends throughout the period of analysis
Most of the times both income and consumption inequalities followed
same trends. The exceptions were found in mid 80s and early 90s in urbanPakistan
Another finding is that the extent of inequality in consumption has been by-and-large less than the extent of income inequality
Income and consumption inequalities were more severe in urban areasthan in the rural areas
Generally real per capita household mean income (and consumption)increased over the time
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Recommendations Policies can be devised to narrow the disparities based on these long term
trends in inequality and welfare and emphasis should be on economicdevelopment rather than economic growth only
Improved access to education can raise the earning opportunity of the lowest
income groups and thus can help in reducing income disparities andimproving welfare
Policies concentrating only on the industrial sector ignoring the agriculturesector would have adverse effects on the income distribution in the country
Thus it seems that there is a need of another green revolution along with aproper emphasis on the industrial sector
The need of political stability is crucial to avoid the inconsistency in publicpolicies and to have their effective impact on the income distribution
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Thank You