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Determinants of Rural Poverty in Pakistan: A Micro Study: The Pakistan Development Review
Determinants of Rural Poverty in Pakistan: A Micro Study: The Pakistan Development Review
Using micro survey data obtained from a Punjab village we study a large number of
rural-specific and household-specific variables besides landholding, in an attempt to
determine their role in raising levels of living of rural masses. We investigated the reasons
as to how some of the landless households managed to escape poverty whereas some
cultivating households failed to do so. The main factors responsible for this outcome were
found to be favourable/unfavourable distribution by size of landholding, household size,
educational attainment, dependency ratio, participation rates, female-male ratio, and age of
the household head. The landless households escaping poverty, however, remained in a
low-income category. Whereas our analysis highlighted the importance of institutional
setting for a better distribution of assets and access to resources, at the same time it pointed
to the fact that numerous non-farm activities also enable the rural households to generate
incomes and thus avoid poverty.
1. INTRODUCTION
As the experience of a large number of LDCs in general and that of Pakistan in
particular shows, the substantial advances in agricultural production on account of the
Green Revolution failed to benefit the lower sections of rural society especially in
relative terms [Naseem (1973), p. 317; Guisinger and Hicks (1978), p. 1274]. Although
considerable interest was generated to study the possible trickle-down effect that
might have resulted from increased productivity in the agricultural sector, yet the
conclusions were rather of a mixed nature. In this regard, it seems appropriate to
mention Griffin (1981), who provides a persuasive account of the relationship between
high agricultural growth and absolute/relative condition of a significant proportion of
rural population in Asia. According to Griffin,
of the rural population has declined. That is, despite the growth of per
capita income and per capita agricultural output, large numbers of
people in Asia have experienced absolute impoverishment (p. 289).
Griffin points out three main causes behind this phenomenon, what he calls
immiserising growth: (i) concentration of productive wealth, especially land, in a few
hands; (ii) resultant high degree of inequality in income distribution; and (iii) the control
by a small segment of the population of the instruments of the state and the use of these
to further their own economic interests.
There is little to disagree with in the above explanation. The experience of
Pakistan since the seventiese.g., undiminished inequality in land distribution and high
growth leading to increased inequality and diminished absolute poverty seem to be
consistent with that view. As it is generally believed, such a trend may have been due
to the influence of some non-farm factors. One can further add that the poverty of rural
masses may not be completely eradicated through the redistribution of land alone
because there simply is not enough land to go round. However, redistribution of land
must provide a major component of any such attempt [Chaudhuri (1979); Lipton
(1991)].
With these observations in mind, we study a large number of rural-specific and
household-specific variables besides landholding, in an attempt to determine their role
in raising levels of living of rural masses. In Section 2 below we outline, briefly, the
data and methodology used. Section 3 provides the framework for evaluation, while
results are reported in Section 4. Lastly, in Section 5, we offer concluding remarks and
policy implications.
Table 1
Primary Survey Data Summarised
1989-90 1986-87
Indicators (Present Survey) (FBS Survey)
Total Household 100 9459
Total Population 625 59781
Members/HH 6.25 6.32
Earners/HH 1.62 1.70
Total LHO (Acres) 8.30
LHO/HH 8.30
LHO (Gini) 0.56 0.55+
Income/HH (Rs)* 2794.00 1774.83
Income/per Capita 446.04 282.00
Pov Line I 192.65 170.56
II 215.62 190.70
HCR (Pop) I 18.56 21.42
II 20.32 27.01
LHO = Landholding; HCR = Headcount Ratio.
+
Based on 1980 Census data; * Income/month.
The survey was a one-shot exercise and repeated surveys were not possible.
Within the community, the objective was the total enumeration of households. The
village had 100 households and 100 percent enumeration was obtained. In general,
households tended to have multiple attributes in terms of sectoral and organisational
involvements. Data on production activities, income, and employment were obtained.
Per capita rural income is considered to be an important measure of the level of
living and, hence, is used as the key/dependent variable here. The hypotheses as
outlined in the next section are tested mainly by means of decomposition of FGT index
for =2 [Foster et al. (1984)] in terms of various characteristics/determinants of the
rural households level of living. In the end, regression analyses are also carried out to
confirm the above results.
Landholding (LHO)
The ownership/holding of agricultural land is considered to be the main factor
capable of pulling a household/individual out of poverty. The variable used here is the
extent of landholding per household in acres. This incorporates owner-cum-share-
174 Shahnawaz Malik
croppers as well as share-croppers. On the basis of the role it plays in a rural economy,
we hypothesise that landholding has an income-enhancing (poverty-mitigating) role.
Education (EDU)
It is generally believed that the best investment of all is the one made in people.
According to human capital models, education is an important dimension of non-
homogeneity of labour. Hence, high educational attainment may imply a larger set of
employment opportunities, and specifically in a rural context a better awareness of the
full potential of the new agricultural technology and associated agricultural practices.
The education data in our survey is obtained according to the following procedure:
It would be proper to note that there was greater differentiation to any education
upto secondary level. Indeed it would be desirable to measure the variable continuously
by equating points with numbers of years of schooling. However, the above procedure
is followed to keep the analysis within manageable limit.
The required level is arrived at by dividing total of educational points by the
household size. In view of its potential role we hypothesise that the higher the
educational attainment, the higher the per capita income.
Rural Poverty in Pakistan 175
upper age bracket (40 years and above), we assume a negative relationship between
these two variables.
Table 2
Distribution of Landholding, Survey Data, 1989-90
Size HH % Cumu- Area % Cumu-
(in Acres) (No.) of Total lative (in Acres) of Total lative
Landless 19 19 19
12.5 10 10 29 20 2.3 2.3
2.65.0 19 19 48 70 8.2 10.5
5.16.5 15 15 63 94 11.0 21.5
6.612.5 23 23 86 225 26.3 46.8
12.625.0 6 6 92 109 12.8 60.0
25.150.0 6 6 98 204 23.9 84.5
50.0 & + 2 2 100 132 15.5 100.0
Gini Coefficient = 0.56
Rural Poverty in Pakistan 177
Table 3
Decomposition of Poverty (FGT Index, =2) by Size of
Landholding Based on Micro Survey Data, 1989-90
Average % % Share
Size Number Popu- Income Group in Total FGT
(in Acres) of HH lation of Poor Poverty Poverty (=2)
Landless 19 19 121.11 65.00 65.8 0.089
12.5 10 54 154.00 61.00 18.3 0.025
2.65.0 19 126 155.32 17.00 11.5 0.006
5.16.5 15 76 145.83 11.00 4.4 0.006
6.612.5 23 162
12.625.0 6 49
25.150.0 6 43
50.0 & + 2 16
Total 100 625 137.14 20.32 100.0 0.016
intensity of poverty is most severe among the landless population, with FGT measure
equal to 0.089. This sub-group also contributes most prominently to total poverty: 65.8
percent of total population in poverty is accounted for by this sub-group. Both intensity
and contribution to total poverty decline as the size of landholding increases, which is in
line with our hypothesis.
As noted above, 9 landless households (out of 19) have, somehow, managed to
escape poverty. Let us follow these 9 households in some detail. One household
consisting of four members has been able to acquire a tractor (through some loans and a
retirement gratuity) which is run on a commercial basis. Two households, each
containing four members, run their own small businesses. We find one of these 9
households as the only member of the household, a blacksmith by profession. The
remaining five households are government employees. One can infer a lot from this tiny
bit of information. For instance, small household size together with favourable earners
ratio is enough to avoid poverty. This has already been illustrated by this author using
aggregated HIES data [Malik (1992)]. Presently, we cross-check it with the help of
micro survey data. The results are given in Table 4.
The estimates of the decomposed FGT measure show that the intensity of
poverty gradually increases with household size upto 7 members/household. This sub-
group with 0.033 FGT measure also contributes most prominently to total poverty:
31.66 percent of total population in poverty is accounted for by this sub group. As
already noted, the household size found most prone to rural poverty was one with 7-8
members/household. Furthermore, the household size considered to be the optimal one
(with 4 members) experiences a far lower intensity of povertyi.e., an FGT measure of
just 0.003. Here, once again, our hypothesis is not falsified.
178 Shahnawaz Malik
Table 4
Decomposition of Poverty (FGT Index, =2), HH Size by
Members, Micro Survey Data, 1989-90
Average % Share
HH Number Income % Group in Total FGT
Size of HH of Poor Poverty Poverty (=2)
1 1
2 1
3 6
4 11 166.63 18.18 4.74 0.003
5 16 133.33 18.75 17.00 0.018
6 24 136.58 25.00 30.21 0.021
7 17 133.88 35.29 31.66 0.033
8 9 145.88 11.11 5.99 0.007
9 9 134.28 22.22 10.40 0.019
10 & + 6
Table 5
Decomposition of Poverty (FGT Index, =2), by Educational
Attainment Based on Micro Survey Data, 1989-90
Average % Share
Education Popu- Income % Group in Total FGT
Codes lation of Poor Poverty Poverty (=2)
000 123 132.50 59.00 61.40 0.057
0.011.00 101 114.31 37.30 36.70 0.056
1.013.00 349 175.92 4.40 1.90 0.0003
3.01 & + 52
Total 625 137.14 20.32 100.0 0.016
Rural Poverty in Pakistan 179
lation with no educational attainment. The FGT measure for this sub-group is equal to
0.057. This sub-group also contributes most to total poverty: 61.4 percent of total
population in poverty is accounted for by this sub-group. Both intensity and
contribution to total poverty decline as the level of educational attainment increases.
Hence, a high educational level may imply a larger set of employment opportunities and
higher wages. This fact is further verified from Table 6, which suggests that in 1984-85
an educated employee (with education upto secondary level) earned far higher wages,
Rs 1337/month, as compared to an illiterates Rs 714/month.
Table 6
Average Monthly Wages of Employees by Level of Education
and Industry in Rural Pakistan, 1984-85 (Rs/Month)
Illiterate Matric
& Less than Less than and
Primary Primary Matric Above
Agriculture 558 739 1080
Manufacturing 750 638 1004 3890
Construction 611 762 1016 1333
Trade 642 931 979 970
Transport 811 1038 997 2139
Social Services 839 1019 1077 2754
All 714 889 992 1337
Household Income and Expenditure Survey, 1984-85.
It was, therefore, not surprising to see these households avoiding poverty. All
these 9 households are, however, placed in a low-income group. This brief discussion
leads to the conclusion that small household size, own businesses, and reasonable
education level and employment are the factors that help in escaping poverty but cannot
ensure reasonable income levels.
Now a few words about the 10 households which are cultivators but unable to
escape poverty. These households have small landholdings ranging from 2 acres to 4
acres and, at the same time, large household sizes ranging from 4 members to 9
members per household. Further, with negligible educational levels, the employment
opportunities are non-existent. Some of the members work as casual labourers but this
status does not guarantee regular earnings to avoid poverty. A closer look at the
economic situation of these households reveals that their poverty can be best explained
in terms of unfavourable setting of one or more of dependency ratio, participation rates,
and female-male ratio.
To get a closer view of the above three aspects, we have decomposed the FGT
index of poverty in terms of each of these. We start with the dependency ratio which
180 Shahnawaz Malik
Table 7
Decomposition of Poverty (FGT Index, =2), by Dependency
Ratio Based on Micro Survey Data, 1989-90
Average % Share
Dependency Popu- Income % Group in Total FGT
Ratio lation of Poor Poverty Poverty (=2)
0.000.33 255 150.00 3.92 6.33 0.002
0.340.50 193 155.78 11.92 12.25 0.004
0.511.00 177 131.64 53.11 81.42 0.053
Total 625 137.14 20.32 100.00 0.016
Table 8
Decomposition of Poverty (FGT Index, =2), by Participation
Rates Based on Micro Survey Data, 1989-90
Average % Share
Participation Popu- Income % Group in Total FGT
Ratio lation of Poor Poverty Poverty (=2)
0.000.33 155 146.64 16.23 16.40 0.009
0.340.50 363 131.27 25.62 81.11 0.026
0.511.00 108 175.92 8.33 2.49 0.001
Total 625 137.14 20.32 100.00 0.016
Rural Poverty in Pakistan 181
Table 9
Decomposition of Poverty (FGT Index, =2), by Female-Male
Ratio Based on Micro Survey Data, 1989-90
Average % Share
Female-Male Popu- Income % Group in Total FGT
Ratio lation of Poor Poverty Poverty (=2)
0.000.67 283 139.86 14.84 32.50 0.009
0.681.50 283 147.96 17.31 31.75 0.011
1.51 & + 59 143.50 61.02 35.75 0.040
Total 625 137.14 20.32 100.00 0.016
Y = BX + U
In order to have an optimal use of the survey data, the regression analysis has
been carried out at three different levels, as described below:
(i) analysis of the complete sample of 100 households to infer into the totality;
(ii) analysis on the basis of higher income households (43 households with per
capita income greater than Rs 300 per month); and
(iii) analysis on the basis of lower income households (57 households with per
capita income less than Rs 300 per month).
The results are reported in Table 10. As we can see, the explanatory power of
regression Equation 1, as measured by R2 is significantly high. The joint test of
significance, F-test, is accepted at 1 percent level. The results suggest that the
coefficients on LHO, HSZ, AST, EDU, and DEP are significant at 1 percent to 5
percent level and have signs in accordance with our hypotheses. The coefficients of
FMR and AGE have the correct signs with the latter significant at 10 percent whereas
the former gives insignificant result. Just as we anticipated in the previous section, the
PAR has given inconclusive results.
Rural Poverty in Pakistan 183
Table 10
The Determinants of Rural Income/Capita
Log-linear Regression Results, 1989-90
Estimated Estimated Estimated
Explanatory Coeff. Coeff. Coeff.
Variables (Eq. 1) (Eq.2) (Eq. 3)
Intercept 7.08 7.13 6.21
(8.67) (4.74) (9.68)
LHO 0.061 0.095 0.034
(3.96) (2.40) (2.89)
HSZ 0.412 0.478 0.340
(2.90) (1.91) (2.66)
AST 0.074 0.041 0.004
(6.36) (2.03) (0.24)
EDU 0.089 0.106 0.062
(3.67) (1.73) (3.66)
DEP 0.184 0.180 0.226
(1.97) (1.16) (2.36)
PAR 0.011 0.688 0.156
(0.06) (1.93) (1.10)
FMR 0.036 0.036 0.149
(0.53) (0.28) (2.83)
AGE 0.263 0.304 0.057
(1.27) (0.79) (0.36)
2
R 0.62 0.46 0.58
F-test 18.63 3.58 7.26
Note: Equation 1 is based on the complete sample of 100 households.
Equation 2 is based on 43 higher-income households.
Equation 3 is based on 57 lower-income households.
The dependent variable is rural income/capita.
The figures in parentheses are t-ratios.
LHO = Landholding (area in acres). HSZ = Household size.
AST = Other assets. EDU = Household education level.
DEP = Dependency ratio. PAR = Participation rate.
FMR = Female male ratio. AGE = Age of the household head.
184 Shahnawaz Malik
percentage rural poverty is found to be in line with the declining trend of rural
poverty in Pakistan.
(ii) The disaggregated nature of data has enabled us to pursue the problem of rural
poverty in some detail. For instance, investigation of the reasons as to how some
of the landless households managed to escape poverty whereas some cultivating
households failed to do so gave us some useful information. To explain this
phenomenon we attempted to see the relationship between poverty and certain
household-specific characteristics, mostly by undertaking FGT decomposition.
The main factors responsible for this outcome were found to be
favourable/unfavourable distribution by size of landholding, household size,
educational attainment, dependency ratio, participation rates and female-male
ratio. Those households escaping poverty, however, remained in a low-income
category.
(iii) Another problem discussed was poverty among female-headed households. The
evidence showed that female-headedness characterised mainly by widowhood
has a possibility of ending up in poverty. However, given that there were just
two such cases, this conclusion needs to be viewed with caution.
(iv) The analyses were carried out at three different levels: on the basis of complete
sample, low-income level, and higher-income level. We found some of the
explanatory variables behaving differently at different levels of analysis, which is
as expected. Landholding, household size, household educational level, and
dependency ratio were found to influence the dependent variable (rural income
per capita) in a significant way. Other assets and household educational level
were found to enhance the per capita income of the high-income households as
compared to that of the low-income households. The rationale behind this is
well-understood.
(v) The two variables, female-male ratio and age of the household head, gave correct
signs but did not perform well. Participation rate, a measure of rural
employment, however, gave some useful results. The hypothesis that the
extremely poor participate less than the poor but more than the non-poor was
confirmed by our analysis.
In sum, the possibility of falling below the poverty-line is lower for a household
with a larger area to cultivate for its own, access to other productive assets, a smaller
number of dependents, greater participation in non-farm work, and a higher education
level. Whereas our analysis highlights the importance of an institutional setting with a
better distribution of assets and access to resources it points, at the same time, it points
to the fact that numerous non-farm activities also enable the rural households to
generate incomes and thus avoid poverty.
186 Shahnawaz Malik
Appendix
Appendix 1
VILLAGE SURVEY, 1990
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