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Effects Of Policy On Poverty In Pakistan Economics Essay

"Impact of rural credit fund upon poverty alleviation initiatives: findings of a distributed lag model for Pakistan from 1985- 2009"

Poverty is in fact a macro phenomenon that cultivates in developing countries, development being the key motive in the early stages of a newly established country hence the poor classes are neglected in the initial discussions of the country’s development. Once the economy of the country in question adapts to a certain path of growth, poverty comes in play. Those who were neglected before now affect the economy in a negative manner. The policy makers realize their mistakes in the past and now plan to reduce poverty. As discussed earlier, poverty is not a tree that you can cut off; it is not a fruit that you can bite away. Poverty is like the environment, it slowly absorbs the affects of different development policies and erupts when it can’t absorb no more. Poverty too absorbs all that’s around it and it starts to eat away the economy from the inside, only solution would be to cure it from within. That’s right, poverty cannot be destroyed or sent to exile, it needs cure and the body (the country) will itself strive and prosper just like a human body after it has doses of antibiotics injected in it.

This purpose of this study is to analyze the effects of different policies that have been undertaken over the years on the levels of poverty that have prevailed in history. This paper will highlight the significance of the variables chosen to undertake this task of distinguishing the impact levels of different policies on the levels of poverty in Pakistan. Recently microfinance has emerged in this global village to fight against the chaos that poverty causes in the growth cycle of the developing countries. After gaining success from Bangladesh, a country similar to Pakistan in numerous ways, microfinance has come to aid Pakistan. This study will mainly focus on the variables that influence the poverty environment of Pakistan. Mainly the injections into the economy which are expected to decrease this deficiency.

Poverty head count ratio has been used as the dependent variable to assess the affect on poverty levels in Pakistan; subsidies and transfer payments, rural credit fund, food inflation, political regime trends and workers’ remittances are the independent variable that have been chosen to depict the picture of Pakistan’s policies with regard to poverty alleviation.

PHR is the only data available that can compare the levels of poverty from 1985-2009 persistent in Pakistan. However some data was unavailable for some years, since this limitation of data interpolation technique has been used to obtain the missing values of PHR.

Pakistan being a developing country is not known for offering high scale jobs and most of the population of Pakistan is known to apply to other countries to earn their livelihoods hence remittances of workers’ abroad is used as a variable to observe the effect they have on the economy of Pakistan with regard to poverty.

Subsidies and transfer payments on the other hand are the government funds injected into the economy to aid the sectors in need of money specifically those which affect the economy of Pakistan on a significant level. The study seeks to deduce the impact on the level of poverty by the subsidies and transfer payments granted by the government of Pakistan.

Rural credit fund assesses the development of microfinance institutes in Pakistan. An increase in the rural credit fund will depict the increase in the outreach and the development of the microfinance network in Pakistan. Furthermore this will assess the sector of the economy which is directly involved in the poverty alleviation program of Pakistan.

Food inflation is a significant variable to evaluate the effect of increasing consumption prices to the level of poverty in Pakistan. Increase in commodity prices directly affects the poor who spend a massive portion of their income as consumption expenditure as they have higher propensity to consume.

Pakistan has seen various leadership scenarios in its history of 64 years and it has survived amidst dictatorship, military rule and a democratic government. However it is believed on a greater scale that a democratic government has been responsible for catering to the need of the poor in a better way as compared to other forms of political regimes. This dummy variable has been chosen to signify the relationship of the various political regimes on the level of poverty alleviation.

Variables

Source

Operational definition

Dependent

Poverty headcount ratio

WDI, Economic survey of Pakistan (interpolated for missing values)

It is the proportion of the national population whose incomes are less than the official mark which is set by the government of Pakistan. PHR is the dependent variable of this research and will assess the impact of changes in the independent variables that has occurred in the history of Pakistan from 1985-2009.

Independent

Subsidies and transfer payments

WDI

It is the aid that the government provides to different sectors of the economy. The variable in this case will used to assess the effect on PHR of Pakistan. An increase in the level of subsidies is expected to decrease the PHR of Pakistan.

Rural credit fund

Handbook of statistics for Pakistan

This is the main variable which will depict the incidence of microfinance institutions in rural areas of Pakistan on the poverty levels. . An increase in the level of Rural credit fund is expected to decrease the PHR of Pakistan.

Political regime

Dummy variable via observation

The study chooses this variable to check for the affect of political stance on the poverty reduction. The dummy variable if 1 is for political regime such as democratic and 0 is for other political stance such as dictatorship. Where democratic regimes are expected to have a positive effect on the poverty alleviation projects in Pakistan.

Workers’ remittances

WDI

It is the amount of money that is transferred to Pakistan by people working abroad. This variable indicates the effect of money inflows from abroad hence taking part in development process of Pakistan hence affecting the poverty levels. . An increase in the level of workers’ remittances is expected to decrease the PHR of Pakistan.

Food inflation

WDI

It is the impact of increase in food prices and its effect on the poverty levels in the economy. . An increase in the level of food inflation is expected to increase the PHR of Pakistan.

3.2 Statement of Research Hypotheses

To determine the relationship between Subsidies and transfer payments and Poverty headcount ratio

H0: No significant relationship between Subsidies and transfer payments and Poverty headcount ratio

HA: Significant relationship between Subsidies and transfer payments and Poverty headcount ratio

To determine the relationship between Rural credit fund and Poverty headcount ratio

H0: No significant relationship between Rural credit fund and Poverty headcount ratio

HA: Significant relationship between Rural credit fund and Poverty headcount ratio

To determine the relationship between Food inflation and Poverty headcount ratio

H0: No significant relationship between Food inflation and Poverty headcount ratio

HA: Significant relationship between Food inflation and Poverty headcount ratio

To determine the relationship between Political regimes and Poverty headcount ratio

H0: No significant relationship between Political regimes and Poverty headcount ratio

HA: Significant relationship between Political regimes and Poverty headcount ratio

To determine the relationship between Workers’ remittances and Poverty headcount ratio

H0: No significant relationship between Workers’ remittances and Poverty headcount ratio

HA: Significant relationship between Workers’ remittances and Poverty headcount ratio

3.3 Elements of Research Design

Type of Research

This study is secondary in nature as it works upon data taken from previous researches and using it to assess the conclusion to our problem definition.

Study Setting

The study will be conducted in a natural non-contrived environment with no influence on any variable.

Nature of Data

The nature of data will be time series as it includes information recorded with the same measurements on a regular basis and that which is available at the same time interval for many areas in question.

Sources of data

WDI, Economic Survey of Pakistan and Handbook of Statistics of Pakistan

Unit of Analysis

The unit of analysis for this study is the country i.e. Pakistan.

Reference Period

The reference period will be 25 year, from 1985 till 2009.

Data Reliability

The data being analyzed in this research is collected from various authentic research oriented sources to ensure data validity such as the Economic Survey of Pakistan, World Development Indicators, Handbook of Statistics of Pakistan; however the data is cross checked amongst the sources to be rid of any biases that may occur during the research and to ensure the authenticity of the future outcome of this study.

Analytical Approach

This study will involve statistical analysis of the accumulated data to infer the cause and effect relationship between the dependent and the independent variables.

Expected Nature of Finding

Based on the past researches and various trends in the variables under exercise, it is expected that the variables selected to assess the role of microfinance institutes and other influencing variables with relation to poverty will have a direct relationship as the variables measure the affect on poverty

3.4 Data Collection Preferences and Related Procedures

Poverty has been the key issue in almost every developing country however in case of Pakistan the date for the poverty levels was insufficient and incomplete. The variables encompassing the level of poverty residing in the country lacked significant information. The variable for assessing poverty, Poverty headcount ratio was retrieved from various secondary sources such as WDI and Economic Survey of Pakistan and interpolated accordingly to fill in for the missing data. However the data on the independent variables was readily available from WDI and Handbook of Statistics of Pakistan and it was sufficient for the study to take place hence no interpolation was required for the independent variables. The sources used for this study are well known for their authenticity and validity; and these sources have been used to conduct numerous researched all over the world.

3.5 Statement of Analytical Approach and Methodology

The model has been generated using OLS technique on Stat-graphics software version 16. The dependent variable is the Poverty Headcount Ratio and the rest are the dependent variables. Political Regime is the dummy variable and the Subsidies and Transfer Payments variable has been lagged once due to its delayed impact on the dependent variable that has been observed from past researches and articles. Hence a change that occurs now in the lagged variable will affect the Poverty Headcount Ratio after a lag of one time period.

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