In The Name of Allah, The Most Beneficent AND The Most Merciful

IN THE NAME OF ALLAH,
THE MOST BENEFICENT

AND
THE MOST MERCIFUL
i
RURAL DEVELOPMENT, ECONOMIC GROWTH AND
POVERTY: EVIDENCE FROM PAKISTAN
A Thesis Submitted to:
BAHAUDDIN ZAKARIYA UNIVERSITY, MULTAN

For the Degree of:
“DOCTOR OF PHILOSOPHY IN ECONOMICS”
Under the Supervision of:
Professor Dr. Shahnawaz Malik
Accomplished By:
Rao Ishtiaq Ahmad,

Ph. D Research Scholar
(2013)
DEPARTMENT OF ECONOMICS,
BAHAUDDIN ZAKARIYA UNIVERSITY, MULTAN (PAKISTAN)
ii
DECLARATION
I, Rao Ishtiaq Ahmad, a Ph. D Research Scholar in

Department of Economics, Bahauddin Zakariya University, Multan
(Pakistan), do hereby solemnly affirm and declare that this research work
has been accomplished by me under the supervision of Professor
Dr. SHAHNAWAZ MALIK, for the purpose of submitting it as a
requirement to grant the degree of “DOCTOR OF PHILOSOPHY IN
ECONOMICS”. All the sources of information have been acknowledged in
this thesis.
(RAO ISHTIAQ AHMAD)

Ph. D Research Scholar,
Department of Economics,
Bahauddin Zakariya University,
Multan (Pakistan)
(2013)
iii
iv
TO
PARENTS
(Who instruct me how to live diligently, and educate me to live with capability)
CORPORAL
Rao Nizam-ud-Din (Marhoom O Maghfoor), and Bilqees Begum
&
SPIRITUAL
Professor Dr. Shahnawaz Malik (Ph. D Supervisor)
Asst. Professor Riasat Ali Rao (College)
Master Sikandar Mirza (High School)
Master Intizar Hussain (Middle School)
Master Muhammad Yousaf (Primary School)
v
SUMMARY
INTRODUCTION
Poverty is the core issue of South Asian countries where poverty prevails
consistently and it is an immense obstacle in the way of development of these countries.
Like other South Asian countries, Pakistan is also struggling to combat against the genie
of poverty. It is also well known fact that poverty is a rural phenomenon in developing
countries like Pakistan. Hence, in this study we focus our attention towards rural aspect
of the poverty. Out of different channels to alleviate rural poverty we choose to
investigate the impact of rural infrastructural development on rural poverty alleviation of
the Pakistan. Therefore, in this study, question of thesis will be to determine the effects
of “rural infrastructural development” on poverty alleviation and growth enhancement of
rural Pakistan because it is believed that rural infrastructural development has two way
effects on poverty reduction. Firstly, it directly affects the poverty scenario of the masses
through employment generation. Secondly, it helps the masses to fight against the
poverty through growth enhancement because increased growth has supposed to be
helpful for poverty reduction of the country.
OBJECTIVES
In this study we have three main objectives. First of all we want to

explore not only the status of rural infrastructural development in Pakistan but also
extend the analysis while exploring the spatial distribution of rural infrastructural
development in Pakistan on the basis of provinces. Secondly, we want to capture the
effects of rural infrastructure development on growth enhancement of the country. For
this purpose we conduct the analysis at two levels i.e. micro and macro. At micro level,
we investigate the impact of rural infrastructural development on rural household’s per
capita income while at macro level we examine the impact of rural infrastructural
development on economic growth of Pakistan. Thirdly, we take into consideration the
relationship between rural infrastructural development and rural poverty reduction of
Pakistan.
vi
METHODOLOGY
For finding out the status of rural development and analyzing spatial
distribution of rural infrastructural development in Pakistan we employ “Pakistan 2008
Mouza Statistics” and conduct descriptive analysis of the data. Whereas for finding out
the impact of rural infrastructural development on rural household’s income, growth and
rural poverty of Pakistan, we employ GoP (2005-06) i.e. PSLM Survey and various
issues of Economic Surveys of Pakistan. For the purpose of finding out the impact of
rural infrastructural development on rural household’s income we utilize OLS
methodology. So as to find out the impact of rural infrastructural development on
economic growth of Pakistan we exploit the time series analysis and use OLS
methodology after taking into consideration the issues of spuriousness and stationarity.
And the technique of Logit Modeling has been employing by us to find out the impact of
rural infrastructural development on rural poverty reduction of Pakistan at micro level.
KEY FINDINGS
The rural infrastructural development in Pakistan has not attained an

adequate level. The status of rural infrastructural development could not be termed as
satisfactory and sufficient for improving the quality of life in rural areas of Pakistan.
Such an underdevelopment in provision of infrastructure to rural areas of Pakistan has
further been devastated by an unequal distribution among different provinces of the
country. Skewed spatial distribution of infrastructural variable in rural areas of Pakistan
is an obvious result of the analysis which points out Punjab as most advantageous region
while Balochistan as most disadvantageous region in this regard.
So far as role of rural infrastructural development in economic

development of Pakistan is concerned, we find that rural infrastructural development has
the force to enhance economic growth of Pakistan, to augment rural household’s income
and also to reduce poverty in rural areas of Pakistan. It has also been noticed that role of
rural infrastructure for the objectives mentioned earlier, is that of secondary nature with
comparison to renowned determinants in this regard. Specifically, availability of
electricity and gas has been proved as the robust infrastructure variables for obtaining
vii
these objectives in case of Pakistan. We also find by disaggregated analysis of the data
set that impact of different types of variables in different provinces is different and for
each province a different type of infrastructural variable has been proved important in
enhancing economic growth, augmentation of rural household’s income and reducing
rural poverty.
viii
TABLE OF CONTENTS
TITLE PAGE
In The Name of Allah i
Title Page ii
Declaration iii
Certificate vi
Dedicated To v
Summary vi
Table of Contents ix
Acronyms and Abbreviations xv
List of Tables xiii
List of Figures xx
Acknowledgements xxi
CHAPTER 1 INTRODUCTION 1
1.1 Background of the Study 1
1.2 Objectives of the Study 6
1.3 Data and Methodology 8
1.4 Organization of the Study 9
CHAPTER 2 TRENDS AND PATTERN OF POVERTY IN
11
PAKISTAN
2.1 Introduction 11
2.2 Poverty Profile 12
2.2.1 Absolute Poverty 13
2.2.1.1 Pervasiveness of Poverty in Pakistan 14
2.2.1.2 Social Sector Development 17
2.2.1.2.1 Education 17
2.2.1.2.2 Health 18
2.2.1.2.3 Population Welfare 21
2.2.1.2.4 Environment 23
2.2.2 Other Concepts of Poverty 25
2.2.2.1 Relative Poverty 25
2.2.2.2 Vulnerability 27
2.2.2.3 Transient Poverty 29
2.2.3 Decomposition Analysis 30
2.2.3.1 Gender Analysis 31
2.2.3.2 Spatial Analysis 32
2.2.4 Government Initiatives to Combat Poverty 34
2.2.4.1 Benazir Income Support Programme 34
2.2.4.2 Pakistan Poverty Alleviation Fund 35
ix
2.2.4.3 Peoples Works Programmes 35
2.2.4.4 PBM 35
2.2.4.5 Initiatives of Punjab Government 36
2.3 Rural Poverty In Pakistan 37
2.3.1 Broad Developments 37
2.3.2 Social Sector Developments 38
2.3.3 Ancillary and Long-Run Developments 39
CHAPTER 3 SURVEY OF LITERATURE 41
3.1 Introduction 41
3.2 Historical Background of Poverty Theory 41
3.3 Literature Review 45
3.3.1 Review Articles and Evaluative Studies 45
3.3.2 Infrastructural Development and Growth 48
3.3.2.1 Rural Dimensions of Infrastructure and Growth 58
3.3.2.2 Evidence from Pakistan Economy 61
3.3.3 Infrastructural Development, Growth and Poverty 62
3.3.3.1 Rural Dimensions of Infrastructure, Growth and
65
Poverty
3.3.3.2 Evidence from Pakistan Economy 71
3.4 Issues Associated to Subject Matter of the Research
72
Themes
3.4.1 Selection of Region as Rural for Analysis 73
3.4.2 Model Selection as Single Equation Model 74
3.4.3 Quantification of Infrastructure Variables 75
3.4.4 Selection of Micro Data for Analysis Purposes 76
3.5 Hypotheses to Be Tested in the Study 77
3.5.1 Hypotheses to be Tested for Micro Analysis 77
3.5.2 Hypothesis to be Tested for Macro Analysis 81
3.6 Conclusion 82
CHAPTER 4 THEORY OF RURAL DEVELOPMENT,
84
ECONOMIC GROWTH AND POVERTY: A REVIEW
4.1 Introduction 84
4.2 Accepted Wisdom on Poverty Notion 85
4.2.1 Measurement of Poverty 87
4.2.1.1 Indicators Used to Measure Poverty 88
4.2.1.2 Establishing the Threshold 89
4.2.1.3 Diminutive Statistic 90
4.2.1.3.1 Headcount Ratio 91
4.2.1.3.2 Poverty Gap Index 92
x
4.2.1.3.3 Squared Poverty Gap Index 93
4.2.2 Poverty Reduction: Policies and Demographic
94
Characteristics
4.2.2.1 Macro Approach to Poverty Reduction 95
4.2.2.2 Micro Approach 97
4.2.2.2.1 Regional Level Characteristics and Poverty 98
4.2.2.2.2 Community Level Characteristics and Poverty 98
4.2.2.2.3 Household Level Characteristics and Poverty 99
4.3 Gist of Rural Development 101
4.3.1 Rural Development Themes over Time 102
4.3.2 Rural Infrastructural Development and Poverty
104
Reduction
4.3.2.1 Direct Impact of Rural Infrastructural
105
Development on Poverty Reduction
4.3.2.2 Indirect Impact of Rural Infrastructural
107
Development on Poverty Reduction
4.4 Conceptualization of Rural Development for Poverty
107
Reduction
4.5 Conclusion 112
CHAPTER 5 MEASUREMENT OF RURAL DEVELOPMENT,
ECONOMIC GROWTH AND POVERTY: SOME 114
BASIC ISSUES
5.1 Introduction 114
5.2 Datasets to be Exploited 115
5.2.1 Distinctiveness of the Data Sets 116
5.2.1.1 Pakistan Mouza Statistics 2008 117
5.2.1.1.1 Basic Information of Survey 118
5.2.1.1.2 Methodological Issues of Survey 118
5.2.1.2 Pakistan Social and Living Standards
119
Measurement Survey 2005-06
5.2.1.2.1 Basic Information of Survey 120
5.2.1.2.2 Sampling Frame of Survey 122
5.2.1.2.3 Stratification Plan and Sampling Design of
122
Survey
5.3 Variables to be Utilized in the Analysis 123
5.3.1 Determinants of Rural Household s Incomes 123
5.3.1.1 Household Income as Dependent Variable 124
5.3.1.2 Household Level Characteristics as Independent
124
Variable
5.3.1.3 Community Level Characteristics as Independent 128
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Variable
5.3.2 Rural Infrastructural Development and Economic
129
Growth
5.3.3 Rural Infrastructural Development and Rural
130
Poverty
5.3.3.1 Dependent Variable 131
5.3.3.1.1 Poverty Line 131
5.3.3.1.2 Quantification of Poverty 132
5.3.3.2 Independent Variables 134
5.4 Conclusion 135
CHAPTER 6 RURAL DEVELOPMENT IN PAKISTAN: AN
137
ANALYSIS
6.2 Rural Development: Encompassment of the Services
138
within Vicinity
6.2.1 Land Utilization and Crops Cultivation in Pakistan 139
6.2.2 Sources of Irrigation 140
6.2.3 Sources of Drinking Water 142
6.2.4 Taste of Drinking Water, Filtration and Toilet
144
Facility
6.2.5 Sources of Fuel to be used for Domestic Purposes 146
6.2.6 Residential Public Facilities 147
6.2.7 Sources of Employment 148
6.2.8 Status of Industry 151
6.2.9 Social Organizations 152
6.2.10 Mass Communication 154
6.3 Rural Development: Accessibility to Services 156
6.3.1 Social Sector Facilities 156
6.3.1.1 Education 157
6.3.1.2 Health 159
6.3.2 Transport, Communication and Energy Sector
160
Facilities
6.3.2.1 Transport 161
6.3.2.2 Communication 162
6.3.2.3 Energy 162
6.3.2.4 Spatial Distribution 163
6.3.3 Market and Banking Sector Facilities 164
6.3.3.1 Markets 164
6.3.3.2 Banks 165
6.4 Composite Index of Principal Variables 167
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6.4 Conclusion 170
CHAPTER 7 RURAL INFRASTRUCTURAL DEVELOPMENT AND
ECONOMIC GROWTH IN PAKISTAN: A MICRO 174
ANALYSIS
7.2 Rural Infrastructural Development and Incomes of
176
Rural Inhabitants in Pakistan: A Micro Study
7.2.1 Model 177
7.2.2 Regression Estimates of Rural Infrastructural
181
Development for Rural Household s Income
7.2.2.1 Estimation Results for Pakistan 181
7.2.2.2 Estimation Results for Provinces 185
7.2.2.2.1 Estimation Results for Balochistan 185
7.2.2.2.2 Estimation Results for Khyber Pakhtunkhwa 189
7.2.2.2.3 Estimation Results for Punjab 191
7.2.2.2.4 Estimation Results for Sindh 193
7.3 Conclusion 196
RURAL INFRASTRUCTURAL DEVELOPMENT, AND
CHAPTER 8 ECONOMIC GROWTH: MACRO EVIDENCE FROM 199
PAKISTAN (1981-2010)
8.2 Theoretical Background and Model 201
8.3 Estimation 202
8.3.1 Problems relating to Stationarity and Spurious
203
Regression
8.3.2 Regression Results 204
8.4 Conclusion 206
CHAPTER 9 RURAL INFRASTRUCTURAL DEVELOPMENT AND
POVERTY ALLEVIATION IN PAKISTAN: AN 208
EMPIRICAL ANALYSIS
9.2 Model 209
9.3 Regression Estimates of Rural Infrastructural
212
Development for Poverty Alleviation in Pakistan
9.3.1 Estimation Results for Pakistan 212
9.3.2 Estimation Results for Provinces 215
9.3.2.1 Estimation Results for Balochistan 215
9.3.2.2 Estimation Results for Khyber Pakhtunkhwa 218
9.3.2.3 Estimation Results for Punjab 220
9.3.2.4 Estimation Results for Sindh 223
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9.4 Conclusion 225
CHAPTER 10 CONCLUDING REMARKS AND POLICY
229
IMPLICATION
10.2 Rural Development in Pakistan 230
10.3 Impact of Rural Development on Economic Growth
232
of Pakistan
10.3.1 Micro Analysis: Impact of Rural Infrastructural
232
Development on Rural Household s Income
10.3.2 Macro Analysis: Impact of Rural Infrastructural
234
Development on economic growth of Pakistan
10.4 Impact of Rural Development on Rural Poverty
235
Alleviation of Pakistan
10.5 Concluding Paragraph 237
10.6 Policy Implications and Recommendations 238
REFERENCES 242
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ACRONYMS AND ABBREVIATIONS
ACO Agricultural Census Organization

ACF Auto-correlation Function
ADF Augmented Dicky Fuller
CPI Consumer Price Index
CSP Child Support Programme
CSW Civil Society Wing
DEDPS The Development Economics Discussion Paper Series
DFID Department for International Development, UK
FAO Food and Agricultural Organization (United Nations)
FBS Federal Bureau of Statistics
FCND Food Consumption and Nutrition Division
FDI Foreign Direct Investment
FEI Food Energy Intake
FSP Food Support Programme
GAD Gender and Development
GDP Gross Domestic Product
GNP Gross National Product
GoP Government of Pakistan
HC Headcount Ratio
HDI Human Development Index
HIES Household Integrated and Economic Survey
IFA Individual Financial Assistance
IFAD International Fund for Agricultural Development
IILS International Institute for Labour Studies
xv
ILO International Labour Organization
LHV Leady Health Visitor
LPM Linear Probability Model
m.ha Million Hectare
MICS Multiple Indicator Cluster Survey of Punjab
MOUZA A territorial/financial/revenue unit in Pakistan to show small
villages in the country
MDGs Millennium Development Goals
NCsRCL National Centers for Rehabilitation of Child Labour
NGO Non-Governmental Organization
ODI Overseas Development Institute
OED Operation Evaluation Department
OLS Ordinary Least Square
PAS Pakistan Agricultural Census
PBM Pakistan Bait-ul-Mal (an Islamic concept of handling revenues
and expenditures of the state)
PFSS Punjab Food Support Scheme
PIHS Pakistan Integrated Household Survey
PMDC Pakistan Medical and Dental Council
PNC Pakistan Nursing Council
PPAF Pakistan Poverty Alleviation Fund
PSDPs Public Sector Development Programmes
PSLM Pakistan Social Living Standard Measurement
PSU Primary Sampling Unit
PGI Poverty Gap Index
PRSP Poverty Reduction Strategy Paper
SME Small and Medium Enterprises
xvi
SPM Suspended Particulate Matter
SAP Social Action Programme
SPI Sen Poverty Index
SPGE Squared Poverty Gap Index
SYB Statistical Year Book
UNDP United Nations Development Programme
UNHS Uganda National Household Survey
VTC Vocational Training Center
WB World Bank
WID Women in Development
ZAKAT Under the Islamic provisions, a financial obligation upon
affluent segment of the society to help the deprived segment
xvii
LIST OF TABLES
No Title Page
2.1 Headcount Ratio in Pakistan 14
2.2 Literacy Rate (10+) in Pakistan (%) 17
2.3 Enrollment Rate in Pakistan (%) 19
2.4 Health Indicators and Preventive Measure of Health in Pakistan 20
2.5 Curative Measures for Health in Pakistan 21
2.6 Demographic and Population Welfare Indicators of Pakistan 22
2.7 Gini Coefficient in Pakistan 26
2.8 Ratio of Highest Quintile to Lowest Quintile 27
2.9 Vulnerability to Weather Shocks in Pakistan 28
Decomposition Analysis of Social Sector Development by Region
2.10 31
and Gender (%)
Decomposition of Data on Poverty for Urban and Rural Areas of
2.11 32
Pakistan
2.12 Province Wise Poverty in Pakistan 33
Variables of the Model (Investigating Rural Infrastructural
5.1 125
Development for Rural Household’s Income) and Their Definition
Variables used in Logit Model, Their Definition and Theoretical
5.2 133
Expectation
6.1 Cultivated Area and Major Crops in Pakistan 139
6.2 Sources of Irrigation in Pakistan 141
6.3 Water Courses in Pakistan 143
6.4 Sources of Drinking Water 144
6.5 Taste, Filtration (Drinking Water) and Toilet Facility 145
6.6 Sources of Fuel for Domestic Use 147
6.7 Residential Public Facilities 148
6.8 Sources of Employment (Gender Analysis) 149
6.9 Status of Industry 152
6.10 Social Organizations 153
6.11 Mass Communication Facilities 155
6.12 Social Sector Facilities (Accessibility Analysis) 157
Social Sector Facilities (Accessibility Analysis): A comparative
6.13 160
Analysis of the Provinces (Spatial Distribution)
Transport, Communication and Energy Sector Facilities
6.14 161
(Accessibility Analysis)
Transport, Communication and Energy Sector Facilities
6.15 (Accessibility Analysis): A Comparative Analysis of the Provinces 163
(Spatial Distribution)
6.16 Markets and Banking Sector Facilities (Accessibility Analysis) 166
Markets and Banking Sector Facilities (Accessibility Analysis): A
6.17 167
Comparative Analysis of the Provinces (Spatial Distribution)
6.18 Composite Index of Principal Variables 169
xviii
Log-Linear Regression Estimates of Rural Infrastructural
7.1 183
Development and Rural Household’s Income: Results for Pakistan
7.2 Development and Rural Household’s Income: Results for 186
Balochistan
7.3 Development and Rural Household’s Income: Results for Khyber 190
Pakhtunkhwa
7.4 192
Development and Rural Household’s Income: Results for Punjab
7.5 195
Development and Rural Household’s Income: Results for Sindh
Double-Log Regression Estimates of Rural Infrastructural
8.1 205
Development and Economic Growth of Pakistan (1981-2010)
Logit Regression Estimates of Rural Infrastructural Development
9.1 214
and Rural Poverty: Results for Pakistan
9.2 217
and Rural Poverty: Results for Balochistan
9.3 219
and Rural Poverty: Results for Khyber Pakhtunkhwa
9.4 221
and Rural Poverty: Results for Punjab
9.5 224
and Rural Poverty: Results for Sindh
xix
LIST OF FIGURES
No Title Page
4.1 Theoretical Framework of Thesis 111
6.1 Cultivated Area in Pakistan (Spatial Distribution) 140
6.2 Sources of Irrigation (Spatial Distribution) 140
6.3 Water Courses in Pakistan (Spatial Distribution) 142
6.4 Sources of Drinking Water (Spatial Distribution) 142
6.5 Taste, Filtration (Water) and Toilet Facility (Spatial Distribution) 146
6.6 Sources of Fuel for Domestic Use (Spatial Distribution) 146
6.7 Residential Public Facilities (Spatial Distribution) 149
6.8 Sources of Employment for Male (Spatial Distribution) 149
6.9 Sources of Employment for Female (Spatial Distribution) 150
6.10 Status of Industry (Spatial Distribution) 150
6.11 Social Organization for Male (Spatial Distribution) 154
6.12 Mass Communication (Spatial Distribution) 154
6.13 Education Sector Facilities (Spatial Distribution) 158
6.14 Health Sector Facilities (Spatial Distribution) 158
6.15 Transport Communication Facilities (Spatial Distribution) 162
6.16 Energy Facilities (Spatial Distribution) 162
6.17 Market Facilities (Spatial Distribution) 165
6.18 Banking Facilities (Spatial Distribution) 165
xx
ACKNOWLEDGEMENTS
It was a laborious assignment! And it is a day of thanksgiving! First of all
thanksgiving to the Almighty ALLAH who enabled me to agglomerate this dissertation
and it wouldn't have materialized into a reality without His help, kindness and
compassion. After ALLAH Almighty, I would like to thank to our dearest Prophet
Hazrat Muhammad (SAWAW) on behalf of whose personality I thought to choose the
topic of poverty for my Ph. D dissertation because he throughout his lifespan tried to help
the humanity in every respect. There had been the contributions of so many of my
benefactors and well wishers and it would be out of question for me to enlist the names of
all of them here. But whether their names appear here in this acknowledgment or not, I
want to assure them that their gestures of goodwill have never been gone forgotten nor
will they ever be (In’Sha’Allah).
All the words of gratitude and veneration fall incapacitated to express my
feelings for my supervisor Professor Dr. Shahnawaz Malik. It was his very personality
who was always there in with the most prudent and heedful of advice and guidance
whenever I needed. He was the person who always bailed me out of all the intricacies of
research with a smiling face and I owe him the most earnest and heartfelt gratitude.
I, however, would like to mention a few names of my family members
here who suffered a lot during my research work. Even though they suffered, yet they
were always ready to help me and I believe that my success heavily depends upon their
prayers. I am thankful to my deceased father Rao Nizam ud Din (May Allah Almighty
takes his soul to JANNA’tul’FIRDOUS and bestows him final success for all the
xxi
examinations in the life hereafter, AAMEEN. He left us alone in this world on 8th of
November, 2012. He was most anxious for my degree but he has not enough time to see
this day of honour in my life, however, his prayers remained with me even after his
departure), my mother Bilqees Begum, my brothers Altaf Hussain (elder), Afaq Ahmad,
Irshad Ahmad, Shahzad Ahmad (youngers), my sisters Rashida Nizam and Abida Nizam,
my wife Noreen Zafar, my kids Khadeeja Sameen, Abdul Waa’say and Abdul Shaa’fay,
my brothers-in-law and sisters-in-law; Riasat Ali, Muhammad Pervez, Robina, Tahira,
Reena, Sumera, Mukhtiar, Adnan, Noman, Ghufran, Ali, and Shan, my nephews and
nieces; Neelofer, Komal, Akmal, Danish, Saba, Talmeez, Saboora, Tahreem, Ajmal,
Bilal, Maheen, Sidra, Hafsa, Abdul Mateen, Abdul Rahman, Maria, Abdul Raafay, Aisha,
Zainab, Abdul Wahab and Abdul Basit! I am, indeed, at loss of words to enumerate their
real contribution during the whole course of my research work. I owe everything of it to
them. They all have always been a source of positive support and encouragement. I
tender the most profound of gratitude to all of them. And, in fact, it was owing to the
whole of my family that today I may be able to complete the degree of Doctor of
Philosophy. All the best of wishes for them in return, it is, no matter, a humble offering.
It says gems are precious, but some people are a cut above, the most precious and rarest
of gems too, for me, “MY FAMILY MEMBERS” are such persons. All my words go
their way.
Professor Dr. Toseef Azid, Professor Dr. Imran Shareef Chaudhry, and
Dr. Zahir Faridi also deserve due words of thanks, not only for keeping the atmosphere of
the department so congenial for the execution of research at this level but also for their
personal guidance and support. I am extremely thankful to all other members of the staff
xxii
especially Professor Dr Abdul Hafeez Chaudhry, Professor Dr. Karamat Ali along with
Professor Dr. Shafqat (Arabic Department, BZU, Multan) for great encouraging attitude,
convivial and loving behavior in their own different ways. All the ministerial and clerical
staff members of the Economics Department such as Muhammad Khalid, Ishtiaq Rizwi,
Muhammad Hussain, Haji Sahib, Baqir, Shah Gee, Rana, Nazar…., who do their best to
endow with all sorts of non-technical help at the time whenever I called for. I have a
special place in my heart for all of them.
I am also highly indebted to Dr. Babar Aziz (F.C College University,
Lahore), Shehzad Hussain (Asst. Professor, NDU, Islamabad), Rana Shahid Ali Khan
(Deputy Director, NAB) and Abo Ul Hassan Hashmi (Asst. Professor in Punjab
Government) for their constructive, beneficial and up-to-the-minute preliminary help
during my research work.
It would be injustice if I will not mention here the ingenuous endowment
of Ms. Rabia Awan (Chief Statistical Officer, Federal Bureau of Statistics, Islamabad)
and Muhammad Akram Khan (Additional Agricultural Census Commissioner,
Agricultural Census Organization, Federal Bureau of Statistics, Lahore). They were very
kind to me and I always found them ready to lend a hand whenever I was in need of it in
order to attain data for analysis phase of my thesis. I acknowledge their unfeigned
contribution. I also wish to thank HEC for providing me the financial support in this
regard. I also want to keep in my prayers the parent department of Judiciary for granting
me leave in this regard.
All my friends and fellow research students, especially; Rao Qasim, Rao
Naveed, Rao Zulfiqar, Abdul Raoof, Imran Abbas Thaheem, Shahid Akram, Mehmood
xxiii
Ul Hassan, Nadeem, Hafiz Azhar, Khalid Mehmood, Safdar Ali, Mian Abbas, Rahmat,
Khizer, Malik Shahid Kareem, Asif Nadeem, Furqan, Arshad Sahib,.… and many more
with whom I shared the most valuable moments of life. They all deserve a thorough
expression of acknowledgement. They are the people who shared with me the most
jeering as well as the most intriguing moments of my stay at BZU campus. They never let
me feel bored, never off-track and never stuck-up. They were a continuous source of
moral support for me and I feel my heart-full of all gratitude for them. I owe all of them a
great deal.
RAO ISHTIAQ AHMAD

2013
xxiv
CHAPTER 1
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Economic Growth is the necessary but not sufficient condition for
economic development. In the absence of equitable distribution, even high economic
growth fails to protect the masses from falling into the vicious circle of poverty.
Economic growth along with equitable distribution has the input function for poverty
reduction. Out of different channels of equitable distribution, government’s role has a
significant position. Recently beneath Market-Friendly approach, it is recognized that
although ‘Free Market’ has a momentous job for economic development of
underdeveloped countries, even then the role of government also could not be
neglected in certain fields such as infrastructure, health, education etc (Todaro and
Smith, 2008). As poverty in South Asia is a rural phenomenon and huge number of
poor people lives in the rural areas, therefore, in South Asian countries government’s
role for the development of rural area is a foremost bludgeon against poverty.
Government’s role for rural development is one of important elements to promote
economic growth and development, which further helps reducing poverty. Especially
pro-poor government spending has substantial effect on poverty reduction.
Rural area comprises of two fundamental sectors i.e. farm, and non-
farm. These two sectors are termed as engine for rural development. Infrastructural
1
development is also an important factor for rural development in the sense that it not
only chains farm and non-farm sectors to promote rural development but also proves
to be helpful in employment generation and productivity enhancement in both these
two sectors of rural areas (African Development Bank, 1999, and Reardon, 2001).
Whereas poor rural infrastructure hinders rural development and does not help
reducing poverty because it creates market disintegration in rural sector, it diminishes
opportunities of employment for rural inhabitants in farm and non-farm sectors, it
causes shrinkage to trade in rural sector for different commodities (Germano and
Thorbecke, 2001). With this perspective, in this study we take into consideration the
role of infrastructure for economic growth and poverty reduction in rural Pakistan.
In earlier studies even infrastructural development was not the core
issue, but it has been taken as a significant variable for economic development,
economic growth, capital formation, industrialization, public finance etc.
Rosenstein-Rodan (1943) discussed the problems of industrialization and described
that profitability of infrastructural investment has earlier been neglected and it should
be considered properly for promotion of industrialization in eastern and south eastern
European countries. Nurkse (1953) took into consideration the under-developed
world and declare that insufficient infrastructure is one of the limiting factors that
should be broken for improvement in capital formation. Ekstein (1957) mentioned
different policy weapons for enhancement of economic growth and suggested
investment in public services as one of the important factors. Rostow (1959)
elaborated the stages of economic growth and pointed out social overhead capital1 as
1
Earlier in literature infrastructure was named as social overhead capital.
2
a necessary element which has long lasting outcomes and affects the whole society
but it is lumpy in nature.
It is also found out that public intervention through infrastructure not
only has the force for regional economic development but also helps to reduce
regional inequalities. Binswanger and Deininger (1997) mentioned poor
infrastructure as a core characteristic of rural areas. The infrastructure has been
available at a long distance from rural communities, consequently poor people has to
face high transaction costs which results in growing poverty of the masses belonging
to rural areas. While discussing importance of public investment for poverty
reduction of rural areas in India, Fan et al (2000) concluded that improved rural
infrastructure along with technology have been found significant factors for poverty
reduction depending upon agro-ecological characteristics of different zones. Keeping
in view the core problem of poverty in rural areas, Ashley and Maxwell (2001)
analyzed various policies for rural development and suggested different options for
better rural development. Out of these options, provision of public goods to farm
sector has been recognized as an important measure of rural development.
Infrastructure can be divided into four major categories namely: Social
Infrastructure (education, health, sanitation etc), Agricultural Infrastructure
(irrigation, extension facilities etc), Exchange Infrastructure (market centers etc), and
non-Market Institutions (social networks and safety nets). The government has to
make expenditures in developing infrastructure for rural development. Improved
infrastructure for rural areas enhances the force of rural communities to fight against
the giant of poverty which consistently resides in rural areas of the world. The rural
3
infrastructural development has a two way effect on poverty reduction. On one hand
it promotes agricultural growth and then agricultural growth props up overall
economic growth which helps reducing poverty. On the other hand it directly reduces
poverty in the course of employment provision –employment due to expansion and
enhancement in rural sector economic activities and also the employment through
pro-poor Public Works Programs for rural development–. Therefore, the role of rural
infrastructural development in poverty reduction could not be neglected. Along with
other determinants of poverty reduction, the rural infrastructural development may
also have been taken as an important factor that has significant impact for poverty
reduction.
Pakistan belongs to South Asia. Likewise other South Asian
economies poverty is rural phenomenon in Pakistan too. Larger segment of poor
people belongs to rural areas in Pakistan. Malik (1988) estimated that poverty in
urban areas of Pakistan steadily declined during 1963-88, while both the rural poverty
and the overall poverty in Pakistan had the same trend that poverty increased in sixties
and declined in the end of seventies and middle of eighties. Qureshi and Arif (2001)
estimated poverty profile of Pakistan till 1998. They confirmed the results of Malik
(1988) till 1987 and also estimated that poverty trends for both the rural areas of
Pakistan and the whole of Pakistan from 1987 to 1998 were the same i.e. declined till
1992 and then increased.
Historically poverty reduction policies adopted by Government of
Pakistan can be categorized into three main heads: Public Works Programmes for
asset creation and employment generation, Microfinance Programmes to increase
4
income opportunities, and Social Protection Programmes. Recently, Poverty
Reduction Strategy, 2001 has identified five major areas of intervention for poverty
reduction in the country. These are revival of economic growth, income generation,
creation of employment opportunities, human development, strengthening of social
safety net programs to reduce vulnerability, and improvement in governance
[ADB (2002)]. In Pakistan during 1960s, and 1980s growth in GDP was reckoned
about 6 percent per annum and during 1970s and 1990s it was about 4 percent per
annum. Therefore, the average GDP growth of Pakistan is 5 percent per annum since
its independence which is noteworthy for a country whose future was predicted to be
25 years on its existence. But growth was not translated into the masses and regions
appropriately. Rural society lagged behind and suffered from poverty highly. It
requires periodic analysis of the effects of ‘government’s role for rural development’
on poverty and growth.
South Asian economies are agrarian in nature. Rural development
must be the central issue for development of these economies. Generally rural
development has received low priority in Pakistan and government spending for rural
development was not in line with the experience of developed countries and also not
in line with the practices of the economies with similar conditions but with better
results. Rural societies long suffered the erosion in their living conditions on grounds
such as biased urban development, focus on industrialization, and non-
implementation of real strategy for rural development, all on behalf of elitist class in
Pakistan. Rural-urban migration is also the result of low rural development in
Pakistan, which is a most important source of inequality in urban areas. The strategy
for economic development in Pakistan was turned and considered rural development
5
as the part of broader social development when in 1980s it came to the scene that
Pakistan’s rank in Human Development Indicators is bleakly low. The recent turn on
policy in Pakistan is recognition of global emphasis on investment in rural
infrastructural development which helps, intellectually and empirically, not only in
growth enhancement but also in poverty reduction.
1.2 OBJECTIVES OF THE STUDY
On the basis of above discussion we may observe that rural
development is the core issue for progress of developing countries like Pakistan where
agriculture is the dominant sector of output. Therefore, rural development for poverty
reduction is the main area of concern for this study. As mentioned above farm and
non-farm sectors together with infrastructure are the main engines of rural
development. Performance of farm and non-farm sectors depends upon development
of infrastructure, therefore, historically rural infrastructural development remained a
core issue of rural development. Hence, in this study, question of thesis will be to
determine the effects of “rural infrastructural development” on poverty reduction and
growth enhancement in rural areas of Pakistan so that on the basis of the inferences of
the study future policies for poverty reduction in Pakistan may be able to play their
best possible role. Hypothesis behind the thesis is this that rural infrastructural
development not only gears up the growth but also helps the poor people to break the
vicious circle of poverty.
With this background the main objectives of this study are:
6
a) To capture the status of rural development in Pakistan. This may
be proved helpful to observe the efforts of government for rural
development in Pakistan.
b) Decomposition analysis of rural development in Pakistan on
spatial basis (province-wise). This may help to find out the
spatial distribution of rural development in Pakistan.
c) To find out the impact of rural development on economic growth
of Pakistan through infrastructural development. Keeping in
view data limitations, this study not only finds out the impact of
rural development on economic growth at macro level but also at
micro level while probing the determinants of rural household’s
income in Pakistan.
d) Decomposition of micro analysis which investigates the
determinants of rural household’s income in Pakistan on spatial
basis (province-wise) so that it may be possible to capture the
wide-ranging impacts of rural infrastructural development on
incomes of rural inhabitants in Pakistan.
e) To bring to surface the role of infrastructure for poverty
reduction in rural areas of Pakistan so that with the help of this
study, evidence from Pakistan may be included in the literature
for the purpose of exploring this area of research.
7
f) Province-wise decomposition of the analysis focusing rural
infrastructure for poverty reduction in Pakistan
1.3 DATA AND METHODOLOGY
Most of the analysis in this study comprises of the primary data sets
but as per need of the study, secondary sources of the data may also be utilized in this
regard. Main data sets to be evaluated for the purpose of core analysis are as under:
1. Household Integrated Economic Survey 2005-06
2. Pakistan 2008 Mouza Statistics
3. Economic Survey of Pakistan (Various Issues)
Along with core analysis, it has also been tried to present the facts and
figures of Pakistan economy as per need of the study. For this purpose following data
sets will also be employed accordingly:
1. Pakistan Statistical Year Books
2. Household Integrated Economic Surveys (various issues)
3. Population Census Report (various issues)
4. Publications provided by the public sector of Pakistan
5. ADB Publications
6. ILO Publications
7. World Bank Publications
8
8. World Development Reports
Keeping in view above mentioned objectives of the study three
different methodologies will be employed for the purpose of analysis. Firstly, not
only descriptive analysis of ‘Pakistan 2008 Mouza Statistics’ will be conducted so as
to discover rural development in Pakistan but also try to construct a composite index
of principal variables of the interest in this regard. Secondly, time series econometric
analysis on secondary data of Pakistan will be conducted so that it may be possible to
discover the impact of rural infrastructural development on economic growth of
Pakistan at macro level. Lastly, primary data set provided by the Statistics Division
of Pakistan will be employed so as to conduct a cross-sectional econometric analysis
for finding out the impact of rural infrastructure not only on household’s income but
also on poverty reduction in rural areas of Pakistan at micro level.
1.4 ORGANIZATION OF THE STUDY
The study has been organized in ten different chapters. Chapter No.1
introduces the problem. In Chapters No. 2 to 5, it has been endeavored to present
helping material regarding the study so that background for core issues of the thesis
may be fabricated properly. Thereafter, attention on core questions of the study will
be paid in Chapters No. 6-9 for the purpose of analysis. Finally, on the basis of
helping and core material of the study, we draw conclusions in Chapter No. 10.
In helping materials firstly, ‘Poverty Profile of Pakistan” in the next
chapter i.e. Chapter No. 2, will be covered. Then a brief survey of literature has been
presented in Chapter No.3. Thereafter, in Chapter No. 4 it has been tried to construct
9
the conceptual framework of the thesis whereas Chapter No. 5 discusses in detail the
data and methodology to be utilized for the purpose of core analysis.
Core issues of the study have been investigated in four chapters.
Chapter No. 6 not only discovers the status of rural development in Pakistan but also
endeavors to present spatial distribution of rural development in Pakistan on the basis
of provinces. In Chapter No. 7 & 8, it has been attempted to investigate the role of
rural infrastructure for economic growth of Pakistan. On account of data limitations
analysis has been disaggregated over two data sets i.e. cross-sectional analysis at
micro level in Chapter No. 7 and time series analysis at macro level in Chapter No. 8.
So far as Chapter No. 9 is concerned an effort has been made to find out the effects of
rural infrastructural development on poverty reduction of rural households in
Pakistan.
After final conclusions in Chapter No. 10, a list of references has been
mentioned at the end of the thesis.
10
CHAPTER 2
TRENDS AND PATTERN OF POVERTY IN
PAKISTAN
2.1 INTRODUCTION
Pakistan is a developing country situated in South Asia where a
significant proportion of World poor breathes together. Pakistan also contributes a
considerable share in this proportion and about one third of its population lives below
an estimated threshold of poverty. This is why poverty as a vital ingredient of
economic development widely attracted the interest of academicians and researchers
specifically belonging to Pakistan and South Asia. We also choose the topic of
“determinants of poverty reduction in Pakistan” and want to quantify empirically the
force of rural infrastructural development in this scenario. The main theme of the
study regards to poverty in Pakistan, therefore, before entering into theoretical and
analytical phase of the study it will be better to discuss the state of Pakistan economy
with the background of poverty so that we may be able to familiarize with the
importance of research question of the thesis.
In this chapter we may try to create a “poverty profile” of Pakistan
economy so as to summarize all such facts and figures which could point out the
deprivation state of affairs of the country and consequent deficiencies to be faced by
the populace. The chapter has been divided into four main sections i.e. Section: 2.1 is
Introduction, Section: 2.2 presents Profile of Poverty in Pakistan, and Section: 2.3
11
attempts to demonstrate poverty scenario of rural areas of Pakistan because rural
sector is the region which we select for analysis purpose in this study and conclusions
are drawn in Section: 2.4. We further divide Section: 2.2 into five major sub-sections.
The sub-section: 2.2.1 may try to capture the incidence of poverty in Pakistan within
the perspective of welfarist 1 approach of poverty. In sub-section: 2.2.2, we endeavor
to discover social sector development in case of Pakistan (non-welfarist2 approach)
and the sub-Section: 2.2.3 takes into consideration different other important concepts
of poverty which are closely related to poverty incidence, therefore, we attempt to
highlight the concerned facts and figures of Pakistan economy. Sub-section:2.2.4
may try to decompose the poverty profile of Pakistan on the basis of regions and
gender. In sub-section:2.2.5, we congregate the efforts made in Pakistan to combat
the poverty.
2.2 POVERTY PROFILE
To construct a poverty profile the techniques of tabulation, graphs, and
mapping will be heavily utilized in literature, however, the purpose of a poverty
profile is to assess the changes to be occurred in economic scenario of a country
which could affect the poverty level of the populace of that country. A detailed
approach to construct a poverty profile will be discussed in World Bank (1993) and
World Bank (2009), however, as a ready reference the poverty profile should be
1
Welfarist approach has been formulated and described by Sen (1979) and followed by renowned
economists such as Ravallion (1993) etc.
2
Non-Welfarist approach could be divided into two main categories i.e. a) Basic Needs (described by
Ul-Haq, Burki, Streeten, Hicks), and b) Capabilities Approach [formulated and described by
Sen (1992)].
12
representative of poverty trends (absolute or relative) which are analyzed not only
under the welfarist and non-welfarist approaches but also disaggregated these trends
among different regions, groups and sub-groups on the basis of different
characteristics associated to individuals, vicinities and environment of the same
country (Malik, 1992, 1995) so that a comprehensive picture of poverty could be
captured and used in further analysis. Under the guidance of conventional principles
in this regard we make an effort to build up the poverty profile of Pakistan in the
followings:
2.2.1 Absolute Poverty

Whenever we talk about poverty the first and utmost concept arise in
the minds will be that of absolute poverty. Poverty of a region could also be analyzed
through the concepts other than absolute poverty such as social sector development,
relative poverty, vulnerability, and transient poverty etc. All such concepts are even
analogous to poverty while suggesting that whether poverty prevails in the region or
not but these concepts of poverty are unable to depict the proportion of the population
which is below a certain threshold of poverty i.e. incidence of poverty, or the distance
of poor from that threshold i.e. intensity of poverty, or inequality among different
parts of poor segment of the society i.e. severity of poverty. This is why absolute
poverty acquires the prime role in representation of poverty profile of any region.
Hence, firstly we discuss absolute poverty in the country. However, absolute poverty
could be distinguished as welfarist approach and non-welfarist approach as described
by different school of thoughts in the literature. Welfarist approach consider
monetary aspect of life for taking into consideration the poverty of a region while
non-welfarist approach points out the non-monetary aspect of life when measuring the
13
poverty of the populace. Adam Smith also talked about non-monetary aspect of life
when discussing the poverty of the different regions. Both these school of thought
have equal importance to present the poverty level of any society. We also try to
highlight both these pictures of the Pakistan Economy in the followings.
2.2.1.1 Pervasiveness of Poverty in Pakistan
Table: 2.1
HEADCOUNT RATIO IN PAKISTAN
Year Percentage Year Percentage
1963-64 40.24 1992-93 22.40
1966-67 44.50 1996-97 31
1969-70 46.53 1998-99 32.60
1979 30.68 2000-01 34.46
1984-85 24.47 2004-05 23.94
1987-88 17.32 2005-06 22.3
1990-91 22.11 - -
Source: GoP (1999), GoP (Various Issues-i)
Volatility is an obvious inimitability for economic indicators related to
Pakistan economy. Similarly, we could observe volatility in above table because
headcount ratio remarkably slows down during 1980s, and then sharply moves up
during 1990s. Again the evidence during first half of first decade relating to 20th
century shows that poverty is remarkably decreasing in Pakistan. Thereafter, again an
increasing trend has been documented. Table: 2.1 shows the poverty trends of
Pakistan economy while taking into consideration the headcount measure of poverty
because of two main reasons; first the simplicity of the measure while showing
proportion of society to be poor and secondly the sequential availability of the
14
measure in data sources. However, a limitation is still to face when we try to evaluate
the poverty trend of Pakistan that no uniform methodology for estimating a certain
threshold has been used in poverty measurement studies till 19901, therefore, we may
lack the reliability of analysis in this regard. But we have no other option except to
follow the available evidence, therefore, under this limitation the analysis has been
representing here.
Table: 2.1 clearly shows that poverty declined in Pakistan from 40% in
1963 to 22.3% in 2006 which suggest that Pakistan succeeded to halve its poverty in
forty years which is striking performance for a developing country like Pakistan.
However, high level of volatility is also evident from the table from decade to decade
i.e. from 40% to 17%, then from 17% to 35% and then again from 35% to 22%.
Question arises here that “what causes volatility and how to handle it?” This question
gives the way to additional research themes for poverty in Pakistan. In the following
we may discuss different important elements which were regarded in literature as vital
factors in poverty reduction of Pakistan.
Economic growth could be considered as an important factor for
poverty reduction in Pakistan because inverse relationship exists between economic
growth and poverty reduction from 1980s to onward. In 1980s high growth is evident
along with decline in poverty; in 1990s low growth is noticed with increment in
poverty and recently in first half decade of 20 th century, with growth enhancement the
poverty has been reduced. However, here we could not neglect also the direct
1
In 1990, the Planning Commission of Pakistan firstly estimated the official poverty line for Pakistan
while taking into consideration 2350 calories per adult equivalent per day as adequate nourishment
and described it as Rs. 670 per capita per month.
15
relationship of growth with poverty reduction before 1980s. Irfan and Amjad (1984)
investigated the factors which are responsible for equivalent changes in growth and
poverty during 1960s and 1970s and blamed structural changes in the economy-
which favour landlords and upset the labour class in 1960s while favouring labour
class in Bhutto’s era of 1970s- for direct relationship of growth and poverty in case of
Pakistan.
Land reforms of 1970s, agricultural credit enhancement on account of
nationalization of banks, Public Works Programme initiated by democratic regime of
1970s, remittances from Middle East, Rural Development Schemes initiated in
“Five Point Programme” of democratic government of 1980s are also considered to be
responsible for poverty reduction in Pakistan till the end of 1980s. The factors which
are blamed to increase the poverty of Pakistan in 1990s will be poor economic growth
on account of imposed structural adjustment programmes by IMF and World Bank
without considering the characteristics of the economy, inflation, lowered public
sector employment, and decreased rate of wages [Kemal (1995)].
On the basis of earlier evidence, the essential factors for poverty
reduction in Pakistan are mentioned in above paragraph. On account of rural nature
of the economy we put our attention towards Rural Infrastructural Development as a
significant factor. We also want to explore that whether the role of rural
infrastructural development could also be proved helpful for poverty reduction at
micro level or not? Therefore, in this thesis we focus not only towards micro
correlates of poverty but also explore the topic at macro level. We hypothesize that
rural infrastructural development may also have the force to enhance economic
16
growth and to reduce poverty significantly. Hence, we try to collect evidence in this
regard while utilizing macro and micro data on the topic.
2.2.1.2 Social Sector Development
Under welfarist approach we highlight the incidence of poverty in
Pakistan while considering the monetary factors by choosing the threshold procedure
whereas in non-welfarist approach we may evaluate the status of social sector
development in Pakistan so as to capture non-monetary aspects of poverty in Pakistan.
Our evaluation comprises of four major sectors of social welfare i.e. education, health,
population and environment.
Table: 2.2
LITERACY RATE (10+) IN PAKISTAN

Year Percentage Year Percentage
1951 13.2 1999-2000 47.1
1961 18.4 2001-02 45
1972 21.7 2004-05 53
1981 26.2 2005-06 54
1990 34.9 - -
Source: Banuri et al (1992), GoP (Various Issues-i), GoP (2001-02), GoP
(2004-05), GoP (2005-06)
2.2.1.2.1 Education
Performance of education sector in Pakistan could be termed as poorer
by all the measures of evaluation either we may consider literacy rate or enrollment
rate or gender ratio or teacher-student ratio. First of all we may look at literacy rates
of Pakistan since its inception.
17
In Table: 2.2 we could observe that literacy rate has risen from 13.2%
in 1951 to 54% in 2005-06 which means about four times increase in the literacy. It
could be termed as a considerable achievement but in comparative sense the literacy
rate of Pakistan is worst in the World and stands among least positions. The severity
of the problem is evident from the fact that Pakistan’s literacy rate is well below those
countries whose GNP per capita is near about equal to Pakistan such as Ghana,
Nigeria and Vietnam etc. As per GoP (Various Issues-iii), the literacy rate for the
FY1998 is very poor for rural areas (33.6% for rural areas compare to 63% for urban
areas) and for female segment of the society (32% as compare 54% of men) which
point out towards poverty of rural areas and female members of the households. Low
literacy is not only a sign of poverty but also the cause of poverty. Hence, it is needed
to control the poverty status of the society as a whole so that people may be able to be
literate and to have relatively better income sources for them so as to have capability
to escape the vicious circle of poverty.
Along with literacy rate we may also look at the enrolment rate of the
country for primary section so that we could also analyze the situation with another
angle. The evidence in Table: 2.3 show that analysis for enrollment rate is analogous
to the analysis discussed in case of literacy rate. Such devastating facts of educational
attainment in Pakistan not only contribute to lowering the position of the Country in
HDI ranking but also showing the poverty level of Pakistan among the World.
2.2.1.2.2 Health
First of all we may take into consideration life expectancy and infant
mortality rate of Pakistan. Significant improvement in both these health indicators
18
could be observed with life expectancy improves from age 46 in 1965 to 63 in 2005
and infant mortality decrease from 149 in 1965 to 70 in 2005. So far as preventive
measures are concerned same result could also be noticed here with improvement of
access to safe drinking water from 22% in 1976 to 66% in 2005 and improvement of
access to sanitation from 20% in 1985 to 54% in 2005. Similarly, significant
improvement could also be seen from the digits available in Table: 2.5 which are
constructed to show the progress of the country for establishment of curative
measures of health. All the curative measures improve over time.
Table: 2.3
ENROLLMENT RATE IN PAKISTAN (%)
Year Total Male Female
1991 43* 49 37
1997 41.5* 46 37
2001-02 42 46 38
2004-05 52 56 48
2005-06 52 56 48
Source: GoP (2003-i), GoP (2001-02), GoP (2004-05), GoP (2005-06)
* Estimated Values
Even the number of midwives improves over time but could not keep
its pace with the population growth. It could be noticed that for the period from 2002
to 2004 instead of improvement, the status of “population per midwife” was worsened
and afterwards till 2006 no significant development is evident. No doubt overall there
looks improvement in health sector of Pakistan economy, however, again when we
compare this progress with those countries which are similar to Pakistan or having
nearly equivalent parameters regarding economic indicators such as Bangladesh,
Philippines, and Nepal, then performance of Pakistan is not evident to be even
19
satisfying. Not only that health sector is unable to compete the World but evaluation
of available facilities also could not represent a better picture of this sector because of
poor quality of health facilities, high focus on curative measure in spite of preventive
measure, most of the facilities are available only in the cities, and discriminative
response toward elite class on behalf of their wealth.
Table: 2.4
HEALTH INDICATORS AND PREVENTIVE MEASURE OF HEALTH IN
PAKISTAN
Life Infant Access to Safe Drinking Access to Sanitation

Expectancy Mortality Water (%) Facilities (%)
Year
at birth Rate (per
(age) thousand)
Total Rural Urban Total Rural Urban
1965 45.8 149 - - - - - -
1970 48.1 142 - - - - - -
1976 - - 22 11 54 - - 22
1980 52.8 124 31 17 68 - - 37
1985 - - 44 25 79 20 - 53
1990 55.8 103 52 45 80 22 10 55
2001-02 63.5 82 60 53 83 39 27 59
2004-05 63.4 70 66 - - 54 - -
Source: World Bank (1996), GoP (2003-i), Banuri et al (1992), GoP (Various Issues-i)
Low life expectancy at birth and high infant mortality rate of Pakistan
signify that poverty is high in Pakistan. As the growth and prosperity of the people
depends upon their productivity, which is highly affected by health conditions of the
people. Poor health facilities influence productivity adversely, which in turn creates
hurdles for the people to generate means so as to combat the ends. Resultantly people
lag behind not only at individual level but also among the nation. Therefore, health
20
sector of Pakistan is in need of serious efforts to be taken by the nation as a whole so
that country along with populace could be able to fight against the giant of poverty.
Table: 2.5
CURATIVE MEASURES FOR HEALTH IN PAKISTAN
Years 1981 1991 2002 2003 2004 2005 2006
Doctors 13910 51833 102611 108130 113273 118062 122798
Dentist 1018 2077 5058 5531 6128 6734 7388
Nurses 6110 16948 44520 46331 48446 51270 57646
Midwives 4846 15009 23084 23318 23559 23897 24692
LHVs 718 3106 6397 6599 6741 7073 8405
Population
6027 2127 1392 1350 1316 1274 1254
per Doctor
Population
82357 53134 28244 26389 24320 22345 20839
per Dentist
Population
13721* 6508* 3209 3150 3076 2935 2671
per Nurse
Population
per 17300* 7349* 6189 6260 6326 6297 6235
Midwife
Population
116763* 35513* 22332 22119 22108 21274 18318
per LHV
*Estimated Values on behalf of data available in this table
Source: GoP (Various Issues-i), PMDC, PNC
2.2.1.2.3 Population Welfare
In academician’s community small size of household is considered to
be pro-development not only for the households but also for the nation as a whole.
For a nation to be developed in terms of good maternal health or educated youth, it is
necessary that population of the country and size of families should be reasonable,
viable and manageable given the resources of the country. In Pakistan, population
welfare and family planning are vital programmes to be included in SAP because
population growth rate could not be controlled significantly despite of the fact that
21
Pakistan started its efforts in this regard since early period of its inception. The
reasons for poor performance are deficient political involvement in the programmes,
lack of funding, poor management, and experimentations while adopting frequent
changes during its implementation process.
Table: 2.6
DEMOGRAPHIC AND POPULATION WELFARE INDICATORS OF
PAKISTAN
Years 1965 1975 1980 1985 1990 2000 2005-06
Population(Millions) 52.6 71 82.6 96.2 112.4 146 159
Population Growth
2.7 3.1 3 3.1 3.1 2.69 2.1
Rate (%)
Crude Birth Rate
48 47.4 47.1 45.1 41.6 30 30.08*
(per thousand)
Crude Death Rate
20.9 16.9 14.7 13.1 11.9 8 7.1
(per thousand)
Fertility Rate
7 7 7 6.5 5.8 4.77 3.8
(birth per women)
Contraceptive
- 11 5 9.1 10.7 27.6 26
Prevalence Rate (%)
Source: GoP (Various Issues-i), Zaidi (2009), World Development Indicator Database, April (2007)
* Average of the values for the years 2005 and 2006 mentioned on CIA Fact Book (online)
Pakistan included in the top ten populated countries of the World and
its ranking in this table is increasing with the time. The same fact is evident from
Table: 2.6 wherein population has been increased three fold within just 35 years from
1965 to 2000 which is a devastating state of affairs for a country who is struggling to
stabilize since its liberty. Population growth rate of 2.69 is also very high among the
World and no improvement during last forty years could be documented for this
statistic. The statistics of crude death rate and fertility rate could be observed to be
declined significantly from 1965 to 2006 but still our country could not attain a
pleasing place in the table of World ranking in this regard. Even this improvement is
22
not comparable at World level but it indicates towards improvement in health sector
facilities of Pakistan. Contraceptive prevalence of 26% for the year 2006 is very poor
figure which specifies ignorance of the three fourth population of the country despite
of the fact that country did heavy struggle for family planning since its freedom. The
failure of family planning programmes could be blamed to scarcity of family planning
services, poor quality of services provided to populace, and misconception regarding
religious thoughts. As per information available through household surveys
conducted in Pakistan the important factors for controlling fertility rate are female
education, female labour force participation, breast feeding, age at the time of
marriage, and nominal use of contraception techniques etc.
2.2.1.2.4 Environment
The link between environment and poverty is universally admitted and
is also evident from the economies of Bangladesh and Vietnam where environment
could be termed as an important cause of poverty because floods and cyclones
respectively affect the poverty status of these countries [Cannon (2002), and Shaw
(2006)]. Similarly environment could be considered as an important element for
economic condition of the people of Pakistan. Either we may talk about farm or non-
farm sectors or we take into consideration the industrial sector of Pakistan, agriculture
is the main engine which run these sectors profoundly. The agriculture is closely
related to environment and in case of Pakistan it is also argued that environment is
constantly deteriorated. Therefore environment is an imperative topic when we
discuss the poverty profile of Pakistan because major proportion of the population
23
resides in rural areas and also the incomes of the populace heavily depend upon
agriculture.
Major issues regarding environment in Pakistan are diminution of
resources regarding water and afforest, salinity, water logging, soil degradation,
amplified dependence on chemicals, and pollution due to industrialization and
transportation. The supply of water in Pakistan through rivers is just 1000 m3 per
person as against the need for additional 48 billion m3 [GoP (various issues-i)] which
points out increased pressure on water logging because enlarged dependence on
groundwater for domestic and occupational purposes destructively affected
groundwater quality as is evident from the fact that more than 65% tube-wells are
draining harmful sodic water. Along with water crises, interestingly 10% of area of
Pakistan comprises of wetland which is also a matter of serious attention. Similarly,
only 3.317 m.ha area out of 86.7 m.ha area of Pakistan is under forest cover which is
also a poor state of affairs for foresting in Pakistan because as per international
standards 20-25 % area of a region should be under forestation. Land degradation is
caused by four main reasons: i) 11.2 m.ha land is degraded by water erosion, ii) 6
m.ha land is degraded by salinity, iii) 3 to 5 m.ha land is degraded by wind erosion
and iv) about 2 m.ha land is degraded by water logging. Pollution is caused by these
major factors i.e. agriculture, industrialization and transportation. In agriculture wide-
ranging use of agro-chemicals, pesticides and fertilizers also caused the pollution.
Industrial sector in shape of textile etc demands sulfuric acid, caustic soda and soda
ash and this sector does not disposed of the waste properly, therefore, it causes
pollution with severity. Lastly the air pollution is resultant of SPM which arose in air
due to dusting material, industrialization, brick kilns, transportation, and solid waste
24
flaming. As per WHO standards for SPM concentration, Pakistani cities are 6.5 times
more concentrated than the settled standard in this regard. Domestic energy demands
(i.e. cooking, transportation vehicles) satisfied through wood, biomass, diesel, crude
oil diesel etc also seriously contribute toward air pollution.
2.2.2 Other Concepts of Poverty
Poverty incidence and social sector development are necessary
elements of poverty silhouette but these are not sufficient to present an absolute
picture of poverty. Supplementary reflections upon poverty such as inequality,
vulnerability and transient poverty expand the theory considerably. Hence, keeping in
view their importance in poverty theory now we may try to discuss the poverty in
Pakistan under these reflections. For this purpose firstly we attempt to present the
evidence over time if it is available. But, if time series evidence is not available then
we try to present and evaluate available research in this regard so that we may be able
to analyze the situation. We attempt to collect recent evidence in this regard either in
shape of data or in shape of research themes.
2.2.2.1 Relative Poverty
The most important aspect of poverty theory is the concept of absolute
poverty, which helps to quantify, heed, and target the deprived segment of the society
through effective planning and monitoring. It is conventionally admitted fact that
equal distribution of monetary and non-monetary aspects of human well-being
augmented poverty reduction significantly. Moreover the improved status of poverty
incidence without equality among masses could not be termed as inclusive
25
development. Therefore, relative poverty and absolute poverty move side by side
whenever a poverty profile is to be constructed.
Table: 2.7
GINI COEFFICIENT IN PAKISTAN
Year Ratio Year Ratio
1963-64 0.355 1990-91 0.407
1966-67 0.351 1992-93 0.390
1968-69 0.328 1996-97 0.400
1969-70 0.330 1998-99 0.410
1979 0.375 2000-01 0.275
1984-85 0.428 2001-02 0.306*
1987-88 0.346 2004-05 0.298
Source: Zaidi (2009), GoP (Various Issues-i),
* Anwar (2003)
Table: 2.7 reports the distribution of income in Pakistan among
different segments of the society with the help of statistic known as “Gini
Coefficient”. The values of Gini coefficient belongs to the interval [0,1] with 1 as
complete inequality while 0 as complete equality.
Table: 2.7 reports improvement in case of income distribution of
Pakistan from 0.355 in 1964 to 0.298 in 2006. However, comparison of the Tables:
2.1 & 2.7 could not indicate any relationship between poverty and income distribution
because in the decades of 1960s and 1970s both move in same direction whereas in
1980s and 1990s both move in opposite direction. This situation supports
international evidence in this regard.
Inequality among other attributes of well-being is shown in Table: 2.8.
Here we find out the ratio of richest quintile to lowest quintile of the society for
26
different attributes. Higher the value of ratio, higher will be inequality. The evidence
in Table: 2.8 is analogous to the evidence in Table: 2.7. It is obvious from the
comparison of years 2001-02 and 2004-05 that discrepancy among richest quintile
and lowest quintile of the society for the attributes of literacy rate, enrollment rate,
immunization, and natal-care among women will be decreased.
Table: 2.8
RATIO OF HIGHEST QUINTILE TO LOWEST QUINTILE
Year 2001-02 2004-05

Literacy Rate 2.41 1.95
Net Enrollment Rate (Primary) 2.25 1.73
Immunization 1.76 1.25
Women Using Pre-Natal Care 2.95 2
Women Receiving Post-Natal Care 4.2 3.42
Source: GoP (2001-02), GoP (2004-05)
2.2.2.2 Vulnerability
In case of Pakistan researchers have to face certain limitations when
try to find the data regarding vulnerability. The vulnerability in Pakistan could be
resultant of the shocks such as inflation, weather, floods, droughts etc. However we
try to analyze recent vulnerability status of Pakistan on account of price hike shock.
Vulnerability poses the danger of any shock for non-poor which could push a
considerable number of non-poor into poverty. Resultantly positive impact of poverty
reduction policies upon well-being of people- achieved after utilizing heavy resources
and long time efforts- could be disappeared suddenly only on account of vulnerability.
Recently, the global economic crisis hit the developing World severely and chewed its
27
development progress harshly. Similarly, due to mountainous increase in oil prices on
account of this crisis, Pakistan has also to face painstaking price hike specifically for
food items which thumps her achievements for economic development cruelly. As
per data available for April, 2007 [GoP (Various Issues-i)], all consumer products
related to poor segment of the society were seriously affected by inflationary pressure
and an increase of 200 percent and 150 percent respectively for palm oil and wheat
prices could be observed fairly. The CPI swallowed from 12 percent in 2007-08 to
22.4 percent in 2008-09 while augmenting food items’ inflation from 17 percent to
26.6 percent. Such a terrible surge in prices badly distresses the life of vulnerable
segment of the society and causing them to fell down in the vicious circle of poverty.
Table: 2.9
VULNERABILITY TO WEATHER SHOCKS IN PAKISTAN
Percentage Households
Agro-Climatic Zones
Vulnerable Chronic Poor Transitory Poor
Total 56.1 39.7 13.7
Northern Irrigated Plains 29.1 34.3 12.9
Southern Irrigated Plains 71 46.4 14.6
BARANI (Arid) Plains 46.1 25.9 16.1
Dry Mountains 67.3 46.7 11.4
Source: World Bank (2002). Facts and figures in the table are constructed on the basis of
IFPRI panel survey with a gap of two years while using poverty line of 2580 calories per
capita per month.
The UN Inter Agency Assessment Mission (2008) conducted a survey
in Pakistan during June 2008 and reported that 45 million people- mostly that of rural
areas- have been austerely distressed due to the price hike. About 40 percent
households faced no change in income, 45 percent faced decline in their real wages,
28
and food-insecure population has been recorded as 28 percent (as against 23 percent
food insecure population in 2006). Regarding social sector development, this survey
reported that 30 percent household could not meet their medical requirements and the
households has to lift their food expenditures by about 70 percent which caused the
school dropout rate to increase, primary school enrollment to fall, and nutritional level
to shrink.
Whenever we talk about vulnerability of Pakistan in general then the
most important element appears to be weather shocks. The same fact is evident from
Table: 2.9 whereby vulnerability to weather shocks in different agro-climatic zones of
Pakistan, has been recorded. The regions of dry mountains and southern irrigated
plains of Sindh show that near about two-third households are vulnerable, the region
of arid cultivation shows about half of the households to be vulnerable, and the region
of northern irrigation plains (canal water irrigation) has only one-third of the
households being vulnerable. Hence, it could be inferred from available evidence that
better weather condition will be helpful to reduce vulnerability in Pakistan.
2.2.2.3 Transient Poverty
Transient poverty stems out of the concept of vulnerability.
Chronically poor is a little bit different from transitorily poor because extremely poor
remains below poverty line in a sequential estimation while transitorily poor
continues to move up and down from poverty line. This is why information on
transient poverty may be helpful to strengthen the poverty reduction strategies. Arif
and Bilquees (2007) analyzes transitory poverty in Pakistan on the basis of data taken
from panel survey of individuals and households titled “Pakistan Socio-economic
29
Survey”1. The study describes that in case of Pakistan severity is observed to be in
chronic terms specifically for urban areas of the country. About four-fifth of the
households were found to be transitorily poor while significant proportion of this
category belongs to rural areas. The transitory poverty of rural areas is resultant of
adverse effects on employment and wage levels caused by homogeneity in rural
system of Pakistan. The interesting finding of the study indicates that it is easier to
distinguish chronic poor from transitory poor on the basis of ZAKAT because
chronically poor heavily depends upon it as compare to transitorily poor. McCulloch
and Baulch (1999) on the basis of panel data collected from rural areas of Pakistan
concluded that 74 percent of the poor households were transitorily poor2 and on the
basis of estimates of the study it is concluded that averagely the transitorily poor
household makeup 54 percent of the poor segment.
2.2.3 Decomposition Analysis
Decomposition could be based on region, gender, ethnicity, and religion
etc which may provide us a disaggregated look upon the facts and figures of country’s
development process and helps us to choose targeted groups in this regard. In the
followings we put light on issues related to gender and region.
2.2.3.1 Gender Analysis
Data on poverty incidence of Pakistan has not been decomposed on the
basis of gender-ness because social set-up of the country has based on combined
1
PSES [Arif et al (2001)] is conducted by PIDE in 1998-99.
2
McCulloch and Baulch (1999) specifies that the households who were found to be poor at least once
in the period under study, will be considered as transitorily poor.
30
family system wherein men are responsible for economic and financial matters and
women are responsible for home-based and reproductive activities.
Table: 2.10
DECOMPOSITION ANALYSIS OF SOCIAL SECTOR DEVELOPMENT
BY REGION AND GENDER (%)
2005-06
Indicator Region
Male Female Aggregate
Urban 78 61 70
Adult Literacy Rate (15+) Rural 55 26 40
Aggregate 64 38 51
Urban 72 68 70
Net Primary Enrolment
Rural 56 46 51
Rate
Aggregate 61 52 57
Urban 59 61 60
Fully Immunized Children
Rural 45 44 45
(12-23 Months)
Aggregate 59 49 49
Urban - - -
Life Expectancy Rural - - -
Aggregate 64 66 65
Urban 43 39 41
Infant Mortality (per 1000
Rural 85 79 82
live births)
Aggregate 73 67 70
Source: GoP (2005-06)
However, on account of data available for social development
indicators presented in Table: 2.10, we could observe that comparatively women in
Pakistan are poorer than men. All the indicators except infant mortality favour male
category of gender which indicates that female- either within the setup of a family or
in the broader sense of society- have to face serious problems regarding social sector
facilities. This is why female could be considered poorer then male. Whether we
may talk about education facilities or health facilities women in our society are treated
as a class for which these facilities are not supposed to be of much importance on
31
account of the fact that men are considered to be the ultimate earner and facilitator for
a family, therefore, it is taken as their right to enjoy all the facilities at upper edge.
Table: 2.11
DECOMPOSITION OF DATA ON POVERTY FOR URBAN AND RURAL
AREAS OF PAKISTAN
Poverty Severity of Gini

Year Region Headcount
Gap Poverty Coefficient
Pakistan 31.1 6.6 2.1 -
1998-99 Urban 21.4 4.3 1.0 -
Rural 35.1 7.6 2.4 -
Pakistan 34.46 7.03 2.13 0.275
2000-01 Urban 22.69 4.55 1.35 0.323
Rural 39.26 8.04 2.44 0.237
Pakistan 23.94 4.76 1.48 0.298
2004-05 Urban 14.94 2.87 0.84 0.339
Rural 28.13 5.64 1.77 0.252
Source: GoP (Various Issues-i), Anwar et al (2004)
2.2.3.2 Spatial Analysis
Spatial distribution presents segregation of data either for rural and
urban areas or for the provinces of the country or on the basis of geographical
characteristics of the country. Before talking about incidence of poverty and
inequality in income distribution if we observe Table: 2.10 above for social sector
development indicators, it came to the knowledge that rural areas are more deprived
than urban areas for all important indicators in this regard. Similarly, Table: 2.11
shows that poverty incidence is higher in rural areas as compare to urban areas.
Interestingly, overall poverty of Pakistan also follows rural poverty which indicates
that poverty in Pakistan is rural phenomenon.
32
Data related to depth of poverty and severity of poverty also signifies
that rural areas are more deprived in Pakistan. Whereas data regarding income
distribution on the basis of Gini-coefficient, as is evident from the Table: 2.11, shows
that inequality is higher in urban areas as compare to rural areas.
Table: 2.12
PROVINCE WISE POVERTY IN PAKISTAN
2001-02 2005-06
Provinces
Urban Rural Overall Urban Rural Overall
Balochistan 28.57 42.07 39.72 32.18 56.48 50.74
Khyber Pakhtunkhawa 34.21 48.00 45.98 23.98 28.24 27.57
Sindh 22.73 48.79 38.63 11.88 31.38 21.74
Punjab 26.92 39.27 35.71 12.51 21.76 18.78
Pakistan 26.04 42.97 38.07 13.74 26.73 22.36
Source: Anwar et al(2004), and Burki et al (2010)
The decomposition analysis on the basis of provinces has been
presented in Table: 2.12 whereby it could be observed that poverty has substantially
been decreased in Pakistan whereas in 2005-06 the province of Balochistan is the
poorest province of Pakistan while followed by Khyber Pakhtunkhawa. The
provinces of Sindh and Punjab showed a relatively better picture in this regard. The
status of poverty in Balochistan is closely associated with less rural development,
trivial economic activity and lack of opportunities to be available to the inhabitants of
Balochistan. The same fact is evident from the facts to be analyzed in Chapter No. 6
whereby rural development in Pakistan has been appraised.
33
2.2.4 Government Initiatives to Combat Poverty
A number of initiatives have been taken by the government so as to
respond against poverty problems of the masses. A brief introduction of the
government’s efforts in this regard and different programmes initiated by the public
sector are mentioned in the followings:
2.2.4.1 Benazir Income Support Programme
Keeping in view rising inflationary rate of Pakistan in line with the
World economic crisis of 2008, government launched this programme to help the
consequent vulnerable, transient poor and chronic poor of the society. This
programme meant for transferring a certain amount, which is necessary to livelihood,
to the deprived segment, impartment of necessary trainings to disadvantaged people,
provision of health insurance to vulnerable people, and mobilization of the social
communities for the purpose of providing basic service and consequent employment
generation for the poor communities. Hence through this programme a
comprehensive effort has been made to fight against poverty persisted constantly in
Pakistan.
2.2.4.2 Pakistan Poverty Alleviation Fund
Since its inauguration in 2000 the PPAF has done a lot for the poor
communities of the country while disbursing nearly a sum of Rs. 55.5 billion to
different organizations such as microfinance institutions, SMEs etc. These
institutions then use the amount to help the poor populace. Near about 15 million
34
people have been benefited directly and 11 million people have been benefited
indirectly through different scheme of these organizations [GoP (various issues-i)].
2.2.4.3 Peoples Works Programmes
The programme is aimed to provide the public services in shape of
roads, education, health, sanitation, water supply, electrification, gas, and telephone to
the underprivileged communities of the country. Such programmes work in two
directions; firstly buttressing the access of poor to basic necessities of life for the
purpose of improvement in their capabilities to fight against poverty, and secondly
boosting the generation of employment which, if pro-poor, could benefit the poor
substantially. In this study we are also attempting to analyze the same issue whereby
we observe impact of rural infrastructural development (i.e. provision of public
services to rural inhabitants) on economic growth, income of the rural households and
rural poverty reduction. The rural sector will be chosen as the area of study on
account of the fact that overall the poverty is a rural phenomenon in Pakistan.
2.2.4.4 PBM
The institution of Pakistan Bait-ul-Mal has been established in late
1990s under the Islamic conception for handling revenues and expenditures of the
state. Different schemes of this institution e.g. IFA, CSW, CSP, FSP, VTCs, and
NCSRCL etc have been proved helpful for the depressed proportion of the society.
These schemes have specifically been framed for taking into consideration the needy
persons, orphans, and widows etc. Hence, the institution is an important initiative of
the government towards poverty reduction of the masses.
35
2.2.4.5 Initiatives of the Punjab Government
Provincial government of Punjab also contributes towards poverty
reduction initiatives of Pakistan. There are three main plans which have been
launched by the government of Punjab in this regard i.e. PFSS, Tractor Subsidy
Scheme, and SASTI ROTI1 scheme. The government of Punjab focuses its attention
towards destitute, widows, orphans, families having no specific earner, sick persons,
aged personalities and the poorest people belonging to urban and rural areas of the
society through PFSS so that government may be able to support these deprived units
of the society against the cruel consequences of poverty and destituteness. The
scheme titled “SASTI ROTI” is a project which subsidizes the TANDOORs2 where
poor labour force use to purchase bread for their dietary needs. On the other hand
Tractor Subsidy Scheme helps the poor farmers and tenants of rural areas to procure
subsidized tractors for their commercial and domestic use so that they may be able to
feed their families adequately.
2.3 RURAL POVERTY IN PAKISTAN
So far as poverty trends of rural areas of Pakistan for welfarist and
non-welfarist approaches is concerned, an introduction has already been discussed in
above analysis under decomposition analysis of Section: 2.2.4.2. The vital feature of
the analysis is that the trend of overall poverty in Pakistan follows the trend of
1
SASTI ROTI is an expression in Urdu which means “low-priced bread”, and the expression has been
used as a slogan of the Punjab Government initiative to help the poor.
2
TANDOOR is an Urdu word which refers to a place where breads could be prepared manually in a
little bit large quantity while utilizing specifically constructed stoves.
36
poverty in rural areas of Pakistan which confirms the finding that poverty is a rural
phenomenon in Pakistan like all other developing and agriculture-based countries.
Similarly, on the basis of this information we may be right to attempt probing rural
poverty of Pakistan so as to explore poverty reduction strategies of whole Pakistan.
As per availability of data for rural households now we may try to inscribe the
distinguished characteristics of rural poverty in Pakistan (Malik, 1996).
2.3.1 Broad Developments
1) Land distribution is highly skewed in favour of landlords while having a

Gini coefficient of 0.86. Two percent of households be in possession of
30% of land and 61% of households possess 15% of total land. Unequal
distribution is a vital cause of rural poverty in Pakistan [GoP (2003].
2) Major income source of rural people lies with non-farm sector which
contributes about 40% of their total income. Other sources are
agricultural produce, agricultural wages, livestock and remittances which
account for 25%, 4%, 8% and 9% of their total income respectively
[GoP (2004-05]. Interestingly the 37% of total incomes of even farm-
owners comprises of non-farm sector [Dorosh et al (2003)].
3) Stagnation was the obvious distinctiveness of the rural sector

performance in Pakistan. Negligible rise in agricultural supply along
with decline in its prices during 1998 to 2004 seriously affects the real
per capita expenditures of rural households while documenting no
improvement in this regard. During this period the real agricultural
value-added growth rate per capita per year was only 0.2% and prices of
agricultural output were also declined, therefore, only 0.2% change in
real per capital expenditures of bottom 40% households was documented
[World Bank (2007)].
37
4) Regional differences accounted for crop cultivation in rural areas of
Pakistan caused substantial variations in regional poverty. Despite low
performance of overall agricultural production, the regions where wheat
and cotton were cultivated showed significant improvement for poverty
reduction because during 2001 to 2004 substantial improvement was
documented for these crops which surpass the loss of drought of
2001-02, therefore, poverty incidence in the wheat-cotton region was
declined sharply. [GoP (2003), and World Bank (2007)]
2.3.2 Social Sector Developments
1) Social indicators of the rural areas such as gross enrollment rate at

primary level (an increment of 16 basis points in percentage), net
enrollment rate (an increment of 11 basis points in percentage), ratio of
immunized children (an increment of 17 basis points in percentage), and
access to water through a valve (an increment of 11 basis points in
percentage) showed remarkable improvement but still these development
are not comparable with the urban developments in this regard [GoP
(1998-99), GoP (2001-02), and GoP (2004-05)].
2) Even the developments have been recorded in education sector of rural

communities as mentioned in above paragraph but gender disparities
could also not ignorable because in total gross enrollment rate at primary
level for girls remains 21 basis points lower than boys, net enrollment
rate for girls remains 11 basis points lower than boys, and enrollment
rate at middles schools for girls is 17 basis points lower than boys which
indicates severe gender inequalities in education sector of rural areas of
Pakistan [GoP (1998-99), GoP (2001-02), and GoP (2004-05)].
3) On the same pattern we could also conclude that in social sector

development of rural areas, Pakistan could not keep its pace even with its
South Asian counterparts such as India, Sri Lanka and Bangladesh. Net
enrollment rate of girls in Pakistan is 48 percent compared to 86 % in
38
India, 84 % in Bangladesh, and 98 % in Sri Lanka. Infant mortality in
rural areas of Pakistan is 88/1000 (80/1000 at national level) compared
to 62/1000 in India (national level), 56/1000 in Bangladesh (national
level), and 12/1000 in Sri Lanka (national level) [GoP (2004-05), WDI
online database]
2.3.3 Ancillary and Long-Run Developments
1) During the period 1986 to 2001-02, real incomes of the rural household
were fallen while this period also documented substantial variations in
incomes on the basis of regions and households which indicate toward
transitory poverty of the rural areas of Pakistan [Dorosh and Malik
(2006)].
2) Social Sector Development through education (primary and secondary)

and health along with Infrastructural Development through paved
roads and electrification have robust effect for poverty reduction
[World Bank (2007)].
3) As per evidence, the incomes of male rural inhabitants have been

proved to be depended upon additional education. Every additional
year of schooling will help to improve the income by 8.9 percent
because additional education creates the ability in rural inhabitant to
participate in non-farm activities for improving their non-farm
productivity [Fafchamps and Quisumbing (1999)].
4) It is also noteworthy that during the period 2001-2005, the remittances

from abroad also contributed significantly while increasing the
incomes of rural inhabitants by 4 % compared to 1% increase through
agricultural productivity [Cororaton and Orden (2007)].
39
2.4 CONCLUSION
In this chapter we have tried to present the status of poverty relating to
Pakistan economy. After observing all the facts and figures in this regard we may
conclude that severity of poverty is an obvious outcome of the analysis. Either we
evaluate the poverty pervasiveness in Pakistan with the passage of time or on the basis
of proportion of poor people in society, we find that poverty prevails in the country
persistently, stubbornly and brusquely. Hence, poverty may be taken as an important
issue relating to Pakistan economy, therefore, the same should be the main issue of
researches related to Pakistan as is the case of this study. Another fact which came to
the surface after analyzing the data presenting in this chapter is related to rural aspect
of the poverty. It could easily be observed that overall poverty in Pakistan follows the
pattern of the rural poverty in Pakistan. Therefore, we could say that in line with the
developing World the poverty is a rural phenomenon in Pakistan also. This is why in
this study for the purpose of poverty analysis of Pakistan we take into consideration
rural poverty as a core variable of the analysis. After evaluating the poverty status of
Pakistan economy now we may try to present the survey of concerned literature in the
next chapter so that we may be able to move towards analysis phase of the study.
40
CHAPTER 3
SURVEY OF LITERATURE
3.1 INTRODUCTION
This study may try to find out impact of rural development on growth
and poverty reduction while improvement in rural infrastructure will be taken as rural
development. Within the background of the research topic, this chapter tries to
discover and evaluate the literature behind the research theme. Firstly, it has been
tried to collect all the concerned material behind the subject matter of research.
Secondly, an effort has been made in this chapter to assemble significant and
imperative research works whether such a research work may be found in past or
recent years. The chapter has been divided into six sections. Section: 3.1 is
introduction, Section: 3.2 attempts to present the literature related to inception of
poverty theory, Section: 3.3 evaluates the literature related to background of the
research topic, Section: 3.4 discusses the literature which will be helpful to resolve
important issues of this study, Section: 3.5 explains the hypotheses of the thesis, and
in Section: 3.6 we present the overall conclusion of this chapter.
3.2 HISTORICAL BACKGROUND OF POVERTY THEORY
What poverty is? Answer to this question is not as easy as it looks. To
define poverty may be easy but to feel poverty is a hard job. Only poor can imagine
41
what poverty is, and poverty theorists may just try to attract the focus of non-poor
towards poor. Notion of poverty is not new to the World. It exists since the creation
of the World and becomes visible since human beings’ inhabitation in the World. In
the same way when we talk about economic theory, again poverty theory can be
captured since the inception of economic thought by Adam Smith. Adam Smith
wrote regarding poverty in his renowned book titled, “An Inquiry into the Nature and
Causes of the Wealth of Nations” at Para 37 of Chapter No. 8:
"Poverty, though it does not prevent the generation, is extremely

unfavourable to the rearing of children... It is not uncommon... in the
Highlands of Scotland for a mother who has borne twenty children not
to have two alive... In some places one half the children born die
before they are four years of age; in many places before they are
seven; and in almost all places before they are nine or ten. This great
mortality, however, will everywhere be found chiefly among the
children of the common people, who cannot afford to send them with
the same care as those of better station."
After Adam Smith, all the renowned economists also considered
poverty as an economic problem of the society, but poverty will be taken as a separate
subject in economics after 1950s. Booth (1889) could be considered as pioneering
work on poverty, which was basically a survey conducted in London that tried to
provide quantifiable information to researchers on living conditions of the people
while considering gender dimensions too. Whereas Rowntree (1901) could be taken
as a pioneering study which tried to build up a poverty standard for families.
However, formally foundation of poverty theory will be built within
the branch of economics known as Development Economics. The Development
Economics formulated its space in economics since 1950s. In 1960s the concept of
development was related to growth, and GDP/GNP per capita was used as an
42
indicator in this regard whereas poverty was believed to be result of low per capita
income. The Pearson Commission Report1 (1969) is a clear evidence for this fact.
But with the passage of time it came to the surface that growth is a necessary but not a
sufficient condition for development. Hence, during 1970s the poverty theory itself
came to center of attention when Robert Mac Namara, the then Chairman, Word
Bank, Dr Mahboob-ul-Haq, key economist of Pakistan and other world renowned
economists propagated the theory of “Redistribution with Growth”. In the same line
Runciman (1966) introduced the concept of relative poverty/inequality in the
literature whereas Townsend (1954, 1962, and 1971) established not only nutritional
aspect of poverty measurement but also described the concept within the ambit of
conventional standards of society. The other main discovery of 1970s regarding
poverty theory can be termed as basic needs approach of poverty which broaden the
concept of poverty from mere income aspect to other social aspects of the society
such as education, health, and services etc as the same is derived from the
contributions of ILO (1976, 1977). Basic Needs Approach concluded the integrated
rural development as a key to poverty reduction.
Decade of 1980s introduced further stems in the theory of poverty.
Robert Chambers (1983) explored rural development for poverty reduction and
identified non-monetized aspects of poverty as vulnerability, powerlessness, isolation
and physical weakness. Chambers termed poverty along with non-monetary aspects of
poverty as deprivation trap and thought that rural poor can solve these problems with
1
Robert S. McNamara, President of World Bank formed the commission in 1969 headed by Lester
Bowles Pearson (Nobel Laureate). On September 15, 1969, Commission along with seven other
colleagues filed a report titled “Partners in Development”.
43
participation, social relationship, asset holding, and physical conservation etc.
Concept of livelihood was launched by Brundtland Commission1 which focused on
sustainability of livelihood for poor. Sen (1981) originated capabilities approach
whereby income was termed as source which increase capabilities of individuals and
permitted them to function in society. Gender issues in poverty were also introduced
during this decade and WID, GAD2 were major topics of debate while concluding
empowerment as solution to reduce poverty in women.
During the decade of 1990s the concept of poverty was widened
further and human development became another background of poverty scenario.
Human beings were taken as means and ends for poverty problems. The idea was
based on the work of Amartya Sen on development which focused on human
development. UNDP also propagated the idea of well being for the solution of
poverty problems. In the beginning of 1st decade relating to 21 st century, the poverty
was given due credence by the international community and MDGs have been set up
wherein poverty reduction is one of the eight goals of international community and
target is to halve the prevailing poverty situation of the World. The reports published
by IFAD, WB and ILO in 2001 and 2003 made an effort to revive the idea of poverty
and brought the importance of this topic again before the world because of the reason
1
In 1983 United Nations formed a commission headed by Dr. Harlem Brundtland, known as
Brundtland Commission for the purpose of exploring interaction between natural resources and
economic development. Commission presented its report while focusing on needs of the world’s
poor and imposition of limitations by State and Social Institutions to conserve the environment.
2
See Acronyms (A part of this study adjacent with Table of Contents) . Throughout this study capital
words are explained in Acronyms.
44
that poverty problem persists in the world even after experiencing serious efforts to
reduce it.
3.3 LITERATURE REVIEW
A number of studies have been reviewed for this thesis. These studies
have been categorized and reported in the followings while keeping in view the
chronological order:
3.3.1 Review Articles and Evaluative Studies
Munnell (1992) evaluated the criticism on literature posing positive
impacts of infrastructural development expenditures on economic growth (via
productivity enhancement). Author mentioned that critics’ first objection was
regarding data that it was non-stationary and also drift over time therefore they
suggested that equations should be estimated in the form of first difference. But
according to author only first difference process over equations would mislead the
result; however tested co-integration and adjustment would make differentiation
process reliable for estimation. Second objection i.e. “public capital’s impacts
showed wide range of estimates” was not admitted by the author after evaluation1 of
criticized studies. Third objection was about direction of causation which according
to critics runs from output to public capital. This objection was also not accepted fully
by the author and she quoted study2 of Eberts and Fogarty (1987) in which two way
direction of causation between output and public capital was proved. Third objection
1
Author herself evaluates the studies and reached to the conclusion that objection was not valid.
2
Randall et al (1987).
45
of simultaneity was also tested by the author who again was not in full agreement
with the critics on the issue of simultaneity and suggested that estimates were not
seriously tainted by the simultaneity problem. So far as objection of critics on
production function was concerned author argued that results of studies using cost
function to check the same relationship were also the same as that of studies using
production function. In concluding remarks, author admitted positive impacts of
infrastructural development on economic growth, however she suggested that co-
integration should be tested in such studies and studies with production function
should not be used for policy purposes because for this purpose studies using cost
function were reliable.
Ahmed and Donovan (1992) reviewed literature on infrastructural
development issues. They appraised material on infrastructural development for
foundation studies as well as fresh studies, theoretical as well as empirical studies,
evaluative as well as testimonial studies. They classified available literature on
‘infrastructure and its impacts’ under different headings i.e. definition, status,
theoretical concern, empirical concern and resource allocation. They dexterously
defined infrastructure, and collected evidences relating to its impact on development
topics. This review article provides a comprehensive literature on infrastructure
which is exceptionally valuable for further research on determinants of growth in the
veiled background.
In the context of productivity slowdown in U.S.A during 1970s
Gramlich (1994) reviewed the literature focusing attention to impacts of
infrastructural development expenditures on growth in U.S.A. He concluded that
46
keeping in view mixed evidence relating to infrastructural development expenditures’
benefits it is better to carry out a disaggregated within-country study for such analysis
because sufficient shortage of infrastructure at macro level was not evident by any
reasonable source and there were serious limitations of econometric techniques on
macro level. His imperative criticism on studies favouring increase in expenditures
for infrastructure could be included as guideline and erudite escalation in the
literature. Though econometric limitations mentioned in this study for empirical
estimation of public capital at macro level could not be ignored but nature of
developing countries is also of importance in the sense that there exist serious
shortage of economic infrastructure. A serious limitation to the review study of
Gramlich (1994) is this that it evaluates developed economy of U.S.A, but in
developing world still there is shortage of sufficient infrastructure at macro level. The
estimates measuring econometrically the impacts of infrastructural development
expenditures at macro level within the framework of production model could provide
another side of the picture regarding developing countries for policy implications in
this area of research.
Recently, literature on infrastructural impacts was surveyed by Fourie
(2006), who not only analyzed the earlier research on the topic started after Aschauer
(1989), and their critics but also evaluated recent research. He appropriately
discovered from literature: i) earlier research results- recognizing impacts of
infrastructure on economic growth- were termed as ‘overestimated’ by the critics
under econometric limitations, ii) Critics also could not negate the positive impacts of
infrastructure, iii) Under new econometric techniques recent work on the topic
confirmed the positive relationship between infrastructure and economic growth. He
47
pointed out three levels of infrastructure on the basis of their benefits i.e. local,
national, and transnational. He distinguished impacts of infrastructure on the basis of
efficiency (growth process) and equity (development process). He also took into
consideration the casual impacts of growth and equity on infrastructural development.
One thing is worth mentioning here that mostly focus of the author remained on South
Africa throughout this study, however, his attempt for capturing the role of
infrastructure in growth and equity processes was appreciable and will be proved
helpful in further research on this topic. It also attracted the attention of researchers
(from different regions of the World, especially developing countries) to this topic.
3.3.2 Infrastructural Development and Growth
Pioneering work for estimation of the conventional theoretical
relationship between infrastructural development expenditures and economic growth
was conducted by Ratner (1983), who empirically found positive effects of
infrastructure on productivity of private business sector. Conventional Cobb-Douglas
production function was the base for his theoretical model, and comprehensive
estimation techniques of least squares along with Cochrane-Orcutt (CORC) iterative,
pseudo GLS were employed by him in his cerebral work for the period 1949-1973 to
evaluate productiveness of government capital as input for private firms. He
concluded that estimates of public as well as private capital confirmed productivity of
these variables on private output; however estimates of private capital were more
elastic.
Antle (1983) also preferred empirical estimation of established
relationship between investment for infrastructure and agricultural growth. He
48
followed method of inter-country comparisons in line with Clark, Kuznet and
Chenery1, for the reason that under the assumption of one production function, inter-
country data has the ability to capture the variations in production conditions of
different countries. He resolved output measurement problem by exploiting the
method of exchange rate on the basis of official value of U.S dollar. Data -gathered
from 47 less developed countries and 19 developed countries- was utilized by him in
regression analysis over three models with dissimilar variables constructed on the
basis of Cobb-Douglas aggregate agricultural production function for the purpose of
testing Hayami-Rattan’s hypothesis that inter-country differences in aggregate
agricultural productivity can be explained by differences in input use and human
capital. He concluded that additional variables of transportation and communication
services measuring country’s infrastructure capital in Hayami-Rattan’s hypothesis2
have also strong positive relationship with aggregate agricultural productivity.
In the perspective of hot discussions for adequate fiscal policy,
Aschauer (1989) put his arguments in favour of neoclassical approach which
emphasized to explore the effects of public policy on economy. Aschauer assembled
a comprehensive theoretical framework for his arguments and induced empirically
that “Core” infrastructure consisting of streets, highways, airports, electrical and gas
facilities, mass transit, water system and sewers have a momentous role for promoting
economy through emergent productivity in private sector.
1
Clark (1940), Kuznet (1965), Chenery (1960), and Chenery et al (1968).
2
The hypothesis used in the study of Hayami (1971).
49
Holtz-Eakin (1992) objected upon the estimates derived by Aschauer
(1989) on ground for using macro level data to obtain such estimates. Relying upon
study conducted by Hulton et al (1991), who suggested some econometric techniques
on macro level data when economic growth response was to determine, Holtz-Eakin
tested macro level data after applying astute econometric techniques, and found that
there was no role of infrastructural development on private-sector productivity, rather
according to his point of view causation ran from economic growth to public capital.
Not only Holtz-Eakin (1992) but different other studies such as Garcia-Mila,
McGuire, and Porter (1996) also held the same conclusion for relationship of public
capital and private-sector productivity. These studies were not in agreement with the
results of the studies conducted by Aschauer etc and concluded that estimates of
Aschauer etc were spurious due to lack of sophisticated econometric technique. The
studies built their thesis on the ground that causation ran from economic growth to
public capital, and analysis of such studies supported this hypothesis because urbane
estimation in such researches found negligible effect of infrastructure on private-
sector’s productivity.
Role of infrastructure in economic growth was studied by Wylie
(1996). He was geared up by the work of Aschauer (1989) and Munnell (1992) for
capturing reasons of productivity slowdown after 1960 in Canadian Economy. While
exploiting data from 1946-1991, he not only estimated trans-log production of labour
cost share equation with iterative Zellner estimator for capturing effects of
infrastructure on growth, but also estimated Cobb-Douglas production function with
OLS and AR (1) for capturing effects of infrastructure on productivity. He found
more effective role of infrastructure for enhancement of productivity and economic
50
growth in Canada as compare to the growth enhancement role of infrastructure in
United States. He appropriately analyzed that because of more need of infrastructure
in Canada than United States and due to differences in attributes of both these
economies, the estimates of his study were relatively high. This study can provide the
basis to researchers belonging to economies characteristically different from
developed countries for investigating the role of infrastructural development
expenditures on economic growth.
Sanchez-Robles (1998) explored empirically the prophecy concluded
in framework of Endogenous Growth Model showing positive relationship between
infrastructural development expenditures and economic growth. He focused his
attention to find out impact of public capital on rate of growth1. For this purpose
author regressed ‘per capita growth’ on ‘expenditures for infrastructure as a share of
GDP’. He preferred cross-country analysis while using two samples. Periods of
samples were selected by him on the basis of availability of data on physical
infrastructure. In first sample he collected data of 57 countries from five continents
and used expenditures in infrastructure as regressors but results were inconclusive.
He pointed out that monetary measure of infrastructure is a cause of inconclusive
results. In second sample he gathered data of 19 Latin-American countries and used
index of infrastructural physical units as regressors and results were positive and
significant. An important discussion in this paper further guided us that approach of
production function under endogenous growth model for measuring impacts of
infrastructural development on economic growth needs consideration because this
1
Before Sanchez-Robles (1998), focus was on the relationship between public capital and level of
growth, and this is the pioneering study evaluating the impact of public capital on rate of growth
51
approach lacks inclusion of translation-stage1 of economy towards steady-state
growth. He also emphasized that saturation point of infrastructure had its own
importance and needs for infrastructure varied from economy to economy.
During the last fifty years of nineteenth century, investment in
transportation and communication infrastructure enhanced economic growth of
Netherlands. This hypothesis was tested empirically by Groote et al (1999) while
using data of Netherlands from 1853-1913. Estimates of vector autoregressive (VAR)
model confirmed the hypothesis and showed that investment in transportation was the
major cause of GDP growth. They established time pattern of GDP response to
transport infrastructure and observed three different patterns namely forward linkage,
backward linkage, and transitional dynamics. Forward linkage showed reduction in
cost due to reduced transportation cost which enhanced economic growth. Backward
linkage showed improvement in income due to increased employment opportunities
which also enhanced economic growth. Transitional dynamics showed cost of
structural changes in economy due to regional settings of economy which then
declined economic growth. They analyzed that transitional dynamics were happened
in newly started and incremental projects of transportation. In sum, this study found
brawny positive impacts of transportation on economic growth of Netherlands during
the last fifty years of nineteenth century.
Total productivity in U.S and different European countries increased
till 1973, thereafter slowed down. In this perspective, Fernald (1999) not only
1
There are two effects of public capital: 1. direct impact when controlling for private investment, 2.
indirect impact via increase in private capital marginal productivity. The direct impact could take place
during transition to the steady state, but endogenous growth model lack any transitional dynamics.
52
investigated impacts of roads on productivity but also focused on the importance of
interstate network of roads and congestion of vehicles on roads. The data on inputs
and outputs for 29 sectors of U. S economy provided by Jorgenson1 et al (1987) for
the period 1953-1989 was used by author for estimation of impact of road’s
investment. He found that roads are productive and interstate network of roads played
an important role in increasing productivity of vehicle intensive industries.
Congestion is also important factor but played its role after the completion of an
interstate network. Fernald concluded that an increase in roads expenditures of
government increased the productivity of vehicle-intensive industries; hence causation
ran from infrastructure to productivity.
Bougheas et al (2000) also used cross-country evidence for confining
the impacts of infrastructural development on economic growth. Contrary to
Production Model they relied upon the model used by Romer (1987) because they
trusted that infrastructure along with private physical capital could not enter into a
production model. On the other hand Romer presented specialization as the base for
economic growth on behalf of increasing returns, and Bougheas et al (2000) entered
infrastructure variables as technology in this model. For testing the effects of
infrastructure on specialization, they used the data of U.S Economic Census and
found positive correlation. Whereas in their study, for testing the effects of
infrastructure on economic growth, they used Summers-Heston2 data set- which
covers 119 countries over the period 1960-1989- along with World Bank
1
The dataset was non-published and employed by Jorgenson et al (1987) for their study.
2
The data set used in the study King et al (1993)
53
Development Report (1994), and found a vital non-monotonic relationship between
infrastructure and economic growth.
Roller and Waverman (2001) considered only telecommunication from
set of infrastructural elements and emphasized that due to externalities attached with
this infrastructure, its effect alone had strong impacts on economic growth. Keeping
in view causal relationship running from communication infrastructure to economic
growth, structural model of simultaneous equations was developed so as to reduce
biasness of results related to single equation models. Pooled data over a period of
twenty years (1970-1990) for twenty one OECD countries, disaggregated on behalf of
characteristics, was gathered and then managed statistically. After estimation through
non-linear general methods of moments, results confirmed externalities of
telecommunication infrastructure. Study’s most important finding was to confirm the
existence of causal relationship between telecommunication infrastructure and
aggregate output. Authors also expected high growth impact of communication
infrastructure for OECD countries as compare to less developed countries.
Zagler and Durnecker (2003) reviewed literature and evaluated
different components of fiscal policy which were helpful for economic growth.
Government expenditure’s section of this paper investigated relationship between
infrastructural development expenditures and economic growth. They distinguished
between consumption and investment expenditures of governments and counted
education, infrastructure, health, and R & D expenditures within the government
consumption. They regarded these expenditures as productive for economic growth
54
endogenously by increasing productivity. They found strong positive impacts of
education and infrastructure on economic growth.
Perkins, Fedderke, and Luiz (2005) sought the role of infrastructure in
development process of South Africa within the perspective of long-term trends in
this area while establishing a database of official information available for economic
infrastructure variables and economic growth patterns. They used an updated database
of infrastructure in South Africa and analyze long term trends of infrastructure
measured individually (i.e. for roads, railways, ports, air-travel, telephones and
electricity etc) while capturing relationship between infrastructure and economic
growth with the help of F-tests. Most important findings of the paper were:
5) There exists casual connection in both directions.

6) They recommend policy makers to keep in view country’s infrastructural
requirement while investing in this area.
7) They discover that maintenance and expansion requirements for
infrastructure made these investments ever green.
Birniea et al (2005) paid their attention towards the importance of data
for policy making in rural areas. They emphasized that in this age of digital
technology, provision of infrastructure for data availability had a vital role for
provider and user both. For this purpose collaborative case study of Scotland and U.K
within the perspective of rural data infrastructure was conducted by them. They
searched out that European Union had already been recognized the importance of data
in policy making and transformed the sectoral based rural development policy into
integrated rural development policy whereas U.K remained behind European Union in
this area. This study pointed out that exogenous model (agricultural based) of rural
development had failed to embrace the capacity of rural communities for self-
55
determination whereas endogenous model (integrated approach) did this job
efficiently. They concluded that the concept of social inclusion should had been seen
in data and information terms as well as economic ones, and user-centered rather than
a technology-centered approach should had been developed. This study mainly
focused its concentration on developed nations while ignoring developing nations. As
the current problems of developing nations are still those of the nature of exogenous
model of rural development, nevertheless, these findings provide a way for
developing nations so as to coin their future rural development policy while keeping
in view the importance of data infrastructure in policy making.
Fedderke, Perkins and Luiz (2006) differentiated economic
infrastructure from social infrastructure so as to capture complete picture of South
African economy in the perspective of regulatory regimes which used to deprive
political and social rights of the people. And they paid their attention to find out
impact of economic infrastructure on economic growth in a time series analysis.
Relying on previous theoretical models, they established a system of simultaneous
equations for incarcerating the effects of infrastructural expenditures in a structural
model and applied standard time series technique of VECM (Vector Error-correction
Mechanism) for estimation. Considering limited information available in publications
provided by Statistical Department that the data was discontinued in late 1980s and
1990s, the dataset had to be updated in this study while using data provide by
individual organizations. They reached to the conclusion that infrastructural
investment had robust positive impact on economic growth by increasing output
directly and indirectly. Casual relationship running from output to infrastructure was
not strongly recommended in this study. In short we can say that this study provides a
56
sound base to focus the attention for exploration of the infrastructural development
expenditures’ impacts on economic growth.
Herranz-Loncan (2006) while using co-integration and VAR
techniques explored economic effects of infrastructure investment on Spanish
economy during first stage of industrialization i.e. 1850-1935. Results were very
interesting while discovered that investment in local-scope infrastructure was
effective for economic growth and investment in large nationwide infrastructure
network was not significant. He explained that government expenditures on former
investment remained less, and on latter investment remained insufficiently high,
hence improved efficiency in investment for infrastructure on different networks was
consequential.
Correa (2006) examined role of telecommunications for economic
growth of the England. Author used data of UK gathered from Board of Trade and
CSO which was performed in constant value terms and focused on the years 1963,
1984, 1991 and 1996 showing important phases of telecommunications’ history of the
country. Large-scale theoretical and econometrical framework was exercised by the
author in the paper. It is concluded in the paper that relationship between
telecommunication infrastructure and economic growth is optimistic, and
telecommunication infrastructure played an important role for enhancing productivity
in industrial sector which helped improve investment.
Bagdigen and Cetintas (ND) examined the causality between public
expenditure and economic growth. They tested both the hypothesis i.e. portrayed by
57
Wagner’s Law1 and Keynesian Theory2. For this purpose they employed renowned
economic techniques of causality exploration over the data of Turkey for the period of
1965-2000 and concluded that there existed no causality in either direction.
Demurger (2001), Esfahani and Ramirez (2003), Salinas-Jimenez
(2004), and Bogetic and Fedderke (2005) also saw the sights in the area of research
considering relationship between infrastructure and economic growth and found
confirmatory results for their positive relationship.
3.3.2.1 Rural Dimensions of Infrastructure and Growth
Out of different aspects of underdevelopment in rural areas
underemployment has a significant role. Bishop (1960) focused his attention towards
this problem and assessed in this regard the effectiveness of rural development
programmes of U.S.A. He found two key problems, firstly transfer of resources
among uses and secondly resource development. He described that to keep the
production potential continuously upward at a rapid rate is the major problem in
transfer of resources which needs special attention during implementation of rural
development programmes. He discovered that lack of capital, lack of information
regarding opportunities and rationing of jobs3 are the main reasons for
underemployment and further he regarded economic growth, easy entry in non-farm
employment, reorganization of agriculture for its production and investment in human
1
Causality runs from Economic Growth to Public Expenditures.
2
In recession public intervention can enhance economic growth
3
When in non-farm sector supply of labor is more than demand for labor at prevailing rate of returns,
then there exists a problems. Such problem is mentioned as JOB RATIONING by the author.
58
capital as the best solution of the problem of underemployment in rural areas. Lastly
he concluded that rural development programmes have the force to solve these
problems by development of local industry and local community. This article was
published in 1960 and covered a valuable aspect of rural development, and also
provided new ways to researcher.
How infrastructure investment affects output supply and input use of a
farmer within the framework of profit function, was premeditated by Evenson (1986).
He used duality-based profit function methodology for estimation. He used nine
agricultural regions of Philippine for the period 1948-1984, and constructed an
“average” farm data set on the basis of regional data. Roads and electrifications
showed immense effect on input use. So far as output supply is concerned roads’
effect was considerable whereas electrification’s effect was not positive.
Effect of prices and various forms of public inputs/shifters, on
agricultural supply were investigated by Binswanger et al (1987). They also relied
upon cross-country analysis so as to ensure inclusion of wide spread variations in
explanatory variables. They removed assumption of one production function and
allowed different techniques (to be handled by different countries) of production in
technological endogenous theoretical framework. They obtained inter-country and
intra-country estimates on a sample of 58 countries during 1969-78 for their
hypothesis and concluded that there is a weak positive supply response for intra-
country analysis where as implausible negative supply response for inter-country
analysis. So far as infrastructure variables i.e. shifters/public inputs were concerned,
their effect on supply response in inter-country and intra-country analysis was
59
strongly positive. They made it clear that effect of price on supply response relates to
inter-country estimates in the long run while their estimates belongs to short run in
intra-country supply response.
In another study, Binswanger et al (1989) focused their attention only
on intra-country analysis to seek inter-relationships of resource endowments,
government expenditures for infrastructural development, and financial facilities
available to farmers by means of an ample theoretical framework and evaluate their
impact separately on agricultural output and private agricultural investment. They
gathered pooled data randomly from 85 districts of 13 states of India for the period
1960-61 to 1981-82 and evaluate the results through regression. Among
infrastructure variables expansion in banks had the highest impact while
electrification has second highest impact on investment. Infrastructure variables
except irrigation were found to have strong positive impact on output and highest
impact was transmitted by school and road variables respectively.
Wanmali and Islam (1997) also verified the role of infrastructure in
agricultural development while using centre-peripheral model. They evaluated two
separate studies conducted by IFPRI in Zambia and Zimbabwe. They compared
services facilities provided by the government in rural (peripheral) areas and urban
(centre) areas of both the countries roofed by the studies of IFPRI. Comparison of the
both the studies reached to the same conclusion that rural areas were less served by
governments of both the countries and provision of rural infrastructure was the policy
implication mentioned by Wanmali and Islam (1997). It is also worth-mentioning
here that study emphasized more need of infrastructure services for rural areas as
60
compare to urban areas. And it would be proved more valuable to test the impacts of
infrastructural development on economic growth of developing countries which
mostly comprises of rural areas and depended on agricultural produce.
The impact of rural road projects was examined by Khandker; Bakht,
and Koolwal (2006). While using BIDS (Bangladesh Institute of Development
Studies) panel data and keeping in view heterogeneity between household and
community, income-consumption benefits of rural roads investments were estimated
in the study. According to authors roads were important public investments that had
both short and long term effects on employment, income, and productivity as well as
on investment in the human capital of children. Transportation approach for
estimation of impact of rural roads projects on economic growth was criticized in the
study.
3.3.2.2 Evidence from Pakistan Economy
While discovering evidence from Pakistan on the topic probing impact
of infrastructural development on economic growth, we have to face limitations and
few studies have come to surface, which are reviewed as under:
Looney (1992, 1997) was interested to capture the role played by
infrastructure in economic development of Pakistan. He investigated causation of
relationship between infrastructure, private investment and GDP on account of
different sophisticated econometric tools while using data of Pakistan for the periods
1972-1991 and 1973-1995 respectively. He found that in case of Pakistan causation
ran from private manufacturing investment to infrastructure because as the investment
61
in manufacturing increased, need for infrastructure expanded which resulted in
increase of public expenditure for infrastructure. So far as contribution of
infrastructure in economic growth is concerned, he concluded that high productivity
of infrastructure is evident from very low incremental capital-output ratio.
Impact of different factors including government spending
(infrastructure etc) on private investment was estimated by Looney and Frederiken
(1997). They found positive effects of these factors on private investment. They
suggested that there is a strong need for energy and credit facilities for improving
manufacture sector of Pakistan.
Khan and Sasaki (2001) used the time series data of Pakistan for the
period 1964-1997, and estimated the relationship between productivity of public
capital and economic growth. Production function approach was employed by them
for this purpose, and they recognized robust impacts of public capital on economic
growth in Pakistan. They also judged complementarity and substitutability of public
and private capital in their study by estimating an investment function and concluded
that public capital was substitutable with private capital.
3.3.3 Infrastructural Development, Growth and Poverty
Chattergee et al (2004) while relying upon the thesis that
infrastructural development helps to reduce poverty through enhanced economic
growth (indirect channel) tried to probe into the matter of impact of infrastructural
development on poverty reduction. Two core infrastructure elements of transport and
energy were the focus of this study. Case study approach with double difference
methodology (i.e. before and after situation, and with and without situation) was
62
adopted by the authors so as to find out indirect impact of infrastructure on poverty
reduction in the regions of Asia and Pacific while selecting countries of China, India
and Thailand. After having thorough surveys they reached to the conclusion that
sustainable and knowledge based infrastructural development significantly helped in
scaling-up poverty reduction programs of any country, however, this study found that
road transport infrastructure was comparatively a better source for this purpose. For
generalization of results to whole of the World, it was suggested by the authors that
projects adopted in this regard should had been pro-poor and targeted.
Anderson et al (2006) appraise existing material which addressed the
role of public expenditures in poverty reduction. In this scholastic paper in spite of
conducting empirical study on the topic authors evaluated selective theories,
evidences and methods relating to public expenditures’ efficacy for poverty reduction
with a purpose to explore further direction in this area of research. After review of
valuable material, authors recommended inter alia that agricultural regions/rural areas
should be the focus of researchers so as to estimate the returns on investment in
infrastructure for poverty reduction because mostly poor resided in rural areas and
rural policies had the force for poverty reduction. Authors were also of the point of
view that the evidence which investigated linkage between poverty reduction and
expenditures on infrastructural development would be proved helpful to expand
limited material on this area of research, and also they suggested country-to-country
research for this purpose because difference of such expenditures from satiety level of
different countries was different.
63
3.3.3.1 Rural Dimensions of ‘Infrastructure, Growth and Poverty’
Relying on a sample of 16 villages in Bangladesh, Ahmed and Hossain
(1990) estimated the impact of reformed rural infrastructure on economic growth and
poverty alleviation through comparison of targeted variables among villages with
different patterns of infrastructural development. The data based on a household
survey conducted in 1982, and households surveyed were marginally smaller than
640. The study got positive results in favour of poor people. Most important
conclusion of the study was the revealed elementary effect of rural infrastructural
development on poverty reduction through economic growth. Road access was the
sign of development for a village. In sum, better infrastructure was observed to be
associated with different elements of growth i.e. greater agricultural output, higher
incomes, better indicators of access to health services, and greater wage income
opportunities. These enhanced growth elements then helped to reduce poverty.
However infrastructural development expenditures themselves have far-reaching
implication for alleviation of poverty.
Van de Walle (1996) evaluated infrastructure arrangement of Viet
Nam, and focused his attention to explore causes of poverty reduction in Viet Nam
while keeping in view especially irrigation infrastructure. According to author in case
that a certain community had no access to infrastructure then provision of
infrastructure would certainly be helpful for them. Overall Viet Nam had meager
infrastructure for all the inhabitants and specifically the poor communities were most
deprived of in this regard. Hence infrastructure could play a vital role for poverty
reduction in Viet Nam. Irrigation infrastructure for poverty reduction was evaluated
64
in this study while employing cross-sectional Living Standard Survey data of Viet
Nam for 1992-93. Profit function was worn out by author so as to capture effects of
household characteristics, community characteristics and land characteristics
(irrigated and non-irrigated) on household crop incomes. Two regressions were run
with OLS technique on restricted and unrestricted model. Unrestricted model
exploited all the explanatory variables while restricted model represented the
variables with t-ratios below one. Towering gains of irrigation infrastructure for
poverty reduction were reported in the study in both the cases of undifferentiated
expansion and targeted supply of irrigation. However, targeted provision of irrigation
to poor had comparatively high effects for poverty alleviation. On the basis of such
findings it was inferred in the study that infrastructure investment had the force to
reduce poverty.
The relationship between rural infrastructure and poverty was
investigated by Mujeri (2002) and he found that infrastructural development would
help reduce poverty within the framework of economic growth by generating
employment through Public Works Programmes and expansion projects of rural
infrastructure. He concluded that if provision of employment could be sure for the
poor then infrastructural development could raise the income and employment for
them, which helped reducing poverty. The study relates to ILO and emphasized on
provision of employment to poor through infrastructural development for poverty
reduction and income generation.
Often it is argued that infrastructure investment significantly assisted
to poverty reduction but ‘how could we link infrastructure with poverty reduction’ is
65
an area of research which is yet to be explored. Hence, Songco (2002) made an effort
to find out the linkages between rural infrastructure investments and household
welfare of the poor while taking into consideration the case study of Vietnam. He
reviewed literature extensively on this topic from different sources such as PRSPs
paper sourcebook, World Development Report 1994, World Bank Working Papers,
OED1 publications, academic and on-line publications, and publications of
Development Information Center, Vietnam etc. He also supported findings of
literature survey with a restricted household survey in two provinces of Vietnam.
Three core areas were explored in this paper e.g. impact of rural infrastructure
projects, impact of rural infrastructure investment on poor and ‘how to optimize these
impacts’ for household welfare. In concluding remarks author emphasized that
available evidence establishing linkage between infrastructure and poverty reduction
was minuscule in nature and also not informative. However, it was recognized in the
study that infrastructural development had the force to help reduce poverty.
According to author lessons derived from the small scale field study had importance
for Vietnam and should not be generalized because it was a limited survey conducted
with the purpose of intensifying the findings of review of literature. Field study
suggested that poor and very poor did not take infrastructure investment as supportive
in economic terms. They termed this type of investment appreciable but also
suggested alternative ways for poverty reduction efforts. However, road investments
were admitted by them as helping hand in poverty alleviation. Keeping in view
country-specific conditions author suggested finally that results regarding
infrastructure investment varied from country to country, hence, finding of his study
1
Operation Evaluation Department, Asian Development Bank, Manila.
66
should not be taken as recommendation before further exploration in this area of
research.
Normally it is taken that rural roads help to reduce poverty. This
question was taken by ADB (2002) while discovering impacts of rural roads and
transportation on poverty reduction and also tried to find out that how could these
impacts be strengthen. Here, case study approach was adopted to capture not only
income impacts but also multifaceted impacts of rural roads on poverty reduction.
Three countries i.e. Indonesia, Philippine, and Sri Lanka were selected for the study.
Out of each country two project areas of ADB were selected for interviewing
stakeholders of project i.e. passengers, households, workshop people, and
participatory rural assessment etc. Hence qualitative and quantitative data were
collected from six regions where ADB had completed its projects for rural roads.
Instead of using income poverty line, in this study deprivation approach was selected
for poverty reduction analysis. Data was analyzed descriptively and inferentially. It
was concluded that rural road was a necessary but not sufficient condition for poverty
reduction. Social structure, spatial position, climatic situation, and natural resources
of the vicinity also had vital role for poverty reduction of rural roads. Poverty
reduction had also been differently impacted by integrated road projects and isolated
rural road projects. Integrated projects were proved more productive for poverty
reduction. Direct impact of rural roads worked limitedly for poor but indirect
impacts (access to facilities) worked adequately for poor. Not only poor but also non-
poor got benefits from rural roads, therefore, investment in rural road should had been
planed as pro-poor so that poverty reduction objective of rural roads could be
enhanced appropriately.
67
Fan et al (2003) focused their attention to the rural poverty in this
study, and trid to explore the effects of government expenditures for infrastructure on
agricultural growth and poverty reduction. As high variation in poverty incidence for
different regions of Thailand had been found, so analysis was disaggregated on
regional basis while dividing the country in to four regions i.e. Northeastern,
Northern, Central Plain, and Southern. Constraints of empirical evidence while
capturing effects of infrastructure on poverty reduction had been avoided by Fan et al
by developing a simultaneous equation model for a system of thirteen equations while
modeling determinants of rural poverty as function of infrastructural investments. In
this study double log functional form was used for all equations of the model to
estimate the relationship in question of Thailand for a period of 1977-2000. Major
finding of the study confirmed robust impact of infrastructure investment on growth
and poverty reduction, however, region-vise effects and effects of individual
infrastructure elements on poverty reduction showed towering deviation in this
regard. So far as poverty reduction is concerned government investment in electricity
had the highest impact, spending for agricultural extension had second highest impact
and road expenditures had the third highest impact. Whereas in case of agricultural
growth the highest impact was recorded for spending on agricultural extension and
second highest impact was for electricity expenditures. Impact of infrastructural
investment for poverty reduction worked significantly in Northeast region as compare
to other regions where such impacts were found to be middling.
An important role played by rural infrastructure was highlighted by
Yao (2003) who found that rural markets would be beneficial for poor only in the
68
presence of availability of infrastructure (geographic capital1) in remote areas.
Markets were the spots where demand and supply of factors and products set at
equilibrium for best allocation of resources. Rural poor people not only produced
farm and non-farm products but also had labour as their resources. If the resources of
poor community had access to market, then it is possible that these had been
optimally utilized and provided incentive to poor for economic activities.
Communication infrastructure (roads, transportation etc) along with legal, regulatory
and financial infrastructure fostered the access of poor to markets where they could
increase their profitability while exploiting latest information regarding demand,
supply, and prices of resources. Infrastructure was not only helpful for poor to
increase incomes through markets due to expansion in non-farm employment, farm
and non-farm productivity but also to non-income benefits through access to
education and health facilities.
Linkage between rural infrastructure, agricultural growth, and rural
poverty was explored empirically by Fan at el (2004), which exploited district level
data from 30 districts of rural Uganda for the years 1992, 1995 and 1997. So far as
data regarding poverty was concerned they followed Appleton’s method2 so as to
obtain region-specific poverty estimates. Keeping in view data constraints being
faced by them they developed a simultaneous equation model for capturing marginal
impacts of government expenditure on growth and poverty reduction, and then used
1
Ravallion et al (2001), and Jalan et al (2002) used the terminology of geographic capital instead of
public capital.
2
Instead of traditional approach while using single poverty line based on a single basket, Fan et al
(2004) used region-specific poverty lines developed by Appleton (2001) on the basis of baskets of
different regions.
69
double log functional form for estimation of the model. Study found robust impact of
infrastructural investment on agricultural growth and poverty reduction. Spending for
agricultural extension had the highest impact, roads investment had second highest
impact, and education expenditures had the third highest impact on agricultural
growth and poverty reduction whereas health facilities showed no impact at all.
Inferior type roads played vital role as against highways and high type roads.
Regional disparities of impact of such expenditures were also evident in this study,
and western region of Uganda performed well in this regard.
Fan et al [(2000), (2002), and (2004)] discovered the impact of
infrastructural investment on economic growth and poverty for rural India, rural
China and rural Thailand respectively. While criticizing single equation model for
biased results and using simultaneous equations model, these studies investigated
impact of ‘government spending’ in factor and product market. In these studies,
importance of investment in infrastructure (especially for roads) was crystal clear for
economic growth and poverty reduction. In case of India, roads and R&D
investments had not only significant impact on poverty reduction but also had
powerful impact on economic growth. Investments in education and other sectors had
modest impact on economic growth and poverty reduction. In case of China
investment in education had the largest impact on poverty reduction, and education
investment also experienced high returns to growth whereas investment in agricultural
R&D had the largest impact on growth. And Thailand’s experience also pointed out a
significant relationship between infrastructure investment, economic growth and
poverty reduction.
70
Fan and Chan-Kang (2005) estimated that development of rural roads
and other infrastructure proficiently widened the growth and reduced the poverty in
China. They used provincial level data and following a simultaneous equation model
to capture the impact of infrastructural development (especially roads) on growth and
poverty. Exception of the study was to disaggregate the roads on the basis of quality,
and also to obtain the results on the basis of different regions. Marginal effect of road
development was proved different for different regions, and also different for different
quality of roads. Low-quality road contributed much, as compare to high-quality
roads, for growth and poverty reduction. Another important finding of the study was
the recognition of ‘trade off’ between growth and poverty in different regions of
China, which attracted the attention of policy makers towards basic needs of different
regions.
3.3.3.2 Evidence from Pakistan Economy
Within the atmosphere of limitations regarding evidence from Pakistan
on this topic, we have succeeded to draw out following studies:
Hussain et al (2006) keeping in view the importance of small scale
activities for poverty reduction tried to assess the impact of irrigation on agricultural
productivity and poverty reduction in Pakistan. On the basis of field survey primary,
data from nine Tehsils of Pothohar Plateau was collected for the period of 2002-03
while employing stratified random sampling technique for comparative analysis.
Headcount ratio, poverty gap and squared poverty gap were measured for the sample
area, and thereafter analysis of poverty incidence was conducted with respect to
available farm size and availability of water through different sources i.e. irrigation,
71
rain and both. It was concluded that overall poverty was comparatively low in the
study area and small scale irrigation had positive impact on poverty reduction.
JBICI, and IWMI (2007-a, 2007-b) conducted a research for finding
out relationship between irrigation infrastructural development and poverty alleviation
while investigating impact of ‘household access to irrigation’ on income/expenditures,
variability in incomes/expenditures and consumption smoothening of household.
They published their results for data of Pakistan in its Research Report No. 31 and for
Sri Lanka in Research Report No.32. For this purpose two different yearly surveys
were conducted during 2001-2003 so as to capture spatial as well as temporal effects
of irrigation infrastructural development on poverty dynamics i.e. chronic and
transient poverty. Qualitative and quantitative analysis of a stratified sample of 858
households reached to the same conclusion that area with access to irrigation
infrastructure, as opposite to area without access to irrigation facility, was
comparatively less victimized by incidence, depth and severity of poverty.
3.4 ISSUES ASSOCIATED TO SUBJECT MATTER OF THE

RESEARCH THEMES
In this section of literature review we may talk about some certain
issues regarding main themes of the study within the umbrella of literature. Main
themes comprises of selection of study area on the basis of spatial differences (we
select rural as against composite or urban sector), specification of model (we select
single equation model as against simultaneous equations model), methodology for
quantification of infrastructure variables (we select core infrastructure and distance of
public facility from rural inhabitants as against public spending to quantify
72
infrastructure), and usage of household survey for analysis purposes (we preferred
micro data as against secondary data). All these themes have been discussed with the
help of literature in the following paragraphs:
3.4.1 Selection Of Region As “Rural” For Analysis
First of all we may talk about rural specifications of the thesis. In
literature a number of studies [Ratner (1983), Antle (1983), Aschauer (1989), Holtz-
Eakin (1992), Porter (1996), Sanchez-Robles (1998), Bougheas et al (2000), Esfahani
and Ramirez (2003), Chattergee et al (2004), Correa (2006), Anderson et al (2006)]
take into consideration the infrastructure at country level. Most of these studies make
their investigations for developed countries where rural sector has minimal role in
economy. Instead of country data, the impact of infrastructure on economic growth
and poverty reduction has also been discovered for rural sector. The rural sector has
specifically been investigated in the analyses of developing countries because of the
fact that in developing countries rural sector is the main cause of problems related to
economic growth and poverty reduction. Hence, it is concluded that in case of
developing countries if we streamline the rural sector of the economy then these
problems could be griped and resolved smoothly. The studies which put their
argument for infrastructure to growth and poverty reduction within the perspective of
rural sector are Evenson (1986), Binswanger et al (1987, 1989), Looney (1992, 1997),
Wanmali and Islam (1997), Khan and Sasaki (2001), , Khandker et al (2006), and
these studies chose the developing economies for their analysis. In this study we want
to explore the impact of infrastructural development on growth and poverty reduction
of Pakistan economy, and Pakistan is a developing country, so for the purpose of
73
analysis the balance will tilt in favour of rural sector in line with those studies which
prefers rural sector when investigating the problem in developing countries.
3.4.2 Model Selection as “Single Equation Model”
Early studies wherein poverty determinants have been investigated,
single equation model will be used for estimation purposes such as Saith (1981),
Ahluwalia (1985), Gaitha (1989), and ‘Ravallion and Datt’ (1994). On the other hand
the studies conducted by IFPRI and Shenggen Fan, used simultaneous equation model
so as to capture the effects of public spending on growth and poverty reduction on
account of four reason: i) ignoring endogenous characteristics of some variables leads
the analysis to biased estimates, ii) multiple effects of public spending could not be
captured by single equation, iii) inclusion of one type of investment for poverty
reduction gave birth to upward biasness iv) ranking of effects of different spending
will not be possible. Most of these studies wherein simultaneous equation model will
be used were conducted their analysis at macro level and specifically taking into
consideration the public spending. On the other hand Shenggen Fan in his own study
[i.e. Fan et al (2006)] when conducted the analysis at micro level for a household
survey, used single equation model on account of the reason that at macro level it will
be difficult to capture multiple effects of public spending. In our analysis we are
investigating that whether at micro level ‘rural infrastructural development’ could be
considered as the significant determinant of economic growth and poverty reduction.
For this purpose we utilize household survey, therefore, in line with earlier studies
and specifically the study conducted by Fan et al (2006) for household analysis, we
will use single equation model because we want to estimate the impact of rural
74
development at micro level. Other reason to select single equation model instead of
simultaneous equation model is that after OPEC oil shocks of 1970, use of
simultaneous models for analysis purposes have been shrunk substantially on account
of their feeble forecasting influence [Gujarati (2003)].
3.4.3 Quantification of Infrastructure Variables
In most of the studies conducted for capturing the effects of
infrastructure on growth and poverty reduction, public spending will be employed as
proxy variable so as to quantify infrastructure [Fan et al (2000, 2002, 2003, 2004
etc)]. Some of the studies uses core infrastructure itself to quantify the infrastructure
[Fan and Chan-Kang (2005)]. Few studies also used distances of the public services
(infrastructure) from the vicinity for the purpose utilizing it as proxy to quantify the
infrastructure variable [Fan et al (2005)]. The studies which use public spending as
proxy for infrastructure variable accomplished the analysis at macro level. The study
used core infrastructure of road i.e. Fan and Chan-Kang (2005) also conducted at
macro level. The distance of infrastructure from ultimate users has also been utilized
for quantification of infrastructure variable. Such a methodology will be employed in
the studies which accomplished analysis at micro level. In this research work we not
only employ core infrastructure but also utilize the distance of public facility from
vicinity for quantification of infrastructure because our analysis also based at micro
level while employing households level data set. Furthermore in case of a country
like Pakistan where data for spending on infrastructure is not even completely
accessible at macro level, then it will be very difficult to find the data at micro level.
Hence despite of using spending as proxy for infrastructure variable we use core
75
infrastructure along with distance of core infrastructure from inhabitants for this
purpose.
3.4.4 Selection of Micro Data for Analysis Purpose
As earlier discussed that for a country like Pakistan severe limitations
were arose as we try to find the data in case of infrastructure. Within the ambit of
renowned published reports of Government institutions [GoP (Various Issues-i), GoP
(Various Issues-ii), GoP (1999-i), Ten Years Statistical Books of FBS, Data Sources
of State Bank of Pakistan] regarding budgets it will be very difficult (if not
impossible) to find out the data regarding expenditures incurred upon infrastructure
variables separately for urban and rural areas. The only help from these data sources
could be obtained in shape of community level expenditures and PSDPs. On the other
hand when we talk about core infrastructures, information on some of the
infrastructure variables such as road, schools, hospitals, energy and communication is
available but then it will not be possible to obtain the information only for rural sector
and this study tries to accomplish the analysis for rural sector. Another limitation for
conducting the analysis at macro level while employing time series data will be arose
when we want to gather the data on poverty because time series data on poverty for
Pakistan is not available due to some certain methodological issues regarding non-
uniformity of poverty line over time, un-availability of gapless sequential studies or
effort in this regard, and non-availability of data for poverty before 1971. Therefore,
time series sources of secondary data may not be proved helpful for a study wherein
impact of rural infrastructural development will be investigated for poverty reduction.
This is why we employ primary data obtained through secondary sources of FBS in
76
shape of survey titled, “Household Integrated Economic Survey 2005-06” whereby
we could obtain information not only for inhabitants of rural areas but also for the
vicinities where they live because this data set surveyed the rural communities along
with rural inhabitants and identified the development characteristics of rural
communities. The micro data will be proved helpful for accomplishment of the
analysis to be investigated in this study, therefore, we decide to utilize micro data to
be employed for estimation purposes of this study.
3.5 HYPOTHESES TO BE TESTED IN THE STUDY
After having reviewed extensive material over the research topic, now
it may be better to discuss the research hypotheses to be evaluated in this study. This
study, as mentioned in introductory chapter, will try to find out the impact of rural
infrastructural development on poverty reduction. Such an analysis could be
accomplished via two main channels i.e. direct impact of rural infrastructure over
poverty on account of rural infrastructural development programmes and its indirect
impact over poverty on account of enhanced growth. Therefore, Chapter No. 7 and 8
will focus indirect channel whereas Chapter No. 9 will focus direct channel. It is also
important to mention here that Chapters No. 7 & 9 comprise of micro analysis
whereas Chapter No. 8 comprises of macro analysis. In the followings an attempt has
been made to explain the hypotheses to be evaluated in these chapters.
3.5.1 Hypotheses to Be Tested For Micro Analysis
There are two popular strands in the literature on poverty; the first
contends that poverty is a cultural/behavioural phenomenon and the second
77
views poverty as a structural/economic phenomenon. The cultural thesis argues
that poverty is rooted in the deficient character and behaviour of the poor which
undermine economic well-being and success (Jordan, 2004; Lewis, 1970;
Ellwood & Summers, 1986; Mead, 1986; Patterson, 2000; Rodgers, 2000). On
the other hand the “structural or economic” strand argues that mostly poverty
can be traced back to structural factors in an economy or institutional
environments that favour certain groups over others. For example, economic
opportunities may vary markedly between different locations with
significant impact on income levels and poverty. The poverty of an
individual cannot, therefore, be solely attributed to personal characteristics
without paying attention to the circumstances prevailing where a person lives
(Holzer, 1991). Economic factors underlying impoverishment include exposure
to available economic opportunities, the level of median income and inequality
(Keynes, 1936; Ellwood and Summers, 1986; Abramovitz, 1996). This direct
relationship between poverty and income supports the argument that productive
work is the best mechanism for lifting people out of poverty which, in turn,
suggests that strategies to expand economic opportunities and promote income
growth are necessary for sustained poverty reduction. This is the view
adopted by most empirical studies on income and poverty.
The current study has also adopted the structural approach that
links incomes in rural areas with factors that could be able to develop those areas
by influencing productive activities, improving the size and education of the
labour force, expanding transportations and communications, and providing the
health facilities. A number of empirical studies using the structural approach
78
have influenced this choice of approach. Sen and Palmer-Jones (2006) examined
the link between poverty and location in rural India and also concluded that
p laces where conditions were un-favourable to the development of irrigation
facilities experienced little agricultural growth and, consequently, these areas
were characterized by low income levels and minimal declines in rural poverty.
These results are supported by Son (2007) who looked at the effect of irrigation
and water availability on rural incomes in Vietnam. The study found that between
2000 and 2005 rural incomes were more than doubled in irrigated areas
compared with non-irrigated areas.
Studies have also shown that the quality of human capital is
an important factor in explaining rural poverty. Using growth models, Solow
(1957) and Nelson (1964) postulated that education adds to the effectiveness of
labour through technical progress. In general, education allows people to adapt
more easily to both social and technical changes in the economy and, to changes
in the demand for labour. In their analysis of poverty in Uganda, Okurut et al.
(2002) found that the higher the educational attainment of the household head the
wealthier the household, while the larger the household size the poorer the
household. Smith (2007) in a study on the determinants of Soviet household
income found that human capital and demographic factors were the main
determinants of income. The well-educated, middle-aged and self-employed
people had relatively comfortable incomes. The study also concluded that
location had strong influence on household incomes.
79
Inadequate infrastructure has also featured prominently in rural poverty
studies. In Argentina, a study on the rural poor found that the principal causes of
poverty were low education, poor health facilities and inadequate infrastructure
(Verner, 2006). Combined together, these factors severely constrained income.
Khandker (1989) found that government investment in roads had a positive effect on
crop output, rural non-farm employment, and agricultural wages, all of which were
beneficial to the poor. Malmberg et al (1997) found that infrastructure investments
contribute to economic growth in, both farm and non-farm sectors, and generate
economic opportunities for the rural population in general. Likewise, Fan and Rao
(2002) concluded that non-farm employment became increasingly important in
helping the poor during the post–green revolution period in many Asian countries.
Escobal (2001) established the link between roads and income diversification. He
analyzed the determinants of rural household decisions to undertake off-farm
activities in rural Peru.
The discussion in above paragraphs leads this study to develop
following two hypotheses which will be taken in to consideration for analysis purpose
in Chapter No. 7 and Chapter No. 9 respectively:
Hypothesis-1: Rural infrastructural development has the force and strength to

enhance incomes of rural people positively.
The positive impact of rural infrastructural development on rural
incomes is indirect path at micro level for the purpose of poverty alleviation.

alleviate poverty in rural areas positively.
80
The positive impact of rural infrastructural development on rural
poverty reduction is direct path for the purpose of poverty alleviation.
3.5.2 Hypothesis to Be Tested For Macro Analysis
The linkage between infrastructure and economic growth is not one-
dimensional rather it is multiple and complex. Infrastructure not only affects
production and consumption directly but also creates many direct and indirect
externalities and involves large flows of expenditure thereby creating additional
income and employment. Infrastructure promotes growth and economic growth brings
about changes in infrastructure.
In the literature, there are several studies examining the relationship
between different physical infrastructure services and per capita income / output.
These studies suggest that infrastructure does contribute towards the growth of output,
income and employment of the economy and ultimately the quality of life of the
people in the concerned economy [Looney and Frederiksen (1981); Hardy and
Hudson (1981); Aschauer (1989a); Ebert et al (1991); Queiroz and Gautam (1992);
Gramlich (1994); Cutanda and Paricio (1994); Esfahani and Ramirez (2003)]. Studies
also exist on the inter-state disparities on the level of economic development and
infrastructure facilities, e.g., Rao (1977), Elhance and Lakshmanan (1988), Ghosh and
De (1998, 2004), Sahoo and Saxena (1999) are only a few to name. Sarkar (1994)
adopts principal components method to compute the infrastructure index. CMIE
(1997) obtained infrastructure index as a weighted average of various components of
infrastructure facilities. However, weights have been assigned in an arbitrary manner.
10th and 11th Finance Commissions have used the index of infrastructure as one of
81
the criteria for devolution of funds to states. Bhatia (1999) constructed an index of
rural infrastructure and his study revealed that the index of infrastructure significantly
influences the per hectare yield of food grains in the state.
On the basis of above discussion this study also tries to contribute
towards the role of infrastructure in growth enhancement and for this purpose macro
analysis of Pakistan economy will be conducted in Chapter No. 9. This study may be
unique in the sense that role of infrastructure may be explored for rural sector of the
economy so as to find its impact on economic growth. Therefore, hypothesis to be
tested in Chapter No. 8 is as follows:

enhance economic growth. The positive relationship exists
between the two and this study takes into consideration the
direction of relationship running from rural infrastructure to
economic growth.
The positive impact of rural infrastructural development on economic
growth is indirect path at macro level for the purpose of poverty alleviation.
3.6 CONCLUSION
At the end of this chapter we may conclude that rural infrastructure has
been taken as an important element for economic growth and poverty reduction of any
country. Sufficient number of studies explores this topic in various countries. Most
of the studies put their arguments in favour of infrastructure as a determinant of
economic growth and poverty reduction. However, such studies are also available in
the literature which contradict with the notion that rural infrastructural development
may be helpful to augment economic growth and to reduce poverty of an economy.
82
Overall, it has been taken that rural infrastructural development may have the force to
enhance economic growth and to reduce poverty of any country.
With this background when we try to find out the results from
Pakistan, then it has come to the surface that there exist a limited number of studies
which focus this topic in case of Pakistan. Specifically, when we talk about the role
of infrastructure for poverty reduction we find negligible work in this regard and only
the infrastructure of irrigation has been evaluated for this purpose. Therefore, keeping
in view this limitation we feel strong need to present the evidence from Pakistan
wherein we may explore the role of infrastructural development for poverty reduction
and economic growth of Pakistan. As earlier mentioned in last chapter that poverty is
a rural phenomenon in Pakistan, therefore, we may investigate this topic for rural
areas of Pakistan. After analysis phase of the study we may be able to put the
evidence from Pakistan regarding the role of rural infrastructure in poverty reduction
and in growth enhancement. But before starting the analysis phase of the study we
may present theoretical background of the thesis in the next chapter.
83
CHAPTER 4
THEORY OF RURAL DEVELOPMENT,
ECONOMIC GROWTH AND POVERTY: A
REVIEW
4.1 INTRODUCTION
Every fact has some anecdotes in the background. Sometimes results
deducted sometimes inducted, nevertheless, conclusions depend upon theories.
Similarly, premise of ‘poverty reduction on behalf of rural development’ also pursues
a theory. This chapter attempts to expound the theory embodying this hypothesis.
Consequently, in this chapter we briefly discuss poverty theory and then state the
framework supporting the philosophy behind the argument of this thesis. For this
purpose we divide this chapter into three further sections. Section: 4.2 describes
major concepts of poverty theory so that reader may be able to presume the milieu of
the thesis. Therefore, issues related to poverty measurement, and poverty reduction
policies will be conversed here briefly so as to assemble a vista in the minds, which
then will be employed in crafting a conceptual framework of the thesis. Section: 4.3
discusses concepts of rural development evolved chronologically. In this section after
discussing different classifications of rural development, we attempt to describe the
rural development ideology to be used in the thesis. Within the perspective of poverty
theory, the impact hoisted by selected snap of rural development (i.e. rural
infrastructural development) on poverty reduction has been portrayed in Section: 4.4.
84
The Section: 4.4 then endeavors to portray the theory to be evaluated in this thesis for
the purpose of finding out the response of poverty reduction on the basis of enhanced
rural infrastructural development. After mentioning theoretical background and
constructing a framework in this regard, we will be able to initiate analysis phase of
the thesis wherein we seek to estimate diverse sections of the framework for the
purpose of capturing comprehensive picture of the prospect demonstrating rural
infrastructural development as a significant determinant of rural household’s incomes
and poverty reduction.
4.2 ACCEPTED WISDOM ON POVERTY NOTION
What poverty is? Why there is a need to focus on poor? These two
questions are very necessary to answer if we want to be familiar with the concept of
poverty. For the sake of definition we could say that poverty is a state of human
being whereby human beings are unable to satisfy core necessities of life i.e. physical
intakes, clothing and shelter etc. Different definitions of poverty have been presented
by different institutions and individuals but well accepted and acknowledged
definition of poverty has been provided by the World Bank:
“Poverty is pronounced deprivation in well- being1”

World Bank (2000)
Conventionally poverty has been defined in monetary terms because in
the beginning all the academics took poverty within the ambit of financial resources
of the people that whether populace have sufficient money to fulfill their basic
1
Concept of Well-being is difficult and multifarious which need clarity; therefore, the concept gave
birth to different approaches describing well-being. Consequently, poverty measurement theory
made use of these approaches during analysis of different data-sets.
85
minimum needs and requirements or not. If someone has the resources to fulfill his
basic wants then he may be considered as non-poor otherwise he is poor. Basic wants
consist of a bundle of goods comprising of necessities of human beings just to live. If
the income/consumption of the household is not sufficient to acquire that bundle then
he may be considered as poor.
But with the passage of time the concept of poverty has been
broadened and poverty theorists also considered other aspects of life for a person to be
poor and poverty has been defined in different scenarios. Another approach to look at
the concept of poverty is to measure poverty within the sphere of specific
consumption goods or attributes e.g. education, health, nutrition, and access to public
services etc. Households are examined on their ability to obtain a defined1 quantity of
that good or not. If they have not attained the defined quantity then they will be taken
as poor. The broadest approach of poverty has been presented by Sen (1987) who
defined poverty as the lack of capabilities. What does capability mean here?
Capability may be characterized by Amartya Sen as a person’s power to function in
society. Whether the person has or has not ability to attain sufficient nutrition,
sufficient education, sufficient health, sufficient power, and sufficient freedom to
speak and live in the communities etc. Such a broadness of thought made poverty a
multidimensional concept which takes care of the poor communities in all respects.
But while struggling against the genie of poverty it is very difficult to keep pace with
such a broad concept of poverty because still humanity is combating with poverty
within the bubble of monetary aspect. Therefore, conventional thinking regarding the
1
A certain limit has been defined e.g. if we talk about education then simple literacy or 5 years of
schooling could be considered as threshold of being poor or not.
86
concept of poverty has still its importance, and till yet issues related to estimation and
evaluation of poverty, have been based on monetary aspects of life. Consequently
this study also focus on the conventional thought regarding poverty i.e. pecuniary
image of poverty.
4.2.1 Measurement of Poverty
Just to define poverty is not the task of poverty theory. In poverty
theory it is also questioned that who are poor. How could we be able to know about
the poor section of the society? Hence, another task of poverty theory is to measure
poverty. Measurement of poverty is branch of poverty theory which itself is full of
issues to be resolved. Therefore, measurement of poverty is a separate task in the
field of poverty research. Economists and social scientists have divergent stance on
this core concept and hence tried to resolve the issue in a different way. This study
belongs to the point of view of economist’s community. In the beginning, economists
themselves were not much clear on this topic and after a long time of research on this
core issue, they are able to describe a procedure to measure poverty. Poverty theorists
such as Ravallion, Sen, Deaton, Kakwani, Haughton, Khandker, Duclos, Visaria etc
did extensive work on measurement of poverty and provided clarity of concept on this
issue of poverty theory. For the purpose of broad learning in this area of research, the
studies such as Ravallion (1992), Duclos (2006), and World Bank (2009) could be
considered and perused as a lustrous guiding material. On the basis of work in this
regard we can easily articulate that measuring poverty is a three step phenomenon.
These three steps are as under:
Step-I Describing an indicator for measurement of poverty
87
Step-II Establishing the threshold
Step-II Representing the outcome precisely
4.2.1.1 Indicators Used to Measure Poverty
Any attribute which can describe the well being of humanity, can be
used as an indicator to measure poverty. What the well-being is? Well-being is a
wide concept which could be defined not only monetarily but also under the
umbrellas of specific commodities and capabilities. Hence describing well-being for
the purpose of measurement also has different criterions. Well-being could be
extorted not only by the income and consumption (Welfarist Approach) of the people
but also could be deducted from the utilization of a specific commodity e.g. nutrition,
health, education, public services etc (Non-welfarist Approach). Welfarist approach
focuses on utility and exercises monetary measures of humanity to capture their well-
being. Welfarist approach uses two types of variables, one showing the capacity of
individual (power of buying) to attain utility i.e. income, and other showing capability
of individual (freedom of choice in buying) to attain utility i.e. consumption.
Welfarist approach presents an excellent idea to quantify well-being but it seeks to
investigate the inputs1 employed to attain utility, and is unable to catch the outputs2
attained by usage of that utility. Admittedly, inputs have their own importance but
outputs could not also be ignored. Hence, another extreme is Non-Welfarist approach
wherein usage of specific commodity has been taken as indicator of well-being.
1
These are the variables, which can be used to generate the utility.
2
These are the variables which reflect the effects of utility usage.
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Similar to Welfarist approach, Non-Welfarist approach also uses two types of
variables e.g. 1) Basic Needs; The capacity of the masses in usage of specific
commodity (helps in attaining the specific functioning) i.e. defined level of education,
calories, housing, freedom etc, and 2) Capability; The ability of the masses to achieve
a functioning out of its set (freedom of choice) i.e. nutritional status etc. Limitation
attached to Non-Welfarist approach, does not allow capturing of all the aspects of
well-being within one orb. Hence keeping in view these types of limitations related to
both the approaches, theory suggests following variables inter alia to measure the
well-being of the people:
a) Income
b) Consumption
c) Calories Intakes
d) Ratio of food expenditure to total expenditures
e) Defined level of basic necessities
f) Nutritional Status
g) Observations of the people

All these variables can be selected as an indicator of well-being. On
the basis of these variables, we may be able to judge the living conditions of the
people and may be able to sort out poor segment of the society. Still we cannot say
assertively that these variables have full power to measure poverty. Each of these
variables has some advantages and limits.
4.2.1.2 Establishing the Threshold
After the inception of human race on earth, humanity needs some basic
items for their existence. They need food, clothing and shelter. These requirements
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are the basic and inevitable for the survival of humankind. Hence these requirements
have vital role in describing verge point which segregate the society into poor and
non-poor. Even with the evolution of civilizations on the globe the humankind has
expanded their necessities for existence and has also been enjoying the comforts of
life. But scarcity compelled the people to capture most of the resources for their own
use and competition started between human beings for having control over utmost
resources to fulfill their own requirements. Such a race left the people on different
places, some succeeded to achieve most of the resources and enjoying comforts of
life, some of them achieved only such requirements which are sufficient to live a
normal life, and some of them failed to achieve resources even required for just
existence of their lives. Poverty exists not only at micro level but also at macro level
and some of the countries left behind in the race of capturing resources. Colonialism
is an indicator of race for capturing resources. However, the failed segment of the
societies has been known as poor, and still the minimum requirements needed for the
existence of humanity are the same as taken by humanity at the time of its inception
i.e. food, clothing and shelter. So, these requirements have a vital role in finding out a
threshold, which can describe a point below which masses are considered as poor i.e.
threshold or poverty line.
4.2.1.3 Diminutive Statistic
After successful selection of indicator of well-being and poverty line,
the last assignment in poverty measurement theory is to choose a measure of poverty
i.e. the statistic, showing the level of poverty in any society.
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The statistic, which is able to provide maximum information of whole
the analysis, will be known as “Index” of that analysis. In literature, for analysis of
poverty measurement, such statistic will be accredited as “Poverty Indices” or
“Measures of Poverty” etc. In this section, we will try to converse renowned
measures of poverty, which may be used heavily in the analysis of poverty
measurement.
4.2.1.3.1 Headcount Ratio
As obvious by the name of this statistic of poverty measurement, we
just count the poor lived in a society and represent the number as a ratio of total
population. This ratio will then be known as Headcount Index or Headcount Ratio.
Hence, such a statistic can only capture the situation about poverty level of a society,
and the same is unable to capture followings:
a) The intensity of poverty as a whole in the society

b) The severity regarding poorness of the poor within a society
On the basis of this statistic, analysts are unable to compare two
different societies for their poverty status because this statistic could only be helpful
to express the level of poverty and could not express the intensity of poverty being
faced by the poor segments of the societies. The statistic may show that both the
countries have 30% poor population even that the poor of one of the society are
poorer than other society. Similarly within a society, the statistic could not tell about
the poverty level of two different poor. Notwithstanding the statistic has been widely
approved and used for the purpose of poverty measurement because of its simplicity.
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The formula used to compute this statistic is as under:
n
1
HCR = P (yi < z)
i=1
N
Where, HCR shows the measure of poverty i.e. Headcount Ratio, N
shows total number of observations, [P(.)] is an indicator function used to pick the
poor from the society: if household expenditures (yi) falls below poverty line (z), then
the function [P(.)] will be concluded as 1, otherwise the function [P(.)] will be
ignored to include in the formula.
4.2.1.3.2 Poverty Gap Index
Another statistic to be used for poverty measurement is Poverty Gap
Index. In this statistic, it has been tried to capture the depth of poverty within a
society. For this purpose the gap of each household has been computed while
assuming that gap of non-poor is zero. This gap has been divided by poverty line to
obtain proportionate poverty gap with respect to poverty line. Then average of
proportionate poverty gap will be calculated. If we define Poverty Gap Index as PG,
number of observations as N, poverty line by z, and household expenditures with yi,
then the formula for computing Poverty Gap Index could be expressed as under:
n
1 G
PGI = i
i=1
N z
Where: Gi = (z – yi) P( )1 ,.
1
The indicator function P(.) has already been described in formula of Headcount Ratio.
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while assuming that z – yi = 0, for all non-poor.
Now, the analyst will be able to measure the proportionate gap
between poor and poverty line. In other way, it will be easy to find out that how
many resources are required to fill the gap between poor and poverty line. But
limitation attached is simple that how the society could be able to impart these
resources to actual deprived class even if society has fixed a certain proportion of
their resources for poor segment. This static also could not help out to find out the
intensity of poverty for a given society and also not helpful to measure inequality
among the poor of the society. Despite the limitations attached with the statistic, the
statistic has been propagated by many analysts due to the reason that with the usage of
this statistic in analysis, society could be able to find out the information regarding
least amount of resources to be required for handling the problem of poverty in the
society.
4.2.1.3.3 Squared Poverty Gap Index
As noted above that Poverty Gap Index has been failed to capture the
extent of inequality among the poor of a society, therefore, by computing the statistic
known as Squared Poverty Gap Index, an effort has been made to overcome the short-
coming of the statistic named as Poverty Gap Index. Here, simply the weights have
been assigned to proportionate poverty gaps (i.e. z – yi/z) and weights are the
proportionate poverty gaps themselves. Hence, the formula will be:
93
n 2
1 G
SPGI1 = i
i=1
N z
This statistic has the power to capture inequality among the poor of the
society and in case of transfers from any poor to another poorest within society; the
value of statistic will be reduced. Limitation attached with this statistic is its
interpretation because straightforward understanding and interpretation of this statistic
is a tricky task if not impossible.
4.2.2 Poverty Reduction: Policies And Demographic

Characteristics
Poverty measurement is necessary tool of poverty analysis and the
purpose of poverty measurement is to keep the poor on the board because poverty
measurement could expose not only the level of poverty, but also the decomposition
of poverty among different areas, different groups, different characterizations etc so
that humanity as a whole may be able to help them in reducing their problem of
poverty. Hence, the other important tool of poverty analysis is poverty reduction.
What poverty reduction is and how to handle with the problem? This is the question
to be discussed in this section.
For the purpose of poverty reduction, two main approaches have been
utilized in the literature [World Bank (2009), Ming-Chang (N.D)]:
i) Macro Approach
ii) Micro Approach
1
The indicator function Gi has already been described and explained in formula of PGI.
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4.2.2.1 Macro Approach to Poverty Reduction
Macro approach to poverty reduction suggest the economic growth as a
policy tool for poverty reduction in case of developed countries whereas when we
focus the developing countries, again the economic growth has its vital importance
but economic liberalization, democracy and military expenditures also play their role
as a policy to poverty reduction. In the following, we discuss all these policy
measures of poverty reduction in brief.
At macro level the most important instruments for poverty reduction
will be taken as economic growth. Instead of the fact that there exists controversy on
the topic that whether economic growth helps to reduce poverty or not, economic
growth has been proved a leading element for poverty reduction at macro level
[Dollar and Kraay (2002)]. Chen and Ravallion (2001), Deaton and Dreze (2001),
Datt and Ravallion (2002), and Bhagawati (2001) also put their arguments for
significant role of economic growth in poverty reduction. Other empirical studies
such as Ravallion and Datt (1996), Tendulkar and Jain (1995), and Tendulkar (1998)
also put their evidence and find empirically that economic growth can help reduce
poverty.
Few economists have reservations over the link of economic growth
for poverty reduction because former empirical evidence evaluating Kuznet
Hypothesis resulted in IMMISERIZING1 growth (Robinson, 1986, Adelman and
Robinson, 1989, and Papanek and Kyn, 1981). It was also found out in some studies
1
The economic growth which would be a cause of unequal distribution of income, hence results to augment poor segment of
the society.
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[Ahluwalia et al (1979), and Fields (1980)] that if any link between economic growth
and poverty reduction have been concluded than such evidence may be emerged
fortuitously.
Indeed, if incomes of the poor will not be improved significantly with
overall increase of income level then economic growth has a little relevance with
poverty reduction. This will happen in case of high rate of inequality in the country.
Here we talk about pro-poor growth. Pro-poor growth means the economic growth
which inherits the characteristic of poverty reduction [(Ravallion and Chen 2003)].
How the economic growth could accompany poverty reduction. Kraay (2004)
concludes that for economic growth to be pro-poor, central role will be assigned to
policies of the governments and to the institutions helped to enhance broad base
growth. Growth could be pro-poor by improving government policies so as to
enhance the pubic basic requirements other than food i.e. education, heath,
infrastructure etc. What policies could help the economic growth to be pro-poor?
Answer to this question is still not satisfactory because still it is difficult to suggest
specific policies in this regard. However, in case that with the help of policies if we
are able to streamline the incomes of the society and then economic growth could help
to reduce poverty. Then, question arises that whether it is ‘economic growth’ or it is
‘equal distribution of income’ which helps to reduce poverty. In that case also we
could not neglect the importance of economic growth for poverty reduction, and we
should focus on distribution of income1 along with economic growth so that incomes
1
The concept of inequality described in section 4.2.1.2.1; it means that poverty and inequality will be
handled simultaneously so as to combat poverty reduction.
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of the households of the region could be tied closely to economic growth [Ravallion
(2007)].
The World Bank took the conception of pro-poor growth differently.
Earlier she suggests two main macro approaches to reduce poverty i.e. labour
intensive economic growth; and investment in human capital [World Bank (1990)].
Then on the basis of experiences of 1990s, The World Bank (2000) appendages the
conception and focused on followings for robustness of poverty reduction at macro
level:
a) Opportunities
b) Empowerment
c) Social Protection
4.2.2.2 Micro Approach
At macro level we may talk about governmental policies to handle
the problem of poverty whereas at micro level we try to find out the causes due to
which masses have to face the problem of poverty known as poverty correlates and
determinants of poverty. Literature guides us to the following causes of poverty,
however, it is too early to say that these are the deep causes of poverty. The causes
mentioned below are immediate one which could describe the framework to combat
with the problem of poverty. We could distribute these causes into different types
such as:
i) Regional Characteristics
ii) Community Characteristics
iii) Household Characteristics
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4.2.2.2.1 Regional Level Characteristics and Poverty
Regional characteristics indicate the distinctiveness attached to the
region i.e. country, where the masses live, and these characteristics could be natural or
anthropogenic. Either natural or anthropogenic, these characteristics could affect
poverty significantly. Natural characteristics may encompass the environmental state
of affairs, resource base, and geographical location of that region. Human planning
for some certain regions could be regarded as governance, political or economic
stability, effectual judiciary, participation, market performance and security etc. Some
specific countries could have to face poverty due to their regional characteristics such
as Bangladesh due to flooding [(Mozibul Islam (2006)], Vietnam due to cyclones
Shaw (2006), Cholistan- a desert range in Pakistan- due to its remoteness [Imran
Sharif Chaudhry et al (2005)], and developing countries due to bad governance, non-
effective judiciary, non-stability of economic and political affairs or market failures
etc.
4.2.2.2.2 Community Level Characteristics and Poverty
Community level characteristics signify the distinctiveness associated
with certain communities i.e. people lived in a specific area within the country either
city or village etc. Community characteristics comprise of infrastructural status,
average status of social capital, employment opportunities, land reforms, social
mobilization etc. All such characteristic play an import role for poverty reduction.
State of infrastructural development of the communities could help the masses while
escalating opportunities for them to access the economic, social and managerial
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institutions, which consequently increase their ability to improve well being [Fan et al
(2000), (2002), (2003), (2004)]. Similarly it is observed that social capital could have
been considered a good practice to fight against poverty, inequality and vulnerability
etc because social capital makes the masses capable of attaining the well being for
them [World Bank (2000), Kozel and Parker (2000), and Fafchamps and Minton
(1998)]. As a third opportunity of community level characteristics we may discuss
employment opportunities. If the employment opportunities have been increased due
to increased access to employment sources then it will be easy for masses to increase
their well being [ILO (2008)]. In the same wary, land distribution could help to
combat inequality among masses regarding their resource endowment, which
resultantly help to improve their well being [Besley and Burgess (1998)]. Recently,
the most importance has been given to social capital- social skills or association
within the families and communities or social institutions at macro level- because
social capital has the force to improve cooperation and collaboration among the
masses which resultantly work for improvement in the well being of the masses.
4.2.2.2.3 Household Level Characteristics and Poverty
Household characteristics connote the distinctiveness affixed with
individuals or households. Household characteristics comprises of size of household,
age structure and marital status of household members or household head,
dependency ratio, participation ratio, female-male ratio, educational level within
household and health status of households. Household Characteristics have three
main types:
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i) Demographic
ii) Economic
iii) Social
Firstly, we talk about demographic characteristics. Household size has
been positively correlated with poverty [Gibson (1990)]. So far as age of household
head is considered, a positive correlation of this variable has been discovered with
poverty and if we focus gender of household head, the families with female as a head
are most likely to be poor. Similarly, female to male ratio has been positively
correlated with poverty. Dependency Ratio1 has also been positively correlated with
poverty.
When we talk about economic characteristics, then the most urgent
variables have been taken as income and consumption which are negatively correlated
with poverty. But economic condition of household could also be checked by their
employment, property, and asset holding. So far as employment is considered,
theorists focus on the employment status of household 2, their employment duration3
or participation ratio4 etc. All these variables have been negatively correlated with
poverty. Similarly, asset-holding and property ownership are also negatively
correlated with poverty. Property comprises of land, building, machinery and durable
1
Ratio of dependents (ages between 1-14 and more than 64 in completed years) to independents
(ages between 15-64 in completed years)
2
How many members within household are employed?
3
How many hours the household members worked?
4
Ratio of employed (either doing a job or seeking for job) household members to the size of the
household who could be included in labour force (the household who are that of the age between 15-
64 years whether employed or not)
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goods etc whereas asset holding consists of financial assets i.e. savings, securities,
liquid assets etc.
Lastly we take into consideration the social characteristics of the
household. The most important variables which show the social improvement of the
households are education, health and shelter. When we talk about education, we want
to capture the education within the household or education of household head.
Education could be quantified by level of education, availability of educational
institutions by level, or use of available educational services by the households. The
level of education could be differentiated by number of years attended in school, or
coding for different level of education i.e. codes for primary, secondary, college or
university level. So far as health is considered we may quantify it within household
by nutritional status, disease status, availability of health services and usage of
available services in this regard. For quantifying shelter, economists normally use
housing (type of building, source of housing i.e. ownership or rental etc), environment
(sanitation facilities, availability of roads, transport etc), and availability of public
services (drinking water, electricity, communication etc). All these variables have
been negatively correlated with poverty.
4.3 GIST OF RURAL DEVELOPMENT
What is the rural development? To answer this question, it is necessary
to define the word “Rural”. According to IFAD (2001), rural locale is an area where
mostly people live or work on farms and population comprises up to 5,000-10,000
persons. Now the definition of rural development can be stated as: “Sustained
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development in well being of rural people”. Major causes of rural underdevelopment
are as under [(Germano and Thorbecke (2001)]:-
a) Low agricultural productivity

b) Lack of focus toward Non-Farm sector
c) Poor rural infrastructure
d) Lack of access to market and market information
e) Low levels of investment in people
f) In-appropriate economic policies
g) Adverse effect of globalization
h) High disease burden
i) HIV/AID pandemic
j) Unsustainable population growth
k) Ethnic and Tribal conflicts
l) Environmental degradation
4.3.1 Rural Development Themes over Time
The ideology of Rural Development evolves over time and different
themes have been presented for explaining it, but main ideology will remain the same.
Predominant role of Farm sector, Non-Farm sector and Infrastructural Development
could not be neglected throughout the evolving phases of Rural Development. The
main ideology in this regard may also be affected by the broad ideology of
development thinking at macro level. For example, gender dimension in development
thinking is a macro level idea of development but when it is implemented in rural
areas, it will take the shape of rural development. Similarly structural adjustment,
market liberalization, state-market relationship, good governance, basic needs,
redistribution with growth etc, have their recognition at macro level but when
implemented in rural areas, they certainly supplement the ideology of Rural
Development.
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Here we briefly discuss different themes of Rural Develop from 1950s
to onward. In 1950s, the Rural Development has been seen in community
development wherein efforts have been made to improve the infrastructure and social
set up of the people belonging to specific vicinity. Thereafter, it focuses on small
farms and takes the shape of “Small Farm Growth” in 1960s. Under this approach
problems of small farms have been taken the importance for rural development. The
era of 1970s emphasizes on integral approach under the theme “Integrated Rural
Development” wherein Rural Development encircles not only the small farms but also
community development. Thereafter, when importance of market-friendly approach
has been taken into consideration at macro level, the Rural Development has also
been shifted from state-led rural development to “Market Liberalization” in the era of
1980s. From the mid of 1980s to the mid of 1990s, the ideology of Rural
Development has been premeditated under the themes of “Participatory” and
“Empowering” Rural Development wherein participation and empowerment for rural
people will be at the central point to achieve development for them. In 1990s,
“Sustainable Livelihood” has been emerged as the philosophy of Rural Development
wherein again integral approach has been attained the focal point for development of
rural sector. In the 21st century, efforts have been made to mainstream the ideology of
development while taking PRSPs1 at the center of attention because in development
process the well being of the people should be the main target so that masses can
realize the benefits of development. Hence, in the first decade of 21st century the
rural development ideology has also identified the PRSP as a main theme for Rural
1
As per IMF, PRSP has been defined as, Poverty Reduction Strategy Papers, which are prepared by
the member countries through a participatory process involving domestic stakeholders as well as
external development partners, including the World Bank and International Monetary Fund .
103
Development. As mentioned above that even the replacement in the themes over time
has been occurred continuously and may be continued in future also, but the main
elements for Rural Development always remain the same i.e. farm sector, non-farm
sector and infrastructural development.
In this study, we consider rural infrastructural development as
representative of rural development, and in the analysis phase of the thesis when we
try to estimate the impact of rural development on poverty reduction, we will take the
variables which show development in community level characteristics. For this
purpose we employ a community level survey conducted by FBS in rural areas of
Pakistan and on the basis of this survey we may try to quantify rural development in
shape of rural infrastructural development. This survey is a part and parcel of HIES
data conducted in 2005-06. The topic will be discussed in next chapter in some little
bit more detail, however, here the purpose to mention the creed is just to show that the
theme/ideology/myth for Rural Development exploited in this study is rural
infrastructural development because we hypothesize that rural infrastructural
development has the force to enhance economic growth of the county, to augment
rural household’s income, and to reduce rural poverty.
4.3.2 Rural Infrastructural Development and Poverty Reduction
After having a brief introduction to Rural Development, now it is time
to have a look at the connections between Rural Development and Poverty Reduction.
In developing countries main cause of high poverty is rural poverty because outsized
proportion of overall poverty belongs to rural areas (Malik, 2006). The economy of
Pakistan also termed as a developing country, therefore, throughout this study we take
104
the case of rural poverty reduction and emphasizing insight for development in rural
areas. Rural Development affects poverty to reduce via two directions: direct and
indirect. Mostly in developing countries- where rural sector and rural poverty are
predominant characteristics- poverty is a rural phenomenon, and there is very
likelihood for the rural people to be poor. Hence, Rural Development helps to
improve the well being of the people resided in the rural areas on account of
employment generation and enhancement of economic activities of rural areas.
Therefore, we could easily assume that Rural Development itself affects poverty
directly. The indirect link of Rural Development for Poverty Reduction is associated
with enhancement of economic growth, which consequently improves the well being
of the people. Now we may put light in some little bit detail on these two ways by
which Rural Development helps to reduce poverty.
4.3.2.1 Direct Impact of Rural Infrastructural Development on

Poverty Reduction
Followings are the main points which could help us to understand the
phenomenon by which Rural Development could improve directly the well being of
the masses resided in rural areas:
i) Rural Development creates linkage between different sectors of rural

area and also between rural and urban area, which play key role to
improve access of the masses to opportunities which helps to improve
well being of the poor, and to reduce poverty of rural people.
Infrastructural development in rural areas is the basic requirement for
sector linkages.
ii) Rural poverty increased with the increase in distance from markets
[(Greer and Thorbecke (1986)]. To counter rural poverty it is necessary
to improve the Rural Infrastructural Development because it is
105
conducive not only to develop the efficiency in factor and product
markets but it also supports to enhance participation of rural people in
these markets, which consequently could affect their poverty and poverty
rates positively. Role of rural markets could not be ignored for poverty
reduction of the masses resided in rural areas.
iii) Well built social institutions e.g. a good network of schools and hospitals
with maximum facilities and establishing the NGOs for their support in
rural areas could enhance human capital within rural communities.
Human capital not only contributes positively to poverty reduction but
also it could be a sound base to improve empowerment in rural
communities which in turn helps to reduce poverty.
iv) Stagnation is the prime sign of rural communities which gave birth to
retarded growth and high rates of poverty. Refined cultural norms,
attitudes and vivid social network raise the mentality of the individuals
of vicinity to understand the environment of that area and to take rational
decision regarding their well being. Hence, Rural Development within
the perspective of social protectionism could be able to provide a stage
for poverty reduction.
v) Normally the rural people have the employment opportunities within the
sphere of farm and non-farm sectors of rural areas which are not
sufficient to absorb the labour force of rural communities. Hence, Rural
Infrastructural Development provides the framework in shape of
enhanced linkages between rural-urban areas along with labour intensive
techniques in urban development. Resultantly, Rural Infrastructural
Development could increase the employment opportunities for rural
people which then help to improve their well being.
vi) Pro-poor policies for rural infrastructural development are the

fundamental instruments for poverty reduction.
106
4.3.2.2 Indirect Impact of Rural Infrastructural Development on
Poverty Reduction
On the basis of following grounds we could assert that the Rural
Infrastructural Development may be helpful to augment the economic growth of a
specific country. It is already discussed in section 4.2.2.1 above that within specific
framework the economic growth has the vital role in poverty reduction. Hence, Rural
Infrastructural Development has not only direct impact over poverty reduction but it
also indirectly affects poverty rates of the masses.
i) Rural based growth involves an improvement in distribution of assets

and incomes [Ghai (2000)], which resultantly enhance economic growth
of the country.
ii) Land reforms on account of rural development shifted the land in the
hands of small landlord due to which land productivity is increased
[(IFAD (2001)] which in turn augment the economic growth.
iii) Rural Development increases the investment in human capital and
human capital has strong positive impact on economic growth.
iv) Due to Rural Development, incomes of the rural people are increased up
to tax level which consequently increases the tax base and economic
growth of the country.
4.4 CONCEPTUALIZATION OF RURAL DEVELOPMENT

FOR POVERTY REDUCTION
Literature survey showed the momentous role of infrastructural
development for poverty reduction where we discussed a number of studies pointing
out that infrastructural development- either development of core infrastructure
variables or enhanced public spending for infrastructural development- could
potentially solve the issue of poverty. How could infrastructural development play its
107
role for the masses fallen in the cruel loop of poverty? This section takes into account
this specific question and tries to mention a pathway which is built on the blocks of
infrastructure and moving towards the destination of poverty eradication so that a
picture could be mentioned that may be able to explain the phenomenon on the basis
of which this study is trying to evaluate the thesis that in case of Pakistan rural
infrastructural development may be a considerable approach for achieving MDG No.
1 i.e. eradication extreme poverty and hunger. As discussed earlier that this thesis
takes into consideration rural infrastructural development as representative of “Rural
Development” and allowing the poverty to be represented by rural poverty because in
underdeveloped nations- generally speaking developing countries and specifically the
region known as Southeast Asia e.g. Pakistan, India, Bangladesh etc- the poverty is
predominantly a rural phenomenon. Therefore, in this study the scenario of
“Infrastructure for Poverty Reduction” will be presented within the background of
rural sector.
There is a strong link between rural development, growth and poverty.
Economic growth is the key to poverty reduction (Lewis, 1955). If economic growth
is accompanied by good governance and macroeconomic management, it results in
sustainable and comprehensive development [ADB (1999)]. What required is the
access of the poor people to the employment, education, health, market, water and
sanitation etc. Reforms in Public Policy for investment in infrastructure will
significantly contribute to growth and poverty.
In 1990s, there were two broad views about infrastructure and poverty
reduction. On one hand, in developing countries infrastructure was viewed most
108
significant for poverty reduction. On the other hand, developed nations viewed
infrastructure investment as best assistance for developing countries (DFID).
In rural communities main sources of income are wages, crops, and
earnings from non-farm sector. Wages either in cash or in kind, could be earned from
both the ingredients of rural sector i.e. farm and non-farm, hence whether a person
may have land or not, he is capable of earning wage income on the basis of his labour.
Whereas only the masses who own land and have landholding, could have earned the
Crop/Farm income. It means level of income in rural communities is directly
proportional to landholdings. Hence, incidence of poverty will be inversely affected
by size of land.
So far as wage income is concerned it depends on employment and
productivity in farm and non-farm sectors. Higher the productivity of farm and non-
farm sectors, greater will be the employment opportunities and sources of income for
the masses in rural sector. It means productivity and employment in farm and non-
farm sector is directly related to incomes of the masses, and inversely related to
poverty incidence.
The farm/crop income depends upon size, and productivity of the farm
sector. Higher the size and productivity of farms, greater will be the income sources
for land-holders. It means productivity and size of land are directly related to
incomes of the masses in rural areas and inversely proportional to poverty incidence
within rural communities.
On the other hand non-farm sector earnings depend upon productivity
of non-farm sector. Higher the productivity in non-farm sector, higher will be the
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incomes of masses involved in non-farm sector. It shows that income in the rural
communities is improved with the enhanced productivity of non-farm sector and vice
versa which consequently proves that incidence of poverty inversely depends upon
productivity of non-farm sector. Hence for the framework describing relationship of
rural development through community development, four elements are most
necessary i.e. agricultural productivity and employment, and non-agricultural
productivity and employment. These four elements could be termed as determinants
of poverty in the scenario of rural sector, and hence these are the main areas of
influence when we intervene with the variables of rural infrastructural development as
explanatory variable for poverty reduction (the area of concern). The ideology of the
framework to be utilized in this study for considering rural development as a source of
poverty reduction has been explained in the figure below. As per Figure: 4.1, when
we intervene with the variables of interest i.e. rural infrastructural development, it will
influence the intermediate variables i.e. productivity and employment opportunities
which in turn helps to improve not only the wages of the masses but also overall
economic situation of the region.
Hence, rural development directly improves the living standard of
the people on behalf of enhanced employment opportunities and wage increment,
which consequently lowered the poverty of the region. On the other hand, rural
development also helps to enhance economic growth of the region which in turn helps
to reduce poverty, hence, again lowers the poverty of the region indirectly through
economic growth.
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FIGURE: 4.1 THEORETICAL FRAMEWORK OF THESIS
1. Area of Intervention
RURAL INFRASTRUCTURAL DEVELOPMENT

Roads Irrigation Safe Drinking Water Markets Telephone Education
Health Financial Institutions

2.
2. Area of Influence
Agricultural Agricultural Non-Agricultural Non-Agricultural

Productivity Employment Productivity Employment
3-a. Indirect Channel 3-b Direct Channel
Economic Growth Wages and Employment of the poor
Supply and Prices of Consumption Goods
Real Income/Consumption of the poor
4. Area of Concern
POVERTY REDUCTION
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4.5 CONCLUSION
An effort has been presented in this chapter to describe comprehensive
theory behind the thesis. We conclude that the economic theory supports the thesis
that infrastructural development helps not only to enhance economic growth but also
helps to reduce poverty. Hence, we observe that there are two main pathways out of
infrastructural development which leads towards poverty reduction. One is a direct
way whereby rural infrastructural development directly affects poverty to reduce
through augmented economic activities and employment generation. And the other
way is indirect whereby rural infrastructural development affects economic growth of
the country to enhance and then enhanced economic growth may play its role for
poverty reduction of the masses. In previous pages it has already been revealed that
poverty is a rural phenomenon in case of Pakistan, therefore, we consider rural
development through infrastructural improvement as the variable of interest in this
study and presents the economic theory while keeping in view rural sector of the
economy.
During the analysis phase of the study we pay our attention on both the
directions whereby rural infrastructural development may be proved helpful for
poverty reduction while using micro level data. Firstly in Chapter No. 7, we try to
explore indirect channel of the thesis that rural infrastructural development helps to
reduce poverty through growth enhancement. We hypothesize that rural
infrastructural development is an important determinant of economic growth at micro
level. In Chapter No. 8, the micro evidence has also been vetted at macro level.
Secondly, in Chapter No. 9, we endeavor to investigate direct channel of the thesis
that rural infrastructural development helps to reduce poverty. In Chapter No. 9, we
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investigate the impact of rural infrastructure on poverty reduction only at micro level
because of the limitations regarding availability of data on poverty and rural
infrastructure at macro level.
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CHAPTER 5
MEASUREMENT OF RURAL
DEVELOPMENT, ECONOMIC GROWTH
AND POVERTY: SOME BASIC ISSUES
5.1 INTRODUCTION
In this chapter we have made an effort to put in plain words the
characteristics of the datasets to be exploited in the analysis phase of the study. Along
with data distinctiveness we also try to explicate the methodology to be utilized for
the purpose of extracting inference out of these datasets. Rural Development is a
multi-faceted topic which affects poverty through different directions. This study
tries not only to capture status of Rural Infrastructural Development in Pakistan but
also tries to find out effects of Rural Infrastructural Development on poverty
reduction. Rural Development affects the poverty in rural areas via two main
directions as explained in the last chapter. Therefore, this thesis comprises of multi-
direction analysis. Firstly, in our analysis phase we take into consideration
descriptive tools of statistics so as to capture different aspects of Rural Development
in Pakistan. Then we employ the inferential tools of statistics so as to observe impact
of Rural Development on growth and poverty reduction separately. Hence, we will
have to use two datasets so that we may be able to examine the question of thesis via
different ways. We divide this chapter into two main parts. Section 5.2 would
explain the characteristics of the datasets to be used in this study and Section. 5.3
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would be an effort to describe the methodology to be followed for the purpose of
acquiring final results from these datasets. In the last Section: 5.4 will conclude this
chapter.
5.2 DATASETS TO BE EXPLOITED
The main theme behind this study is to find out strength and direction
of variations to be occurred in Poverty Reduction through Rural Infrastructural
Development. As it is evident that Rural Infrastructural Development is an
explanatory variable, therefore, we find it necessary to put light on the main
descriptive characteristics of this variable so that we could utilize this variable in a
good manner for the purpose of inferential analysis. This is why we make use of the
secondary dataset titled, “Pakistan 2008 MOUZA Statistics”.
As earlier explained in the chapter of “Theoretical Background” that
Rural Infrastructural Development could influence the poverty to reduce via supply
augmentation, price stabilization, and growth enhancement because Rural
Infrastructural Development could have the ability to increase the access of rural
communities to public facilities which ultimately increase the opportunities for rural
communities where most of the poor reside. Hence, keeping in view both the
channels of poverty reduction via rural development i.e. direct and indirect, we will
try to explore its effects on growth and poverty reduction. So far as growth is
concerned as dependent variable of the inferential analysis, we employ time series
data of Pakistan from 1981 to 2010 so as to attain the impact of Rural Infrastructural
Development on growth of Pakistan at macro level. On the other hand at micro level
we probe this impact while focusing on rural household’s incomes as dependent
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variable. The impact of Rural Infrastructural Development on poverty reduction has
also been investigated at micro level. At micro level we use the dataset titled,
“Household Integrated Economic Survey (2005-06)”.
The above mentioned datasets have been collected through Statistics
Division, Federal Bureau of Statistics (FBS), Pakistan, and renowned published data
sets of GoP. The distinctiveness of these datasets have now been explained one by
one in the followings so that it may become easy to understand that how these data
sets can be used for the analysis purpose of this study. After discussing the features
of the data sets, variables and their inter-relationships will be discussed in detail.
The issues regarding the problems attached with secondary data have
their own importance and significance during inferential process of datasets but only
on the basis of this cause we could not ignore the efforts accomplished by statistical
institutes of government sector. May be, such information will not represent the real
situation perfectly but it could provide the information which is approximately a
representative of real situation. Hence, wide use of secondary datasets in evident
from literature.
5.2.1 Distinctiveness of the Data Sets
As mentioned above there are two main datasets which we have
obtained through secondary sources for the purpose of inferential analysis, therefore,
we divide this section into following two main sub-sections which may describe the
main elements of these datasets i.e. “Pakistan Mouza Statistics 2008” and
“Household Integrated Economic Survey 2005-06”. So far as time series data set
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from 1981 to 2010 is concerned, it has been collected via different published sources
of GoP [i.e. GoP (Various Issues-i), and GoP (Various Issues-ii)]
5.2.1.1 Pakistan Mouza Statistics 2008
Agricultural Census Organization (ACO) is a sub-body of Statistics
Division of Pakistan, who conducted the survey titled “Pakistan MOUZA Census
2008”. ACO started its functioning in the early 1970s and thereafter it conducted as
many as eight census of this kind in 1971, 1979, 1983, 1988, 1993, 1998, 2003 and
2008. Such an effort of ACO could be termed as outstanding effort because it
provides detailed information on socio-economic development of rural communities
to the researchers in the field of Rural Development which could facilitate the
research in this area of study. Pakistan is predominantly an agriculture based country
where agricultural development has vital role to improve the economic situation of the
country, therefore, collection of such data is very important to monitor and evaluate
the current policies of the governments for development of the country.
On the basis of primary data collected by ACO, secondary data set
titled, “Pakistan 2008 MOUZA Statistics” has been provided by them to interested
researchers, planners, and policy makers so that information could be used for useful
purposes. In secondary dataset, 29 informatory tables have been presented wherein
data for the availability of different type of facilities by rural communities, and also
the accessibility by them to different type of services in distances (KM), has been
arranged adeptly. The information presented in tables covered the socio-economic,
geographic, financial, and living standard characteristics of the rural communities,
which is sufficient to infer the status of rural development in country.
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5.2.1.1.1 Basic Information of Survey
Rural area has been pronounced in Urdu as MOUZA/DEH which is
defined as a unit with specific name, explicit margins, and divided into plots, and is
representative of revenue record for that unit while having a specific ‘Revenue Unit
No’ in revenue record of the country. All the MOUZAs of Pakistan from four of its
provinces1 as well as Northern Areas, and Azad Jammu and Kashmir have been
covered. Due to the problem of terrorism some of the areas of Pakistan have not been
covered in the survey i.e. Orakzai Agency, North Waziristan Agency, Bajour Agency,
F.R Kurram, South Waziristan Agency, and Kurram Agency. Survey was completed
in three phases starting from October, 2007 to May, 2008. The questionnaire
comprises of two pages, covered the information through 51 questions while taking
into consideration core enumeration techniques. After completion of the survey five
main reports were published for Pakistan and for four of its provinces separately as
mentioned above. The Pakistan Report has been utilized for this study.
5.2.1.1.2 Methodological Issues of Survey
During preparatory phase, ACO staff mentioned the core identification
codes of each unit on questionnaire, and then packed the questionnaires along with an
instruction manual for filling up the questionnaire in a polythene bags before
distributing it to enumerators. Regular meetings of concerned staff have been
arranged to assist them regarding importance, methodology and objectives of the
census through trained team of ACO known as Census Master Trainers (CMTs).
1
Balochistan, Khyber Pakhtunkhawa, Punjab, and Sindh.
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Thereafter enumerators, as per methodology and instruction imparted to them,
collected the data from local representatives/elders of locality carefully and submit the
same to ACO. Full operation has been conducted in three phases. In first phase entire
Punjab and Sindh were covered while in second phase hot areas of Balochistan and
Khyber Pakhtunkhawa were covered, and in third phase cold areas of Balochistan and
Khyber Pakhtunkhawa were covered.
5.2.1.2 Pakistan Social and Living Standards Measurement Survey

2005-06
Federal Bureau of Statistics, a sub-body of Statistics Division of
Pakistan, has conducted the survey titled, “PSLM: Pakistan Social and Living
Standards Measurement Survey 2005-06”. It is a cross-sectional survey gathering
primary data, which is used to assemble the characteristics of households of any
country at micro level. These surveys are helpful to find out living standards of the
people of the countries i.e. incomes, consumptions, education, health of the people
along with access of the people to the services to be provided by the government or
private sectors. Such type of surveys has been conducted all over the world for the
purpose of research and analysis so that impact of different policies adopted by the
regimes of the countries could be analyzed empirically at micro level.
Statistics Division, Pakistan started to assemble HIES in 1963 and
thereafter continues this practice with some breaks. In 1990s and then in 1998-99
questionnaire was modified as per requirements of the temporal changes occurred in
the World. Recently HIES has been conducted as the sub-sample of Pakistan Social
Living Standard Measurement (PSLM), which is a District level survey.
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5.2.1.2.1 Basic Information of the Survey
Secondary sampling unit (SSU) in HIES is household. A household
has been defined as a group of people, either single or more, who live in one
unit/place of residence for fulfilling their income, and consumption requirements as a
family. Information for a household has been collected for male and female members
by male and female enumerators separately while using separate male and female
questionnaires in this regard. Both the questionnaires have been divided into eleven
different sections. Some of the sections have been filled by the male respondents and
some of the sections have been filled by the female members as per requirement of
the questionnaires. Information has been gathered for employment status, income
sources, expenditures, education, health, housing, property holding, agricultural and
non-agricultural establishments etc.
Data obtained could also be decomposed between rural and urban areas
and also for all the four provinces along with northern areas and Jammu and Kashmir
because certain codes have been mentioned for each SSU unit wherein different codes
have been assigned to provinces, primary sampling units (PSU), urban and rural areas
so as to recognize them provincially, geographically, and regionally. To decompose
the data on the basis of gender-ness different coding have been mentioned in
questionnaires as ID code. Hence decomposition characteristics of HIES is very
useful for researchers.
One more very important aspect of HIES is the provision of primary
data specifically for rural sector whereby primary sampling units of rural areas have
been utilized to provide the information on services’ availability (not only
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encompassment of a service but also accessibility by distances in KM) by the rural
communities. For this purpose a separate questionnaire titled “Rural Communities
Questionnaire” was developed and distributed to elected leaders, appointed leaders or
other persons who have been considered as more knowledgeable about his village, so
as to obtain information on development process of rural communities. Community
survey has been employed to obtain information regarding socio-economic,
topographic, financial, markets, and living standard characteristics of rural
communities. Information is available on the aspect that whether a service is
available in the vicinity or not, and if not available than at how many distance the
service is accessible for the rural communities. For the services encompassed within
the vicinity, codes of “1” and “2” have been used but in case of non-availability of the
services within the vicinity, the distances of the services in KM from rural
communities have been mentioned. Some certain characteristics have more than one
attributes. In this case, coding has been provided to distinguish the level of
development on the basis of attributes. The already mentioned coding for male and
female survey questionnaires, has also been mentioned in community survey
questionnaire with the exception that here only PSU is considered whereas SSU has
been ignored. The questionnaire has been divided into five main sections for
topographic, infrastructure, economic services, education and health information. The
information is very important and this study has deduced the information from this
specific section so as to employ the same for explanatory variables in the model.
During this survey 15453 households were interviewed through the
questionnaire and the survey was started in the month of July, 2005.
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5.2.1.2.2 Sampling Frame of Survey
While excluding the military administered areas of Pakistan due to
restrictions, all the four provinces of Pakistan have been covered in this survey as its
universe. Sampling frame has been differentiated on the basis of rural and urban
areas as sub-universe. Urban areas have been partitioned into small and dense areas
named as enumeration blocks, which covers 200-250 households while specifically
taking into consideration low, middle and high income groups separately. Urban
areas comprises of 28000 such blocks. Rural areas named in Pakistan as
“MOUZA/DEH”, have been identified by their names as mentioned in well defined
cadastral maps of provincial governments. In all, 50588 MOUZAs have been covered
for this survey. Sample size consists of 15,453 SSUs, which are chosen at National
level and Provincial level while breaking-down them into rural and urban areas.
There are 1109 PSUs of the survey out of which 531 belong to urban and 578 belong
to rural areas. In construction of sampling frame, it has been tried that sampling
estimates may present national indicators within 95% confidence interval and 5-7%
significance level.
5.2.1.2.3 Stratification Plan and Sampling Design of the Survey
Stratification has been selected on the basis of geographical level i.e.
rural and urban. In urban areas large cities have been considered as independent
stratum. After excluding large cities, in the remaining urban domain each division
has been treated as a stratum. In rural areas of Punjab, Sindh, and Khyber
Pakhtunkhawa, each district will be considered as stratum whereas for Balochistan
each division will be treated as stratum. Thereafter each stratum has been stratified
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into low, middle, and high income sub-stratum. Enumeration blocks in urban areas
while MOUZAs in rural areas have been recognized in survey as PSU. ‘Probability
Proportional to Size1’ method has been utilized for selection of PSU whereas
households are recognized as SSU. Out of each PSU near about 12-16 SSUs have
been selected randomly.
5.3 VARIABLES TO BE UTILIZED IN THE ANALYSIS
This section specifically introduces the variables to be utilized in the
analysis phase of the thesis. Variables, their nature, their description, their
interrelationships may be the purpose of this section so as to establish the perspective
of quantifications. Keeping in view three major analyses, we divide this section into
following three sections:
5.3.1 Determinants of Rural Household’s Income
At micro level variations in rural household’s incomes have been
created by different factors. These factors are related not only to household’s
attributes but also to community level characteristics. On the basis of literature in this
regard, this study tries to pull together most important elements which are responsible
of variations in rural household’s incomes. Community level characteristics will
present rural infrastructural development as explanatory variables of the model to be
utilized in this regard. Hence, Table: 5.1 below presents the variables which are
1
The probability of selection of any PSU is proportional to its population size. This method helps to
select all the sampling units with the same probability irrespective of their population size.
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considered as responsible in literature for creating variations in household’s incomes
as dependent variable. This section also discusses direction of relationship for these
variables with the dependent variable.
5.3.1.1 Household Income as Dependent Variable
First of all, we may put a brief description regarding the dependent
variable. In this section of the chapter we may infer the result for economic growth at
micro level which will be presented by the proxy variable of income per capita per
month of households (LNHHI). Firstly we compute monthly incomes of households-
which is measurable on ratio scale of measurement- by adding the incomes of
household members earned from different sources i.e. wages, wages in kind, pensions,
receipts from sold items, transfers received, rental amount received, profits earned
from financial and real sources etc. After computing incomes, we find out the size of
the households. The data on size of household could also be presented numerically at
ratio scale with characteristic of discreteness. Then we divide the incomes by the
household size to find out the data on household income per capita per month
(LNHHI).
5.3.1.2 Household Level Characteristics as Independent Variable
Independent variables of the model have been divided in to two groups
on the basis of their characteristics i.e. household level characteristics and community
level characteristics. In this sub-section we may try to introduce that vector of
independent variables which may be able to capture the characteristics of the
households whereas in next sub-section we shall introduce that vector of independent
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variables which presents community level characteristics being enjoyed by the
households.
Table: 5.1
VARIABLES OF MODEL (INVESTIGATING RURAL
INFRASTRUCTURAL DEVELOPMENT FOR RURAL HOUSEHOLD’S
INCOME) AND THEIR DEFINITION
Hypothesized
Variable Definition
Relationship
DEPENDENT VARIABLE
Logarithm of Household Income Per Capita Per Dependent
LNHHI Variable
Month (in rupees)
HOUSEHOLD LEVEL CHARACTERISTICS
Household’s Head Gender (1=Male & 0=Female)
HHHG Hypothesis: If gender is male than income of Positive
household will be high
Household’s Head Age (number of years)
HHHA Hypothesis: Higher incomes are associated with Positive
higher age of household’s head in rural areas
Household Size (number of members)
Positive
HHS Hypothesis: Higher the size of household, higher
will be the income
Value of Livestock in 1000 rupees
VLS Hypothesis: Higher the value of livestock owned Positive
by household, higher will be the income
COMMUNITY LEVEL CHARACTERISTICS
Hypothesis: Higher the rural infrastructural development, higher will be
income of household
Availability of Road to household in their
community. A Dummy variable with three
attributes i.e. matelled, paved, un-paved road
ROAD road1 (1=matelled road, & 0=otherwise) Positive
road2 (1=paved road, & 0=otherwise)
road3 (1=unpaved road & 0=otherwise)
Availability of Electricity to households in their
ELECT Positive
community (1=yes, 0=no)
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Availability of Gas to households in their
GAS Positive
community (1=yes, 0=no)
Primary School (number of primary schools within

PS Positive
community)
Note: If the distance of community level services (infrastructure) from

household’s residential area is high, it means low rural development i.e. higher
the distance, lower will be rural development, lower will be income. This is why
where distance is the measure of variable, the relationship is shown negatively.
Phone Service Distance in KM from community

PHOND where household resides. A distance of 0 KM Negative
means availability within community.
Basic Health Unit Distance in KM from

BHUD community where household resides. A distance Negative
of 0 KM means availability within community.
Household Head
After having explained the data computed on dependent variable, now
we may endeavor to elucidate the collected data regarding independent variables. In
this section we may discuss the socio-economic and demographic characteristics of
households which are supposed to be associated with the income level of households.
Demographically household’s head is an important indicator of household income. In
developing countries like Pakistan household head play an important role for earning
the income of the family. This is why we collect the data on gender-ness (HHHG)
and age of the household head (HHHA). Both the variables have been positively
related with household income. Male headed household are associated with higher
income. This is because females are head of the family only in the case that vital
earners of the family (male household) are either incapable of earning or they have
126
died. Hence, females have to be the head of the family who then face hurdles in
income generation for the family. So far as age of household head is concerned, it is
argued that old age head of the family have more financial resources because in their
younger age they have earned and saved the income for their family in shape of asset
building, livestock farming etc. The variable of age of household head is measurable
on ratio scale because we measure age by number of years, so, we collect the data
numerically. But the variable of gender-ness of household head is nominal scale
variable which could be measured by coding of “1” and “0” i.e. 1 for male and 0 for
female respectively.
Socio-Economic Factors
For capturing socio-economic condition of the household, we employ
household size (HHS), value of livestock (VLS) and land owned by the household
(LOHH) as independent variables. In analysis on account of multicollinearity we are
constrained to use only the HHS, and VLS as independent variables. We have already
discussed HHS, now we may give a little bit detail of VLS. It is a ratio scale variable
measured in rupees and amount of rupees measures the value of livestock held by the
household. Households were asked to tell the value of their livestock and on the basis
of information provided by the households we find out the value of livestock. The
variable of VLS has been positively related to household’s income because higher
values are associated with higher number of livestock products. More livestock will
be helpful in earning more income on account of productions regarding milk, egg etc.
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5.3.1.3 Community Level Characteristics as Independent Variable
Community level characteristics comprise of the public services
available to the households either in their community or at some distance from their
area of residence. Community level characteristics are infrastructure for roads
(ROAD1, ROAD2, and ROAD3), electricity (ELECT), gas (GAS), primary schools
(PS), basic health unit (BHUD) and telecommunication (PHOND). Roads, gas and
electricity are nominal scale variable measured by dummy variable technique. These
variables show that the households live in a community where these public services
may or may not available to them. The variables of ELECT and GAS are the dummy
variables with two attributes i.e. either the service is available or not. If the public
service is available we measure it with “1” otherwise with “0”. So far as road is
concerned it is a dummy variable with more than two attributes i.e. either the
available road is a matelled road or paved road or un-paved road. Therefore we
construct three dummies for road i.e. ROAD1, ROAD2, and ROAD3 for matelled,
paved and un-paved road respectively. ROAD1 is measured by “1” if road is
matelled, otherwise with “0”, ROAD2 is measured with “1” if the road is paved
otherwise with “0”, and ROAD3 is measured with “1” if the road is un-paved
otherwise with “0”. The variables of BHUD and PHOND attempt to measure the
health and communication infrastructure. These two variables are measured with
ratio scale measurement. For the purpose of quantification we use distance of the
service from the household’s residential area and the distance is a ratio scale attribute.
In all the cases whether the public service is available to the households in their
vicinity or the distance of public service is relatively small from household’s
community or available public service has valued configuration (in case of roads,
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matelled road is more valued than paved and paved is more valued than un-paved
road) then it is argued that households are enjoying high level of rural development
which consequently increase the household’s income in rural areas.
5.3.2 Rural Infrastructural Development and Economic Growth

This section of the analysis will focus over the relationship of rural
infrastructural development and economic growth. Economic growth is the
dependent variable of the model as mentioned above. This study quantifies dependent
variable by gross domestic product per capita (LGDPPC) of Pakistan.
After mentioning dependent variable, now it has been tried to present
preliminary introduction of explanatory variables to be used for analysis purpose on
account of their importance. For this purpose, seven different variables under three
different vectors i.e. core vector of production function, vector of infrastructure
variable as additional input in the production function, and vector of economic
environment of the economy as determinants of economic growth at macro level will
be discussed in followings:
VECTOR OF PRODUCTION FUNCTION (Xit)
LLFPR: Labour Force Participation Rate, which is defined as

percentage of persons in labour force to the total population
aged 10 years and above.
LCAPS: Capital Stock of the Pakistan calculated yearly.
VECTOR OF RURAL INFRASTRUCTURAL DEVELOPMENT (Yjt)
LROADS: Yearly length of low type roads in KM because low type

roads have been constructed in rural areas of Pakistan
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LRHI: No of Rural Health Institutions wherein two major
institutions are counted i.e. Basic Health Units and Rural
Health Centers because both these two health centers works
in rural areas of Pakistan
LEIRR: Expenditures on Irrigation, which is defined as the

expenditures met from revenue of provincial governments
for irrigation development projects of Pakistan
VECTOR OF ECONOMIC ENVIRONMENT (Zkt)
LINF: Inflation Rate find out with the help of data provided by
FBS on yearly basis
LOPEN: Openness, which is defined ratio of ‘sum of exports and
imports’ to real gross domestic product
5.3.3 Rural Infrastructural Development and Rural Poverty
Now this study may try to introduce the variables of the model to be
utilized for the purpose of analysis exploring the determinants of rural poverty while
focusing rural infrastructural development. Most of the variables have already been
described in sections mentioned above where we discuss the explanatory variables of
the analysis examining determinants of rural household’s income. However, some
further variables as independent variable for analyzing the determinants of poverty at
micro level may also be discussed here. In the followings this section may focus
attention to these additional variables to be included in Logit model for estimation
purposes. So far as relationships of the independent variables with dependent variable
and their hypothesis are concerned we explain them with the help of Table: 5.1 below.
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5.3.3.1 Dependent Variable
Poverty is dependent variable and is qualitative in nature which have
two attributes i.e. either the household is poor or non-poor. For the purpose of
estimation, we present it with ‘1’ if the household is poor and with ‘0’ if the house
hold is non-poor.
5.3.3.1.1 Poverty Line
Now question arises that how we differentiate poor from non-poor?
The answer to this question is that we select a threshold for this purpose. We use
official poverty line of Pakistan for the period 2005-06 described by the Planning
Commission, Government of Pakistan as threshold, which is equal to Rs. 947.47 per
adult equivalent per month. This poverty line is mentioned in Economic Survey of
Pakistan for 2007-08 [GoP (various issues-1)]. As per methodology, Planning
Commission employs PIHS 1998-99 survey and using 2350 calories per adult
equivalent per day on the basis of Food Energy Intake approach and obtained official
poverty line of Rs. 673.54 per adult equivalent per month. Thereafter, they update
this poverty line for each round of household’s survey (i.e. 2001-02, 2004-05 and
2005-06) by exploiting CPI of surveyed months of each round.
We use official poverty line because of two reasons; firstly because we
have utilized HIES (2005-06) for estimation purposes and Planning Commission also
utilizes the price index of the months when HIES (2005-06) was conducted for
updating poverty line, secondly the official poverty line of Pakistan has been
validated by the World Bank on request of Government of Pakistan [World Bank
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(2008)]. Therefore, we decide to differentiate poor from non-poor on the basis of this
threshold.
5.3.3.1.2 Quantification of Poverty
For the purpose of quantification of poverty first of all we calculate
household’s consumption per month. In computing household’s consumption per
month we use consumption of fortnightly food items, food and non-durable goods,
and durable goods. Fortnightly food items present consumption of households on
basic necessities which they consumed within 14 days of the date of interview.
Similarly, their expenditure on food, non-durable goods and durable goods have been
computed for the reason that if consumption of the household for durable goods is
preferred over food and non-durable goods, then it has some worth for households,
therefore, inclusion of such items for the measurement of consumption of households
is of importance. After computing total expenditures of household next step is to find
out expenditures per member of the household.
When we want to compute expenditure per member of household, the
adult equivalent scale has also attained vital importance. In earlier studies instead of
using ‘adult equivalent scale’, the approach of ‘expenditure per capita’ was used for
this purpose. But this approach had some certain limitations because households have
divergent characteristics on the basis of size and number of children. Families having
larger size enjoy economies of scale while families having same size but with
comparatively more children face comparatively little expenditures. Therefore,
expenditure per capita approach fails to eliminate the impact of economies of scale
and impact of less number of children on total expenditures of the households. This is
132
why recently when we want to measure poverty of different households on the basis
of some certain threshold, the approach of adult equivalence scale has been using for
computing households’ expenditures per member of the household. In this study we
have also used adult equivalence scale approach for computing expenditure per
member of households. For computing adult equivalence scale we follow World
Bank (2009).
After having computed per adult equivalent consumption, next step is
to compare it with the threshold mentioned above and in case that per adult equivalent
consumption of household is less than threshold then household will be poor,
otherwise, he is non-poor.
Table: 5.2
VARIABLES USED IN LOGIT MODEL, THEIR
DEFINITIONS AND THEORETICAL EXPECTATIONS
Expected
Variable Definition
Sign
DEPENDENT VARIABLE
Discrete Response Variable i.e. 1=Poor & 0=Non- Dependent
POVERTY Variable
Poor
HOUSEHOLD LEVEL CHARACTERISTICS
Household’s Head Gender (1=Male & 0=Female)
HHHG Hypothesis: If gender is male than less is the Negative
chance that household will be poor
Household’s Head Education (number of
schooling)
HHHE Negative
Hypothesis: Higher the education of household
head, less is the chance that household will be poor
Household’s Head Age (number of years)
HHHA Hypothesis: Higher the age of rural household, less Negative
is the chance that household will be poor
HHS Household Size (number of members) Positive
133
Hypothesis: Higher the size of household, more is
the chance that household will be poor
Dependency Ratio (Dependents/Independents)
DR Hypothesis: Higher the DR, more is the chance Positive
that household will be poor
Participation Ratio (Workers/Household aged 10
and above)
PR Negative
Hypothesis: higher the PR, less is the chance that
household will be the poor
COMMUNITY LEVEL CHARACTERISTICS
Hypothesis: Higher the rural infrastructural development, less is the chance
that household will be poor
Availability of Road to household. A Dummy
variable with three attributes i.e. matelled, paved,
un-paved
ROAD ROAD1 (1=matelled road, & 0=otherwise) Negative
ROAD2 (1=paved road, & 0=otherwise)
ROAD3 (1=unpaved road & 0=otherwise)
Availability of Electricity to households (1=yes,
ELECT Negative
0=no)
GAS Availability of Gas to households (1=yes, 0=no) Negative
Primary School (number of primary schools
PS Negative
accessible to household where he resides)
Note: If the distance of community services (infrastructure) from household’s
residence is high, it means low rural development i.e. higher the distance, lower
will be rural development, more is the chance that household will be poor. This
is why where distance is the measure of infrastructure variable, the relationship
is shown positively as below. A distance of 0 K.M means availability of the
service (infrastructure) within the community of the household
Phone Service Distance in KM from household’s
PHOND Positive
residence.
Basic Health Unit Distance in KM from
BHUD Positive
household’s residence.
5.3.3.2 Independent Variables
Independent variable comprises of two vectors i.e. vector of household
level characteristics and vector of community level characteristics. The hypothesis
which this study wants to analyze has been explained in Table: 5.2. The description
134
of most of the independent variables has already been explained via Table: 5.1,
however, two new variables will be introduced here i.e. DR and PR for representing
socio-economic condition of the households. A little bit explanation regarding these
variables is mentioned in the following paragraph.
Dependency Ratio (DR) presents a socio-economic variable in the
sense that it may explore within household that how many independents bear the
burden of dependents. More is the number of independents, better will be the
economic condition of the family to fight against poverty. Similarly, participation
ration (PR) as socio-economic variable may try to find out within household the ratio
of workers to labour force. Both these variables could be measured numerically
because these variables are ratio scale variables. Dependency Ratio could be obtained
while dividing the number of household who are either less than 15 years of age or
more than 65 years of age (dependent households) by the number of households
between the age of 15-64 (independent households). For participation ratio, we
distinguish those household who are equal to or more than age of completed 10 years,
and consider them as the labour force within the households. Then, out of labour
force within households we find out the number of workers (households who either in
job or jobless while seeking the job actively). Thereafter, we divide the number of
worker by the total labour force within the household to get the data on participation
ratio.
5.4 CONCLUSION
In this chapter we not only discussed the description of data but also
the variables and interrelationships of the variables whereupon analysis phase of the
135
thesis will be based. The chapter covers almost all such information which is
necessary to be presented and on the basis of the information reader may be able to
keep in mind the perspective of the analysis phase of the thesis. Therefore, in next
chapter we will start the analysis while presenting not only the picture of rural
infrastructural development in Pakistan but also the impact of rural infrastructural
development on rural household’s incomes at micro level, on economic growth at
macro level and on poverty reduction at micro level of the Pakistan economy.
Thereafter, it may be sensible to draw the conclusions.
136
CHAPTER 6
RURAL DEVELOPMENT IN PAKISTAN:
AN ANALYSIS
6.1 INTRODUCTION
In this chapter we want to explore the status of rural development in
Pakistan. For this purpose, an analysis of descriptive nature has been applied to
available data. Consequently, we try to build a structure of tables and graphs on the
basis of secondary data provided by ACO in its publication titled “Pakistan 2008
MOUZA Statistics” so that we may be able to display the echelon of rural
infrastructural development in Pakistan. Along with capturing the status of rural
infrastructural development of Pakistan as a whole, another main purpose of this
chapter is that of comparative nature whereby we try to assess the rural infrastructural
development status of all the four provinces of Pakistan discretely. Hence, in this
chapter we try to mention succinct facts of rural development not only at country level
but also supplementing the analysis with comparative statistics of provincial level
data so that we may be able to observe the picture of rural development with a broad
vision. We segregate our analysis in two alleys i.e. encompassment of the public
services within the boundaries of rural communities, and accessibility of the public
services by rural communities at some distances. In first phase of the analysis, we try
to classify those services which the natives of rural communities enjoy within their
137
environs. Hence, Section: 6.2 in shape of graphs and tables covered all those services
provided by the public administration at the doors of rural communities. In second
phase of the analysis we try to mention those facilities which may or may not be
available within the vicinity but same will be accessible for the inhabitants of rural
communities at some distances. Therefore, distance wise analysis has been
accomplished in Section: 6.3 wherein again tabulation and graphs will be used for
this purpose. After analyzing the services utilization by the inhabitants of rural
communities in Pakistan while capturing rural development this study endeavors to
compute composite index of principal variables in Section: 6.4 and then concludes in
Section: 6.5 on the basis of facts and figures observed in the analysis.
6.2 RURAL DEVELOPMENT: ENCOMPASSMENT OF THE

SERVICES WITHIN VICINITY
In this section of descriptive analysis we will try to amass those facts
and figures of Pakistan economy which may be able to grasp the rural development of
Pakistan in shape of services being provided by the government sector to the rural
inhabitants of the country within their vicinities. The analysis then decomposed for
the provinces of Balochistan, Khyber Pakhtunkhawa, Punjab and Sindh so as to
compare spatial distribution of rural infrastructural development in Pakistan. Data
regarding different types of services have been collected and presented in the tables
mentioned in the followings so that we may be able to observe the portrait of
development in rural areas of Pakistan. Before starting the discussion regarding the
core public services being enjoyed by the rural inhabitants we may start the
descriptive analysis while trying to representing the root cause of rural development
in shape of land utilization and cultivation.
138
6.2.1 Land Utilization and Crops Cultivation In Pakistan
In Table 6.1 we collect information on land utilization. Keeping in
view rural sector, out of total land in Pakistan 49% area has been cultivated which is a
very poor figure in this respect, and huge space is available for rural development
while taking into consideration the improvement in land utilization.
Table:6.1
CULTIVATED AREA AND MAJOR CROPS IN PAKISTAN
MOUZAs Cultivating The Crop

Non-
Cultivated
Unit Cultivated
Area (%) Sugar- Vegetab-
Area (% Wheat Maize Rice Cotton Pulses
Cane les
Number 48357871 49421309 43700 22045 19530 17002 15748 6453 14152
PAKISTAN
Percent 49 50 92 46 41 36 33 14 30
Spatial Distribution among Provinces (Percent)
BALOCHISTAN 46 53 81 7 7 1 7 6 25
KHYBER
PAKHTUNKHWA 39 59 86 78 11 10 1 4 27
PUNJAB 71 27 99 48 62 54 51 21 32
SINDH 21 77 86 22 53 53 53 12 31
NOTE : For simplicity decimals are avoided.
Source : PAKISTAN 2008 MOUZA STATISTICS, Agricultural Census Organization, Statistics Division, Pakistan.
Prepared by : Authors
While considering spatial distribution of land utilization we could
observe that comparatively Punjab has highest level of development with 71% of its
area used for cultivation, and Sindh has least level of development with 21% while
Khyber Pakhtunkhawa and Balochistan have an average level of development in this
regard as is evident from the Figure: 6.1.
139
CULTIVATED AREA IN PAKISTAN SOURCES OF IRRIGATION
(Spatial Distribution) (Spatial Distribution)
100
80
90
70
80
60
70
50 60
40 50
40
30
30
20
20
10 10
0 0
Percent age 1 2 3 4 5 6 7 8
C ult ivat ed Ar ea F acili t y N umb er
Balochistan Khyber Pakhtunkhwa Punjab Sindh Balochistan Khyber Pakhtunkhwa Punjab Sindh
Figure: 6.1 Figure: 6.2
So far as cultivated crops are concerned, most of the MOUZAs have
utilized their land for food/grain items with wheat grains by 92%, maize 46% and rice
41%. The cultivation of cash crops, with sugarcane at 36% and cotton at 33%, has
got the importance after food crops. Comparative analysis of provinces also follows
the same pattern. It shows that in rural areas of Pakistan, people are still fighting for
their food security and they look in a state of war against poverty because of low
productivity of land which in turn pointed out toward the need of rural development in
shape of agricultural research and development for increasing land productivity.
6.2.2 Sources of Irrigation
As shown in Table: 6.2, main sources of irrigation in Pakistan are tube-
well, and canal while 49% of the MOUZAs utilizing the facility of tube-well and 46%
uses the canals for irrigation. Improvement in installation of tube-well for irrigation
purposes could be regarded as glowing because at the time of inception of Pakistan
this facility was used negligibly. But in the long-run it will be a sign of
underdevelopment because with the passage of time by heavy usage of tube-well, the
140
Table:6.2
SOURCES OF IRRIGATION IN PAKISTAN
MOUZAs Reporting Sources of Irrigation
Unit TUBE- FLOOD-

SPRING/
WELL ARID ING/
CANAL RIVER RAVINE STREAM/ OTHERS
/ (BARANI) TORR-
KAREZ
WELL ENT
Facility No 1 2 3 4 5 6 7 8
Number 21660 1790 23317 4505 4125 15691 3154 545
PAKISTAN
Percent 46 4 49 9 9 33 7 1
Cross-Provinces Spatial Distribution (Percent)
BALOCHISTAN 5 0 36 11 21 49 29 2
KHYBER
12 4 18 29 23 63 4 2
PAKHTUNKHWA
PUNJAB 63 3 75 2 1 20 3 1
SINDH 87 8 17 1 0 8 1 0
NOTE : For simplicity decimals are avoided, and 0=negligible value.
water level of the land could be dropped heavily and resultantly productivity of land
will be affected severely.
The development for irrigation through canal could also be cited as
poor because Pakistan is predominantly a region where cultivation through canal
remained a dominant source of irrigation. Hence this sector should be the top source
of irrigation in Pakistan but data in this regard does not favour the fact. On the other
hand the MOUZAs which are known to be as arid zone are 33% of total number of
MOUZAs, which again is a sign of low development. The construction of big dams
with a network of canal to irrigate the land is the necessity of the time for the region
but no such improvement in this regard has been sighted during last four decades.
Therefore, rural development in case of irrigation could be termed as very poor in
Pakistan. Spatial distribution in this regard shows that Sindh is highly developed with
87% MOUZAs irrigated through canal following by Punjab with 63% of MOUZAs
141
irrigated by canal. In this scenario Balochistan is proved to be the least developed
region of Pakistan.
WATER COURSES IN PAKISTAN SOURCE OF DRINKIN WATER

100
90
Percent Distribution
80 80
70
60 60
50
40 40
30
20
20
0 10
0
Improved Water Mouzas Reporting
1 2 3 4 5 6 7 8 9
Courses Improvement
Fa c il it y Number
Facility
Balochist an Khyber Pakht unkhwa Punjab Sindh
Balochistan Khyber Pakht unkhwa Punjab Sindh
So far as improved water courses in Pakistan is concerned only 39% of
MOUZAs have improved water courses and 46 % MOUZAs reported to have
improvement schemes for water courses (Table: 6.3), which again is not satisfactory
situation for an agricultural based country. Spatial distribution shown in Figure: 6.3
clearly shows that Punjab and Sindh are highly developed while Balochistan is least
developed region in this regard.
6.2.3 Sources of Drinking Water
Drinking water is a main cause of good human health. Most of the
diseases which humanity has to face are just because of non-availability of safe
drinking water in the vicinity. Importance of safe drinking water for health is evident
from the fact that the decade from 2005 to 2015 has been declared as “Water for Life”
decade by the United Nations [W.H.O (2008)]. When we talk about sources of
142
drinking water in rural areas of Pakistan then we come to know that only 11 percent
MOUZAs in Pakistan have been enjoying the water supply through piped sources
whereas 56 percent of the MOUZAs depends upon hand pumps a and 35 percent of
MOUZAs depends upon electricity pumps as a source of their drinking water. All
other MOUZAs have the facilities of well (20%), tube-well (19%), canal (10%),
spring (13%) and pond (7%). However, hand-pumps, tube-well and electricity pumps
also proves helpful in provision of drinking water but piped water is the best source of
safe drinking water which is available only to 11 percent MOUZAs of Pakistan. Such
a situation shows a devastating state of affairs of Pakistan Rural Development within
the scenario of safe drinking water. Whereas if we consider only the availability of
drinkable water in rural areas then the situation is relatively better as is evident from
the facts mentioned above in this regard. In this sense a moderate level of rural
development is to be observed in Table: 6.4.
Table:6.3
WATER COURSES IN PAKISTAN
Status Improvement Schemes
Unit Total Improved MOUZAs MOUZAs

Water Water Reporting Non-
Courses Courses Improvement Reporting
Number 92300 35544 21659 25819

PAKISTAN
Percent - 39 46 54
- Status Cross-Provinces Spatial
Number Percent Distribution (Percent)
BALOCHISTAN 2075 4 5 95
KHYBER
7808 26 12 88
PAKHTOONKHA
PUNJAB 52248 50 63 37
SINDH 30169 25 87 13
Note : Decimals are avoided. Approximate figures are used & 0=negligible value.
Source : PAKISTAN 2008 MOUZA STATISTICS, Agricultural Census Organization,
Statistics Division, Pakistan.
143
So far as spatial distribution of sources of drinking water is concerned
overall the province of Punjab is observed to be comparatively most developed region
of Pakistan. However, when we talk about the core variable of development
regarding safe drinking water i.e. piped supply of water then rural development is
comparatively high in Khyber Pakhtunkhawa with 20% MOUZAs enjoying piped
supply of drinking water, whereas all other provinces lag behind in this facility.
Overall the Balochistan is again a representative of least development (Figure: 6.4).
Table:6.4
SOURCES OF DRINKING WATER

MOUZAs Encompassing Source
Unit ELECT- CANAL SPRING/

PIPED TUBE HAND TANK/
WELL RIC / STREAM/ OTHER
SUPPLY WELL PUMP POND
PUMP RIVER KAREZ
Number 5413 8799 9423 26519 16681 4978 6217 3409 1670
PAKISTAN
Percent 11 19 20 56 35 10 13 7 4
Facility No 1 2 3 4 5 6 7 8 9
BALOCHISTAN 7 29 39 13 2 10 20 23 7
KHYBER
20 20 38 18 11 13 39 6 6
PAKHTUNKWHA
PUNJAB 9 17 8 82 61 3 1 4 2
SINDH 7 8 11 69 11 38 1 6 2
Note : For simplicity decimals are avoided.
6.2.4 Taste of Drinking Water, Filtration and Toilet Facility
In this section we try to evaluate naturally available facilities as well as
facilities provided by the human management. So far as natural facility of sweet
water is concerned, this facility is available to 92 percent of the vicinities. Whereas
when we talk about facilities created by the efforts of humanity, again low
144
performance is evident from the Table: 6.5 whereby only 4 percent rural communities
are enjoying filtrated water and less than half of the rural communities have the toilet
facility within their homes. The rural communities where toilet facility is not
available in homes, inhabitants has to visit certain open tracts of land for this purpose.
Such a phenomenon again requires certain efforts by the humanity for disposal of
excrements otherwise inhabitants have to face severe health consequences. Most of
the rural communities in Pakistan have no proper excrement disposal system. Hence,
again it is a matter of low rural development in Pakistan.
Table:6.5
Taste, Filtration (Drinking Water) & Toilet Facility
MOUZAs Encompassing Facility

Unit Taste of Water Filtration
Toilet
Inside Outside
Sweet Brackish Yes No
Home Home
Number 43666 3815 1793 45688 20038 27442
PAKISTAN
Percent 92 8 4 96 42 58
BALOCHISTAN 96 4 2 98 10 90
KHYBER
98 2 3 97 37 63
PAKHTUNKWHA
PUNJAB 90 10 4 96 55 45
SINDH 85 15 6 94 35 65
Comparative analysis depicted from Figure: 6.5 regarding the facilities
provided by the human efforts (i.e. safe water, and in-house toilet) again point outs
the same fact that Balochistan is facing the least development. However, natural
facility of sweet water is evident to be distributed evenly among provinces. Overall,
145
the province of Punjab is most developed followed by Sindh and Khyber
Pakhtunkhawa (Table: 6.5).
6.2.5 Sources of Fuel to be Used for Domestic Purposes

When we want to analyze the sources of fuel available to rural
communities, again we have to look two types of sources i.e. sources require less
human efforts such as firewood and dung cake etc, and the sources which require
heavy human efforts for its exploitation e.g. gas, oil etc.
TASTE, FILTRATION (WATER) AND SOURCES OF FUEL FOR

TOILET FACILITY DOMESTIC USE
120 120
100 100
80 80
60 60
40 40
20 20
0 0
Taste of Water Filtration Toilet 1 2 3 4 5 6
Facilit y D om e st i c F u el N um b e r
Balo chist an Khyber Pakhtunkhwa Punjab Sindh Balochist an Khyber Pakht unkhwa Punjab Sindh
Again, the sources where more human involvement is necessary for
their provision, less development is evident from Table: 6.6 whereby only 4 percent, 8
percent, 12 percent and 2 percent rural communities are enjoying gas, L.P.G, oil and
coal respectively as their main source of fuel. The sources of firewood and dung cake
as fuel have been used by the 96 percent and 48 percent rural communities
respectively. This again refers to poor development of the rural areas of Pakistan.
146
In case of comparisons, the Khyber Pakhtunkhawa, Punjab and Sindh
show a moderate level of development whereas Balochistan again left behind in
documenting the rural development in this regard as is evident from Figure: 6.6.
Table:6.6
SOURCES OF FUEL FOR DOMESTIC USE
MOUZAs Having Sources of Fuel by Type

Unit
FIRE DUNG SUI
COAL KEROSENE L.P.G.
WOOD CAKE GAS
OIL
Domestic Fuel by
1 2 3 4 5 6
Number
Number 45396 23002 1164 5698 3738 1887
PAKISTAN
Percent 96 48 2 12 8 4
BALOCHISTAN 98 17 4 11 1 2
KHYBER
96 47 3 17 8 2
PAKHTUNKHWA
PUNJAB 95 57 2 11 11 5
SINDH 96 49 4 9 1 6
Note : Decimals are avoided. For small values decimals up to two places have been used.
6.2.6 Residential Public Facilities
By the way of residential public facilities we could easily observe the
level of development enjoyed by the inhabitants of rural communities in the
surrounding of their residence e.g. streets, drainage system and sewerage system etc.
Table: 6.7 depicts that rural vicinities where no facility of bricked
streets, bricked drainage or sewerage system is available are more than 50 percent of
the total number of vicinities. Specifically the facility of sewerage system is not
provided to 87 percent of the rural communities in Pakistan. Similarly, the environs
147
where up to 50 percent or more than 50 percent of rural inhabitants are enjoying these
facilities are not more than 25 percent of total number of rural communities. These
facts again prove the secenario of low rural development in Pakistan.
Table:6.7
RESIDENTIAL PUBLIC FACILITIES
MOUZAs Encompassing the Facility by Provision Level

Bricked Streets Bricked Drains Sewerage System
Unit
49% 49%
100% 49% 100% 100%
No to No to No
to to 1% to to
1% 1%
50% 50% 50%
Number 12578 10810 24093 12702 6942 27837 3302 2948 41231
PAKISTAN
Percent 26 23 51 27 15 59 7 6 87
Facility Number 1 - - 2 - - 3 - -
BALOCHISTAN 1 3 96 1 2 98 0.23 1 99
KHYBER
9 21 70 8 12 80 3 5 92
PAKHTUNKHWA
PUNJAB 47 29 25 48 19 33 11 7 82
SINDH 5 25 69 5 18 77 3 12 85
Source: PAKISTAN 2008 MOUZA STATISTICS, Agricultural Census Organization, Statistics Division, Pakistan.
Balochistan has least, Punjab has highest and Khyber Pakhtunkhawa
and Sindh have low level of development for residential public facilities as is obvious
from Figure: 6.7.
6.2.7 Sources of Employment
When we look at the sources of employment available to rural people
of Pakistan, it is evident from Table: 6.8 that main sources of employment for rural
people of Pakistan are agriculture, and labour sectors. This is in line with the
evidence obtained universally that engines of rural development are farm and non-
148
farm sectors [(Germano and Thorbecke (2001)]. As per GoP (various issues-i)
agriculture has also been proved to be a major and predominant source of
employment in Pakistan. Trade, Services, and Industry sectors also contribute in this
regard but their contribution is negligible which shows that generation of decent job
opportunities for rural areas is still a tricky challenge in Pakistan.
RESIDENTIAL PUBLIC FACILITIES SOURCES OF EMPLOYMENT FOR M ALE

60 90
80
50
70
40 60
50
30
40
20 30
20
10
10
0 0
1 2 3 1 2 3 4 5 6
F a cil i t y S e c t o r N u mb e r
Balochistan Khyb er Pakhtunkhwa Punjab Sindh Balochist an Khyber Pakht unkhwa Punjab Sindh
Table:6.8
SOURCES OF EMPLOYMENT (Gender Analysis )
MOUZAs Having Sources of Employment (More Than 50%) by Sectors
Unit Personal
Agriculture Labour Trade Services Industry
Business
Male Female Male Female Male Female Male Female Male Female Male Female
Sector by Number 1 2 3 4 5 6
Number 32013 14493 8565 12634 551 1668 236 55 30 32 1114 713
PAKISTAN
Percent 67 30.52 18 26.61 1 3.51 0.50 0.12 0.06 0.07 2 1.50
BALOCHISTAN 50 26 32 29 2 7 0.39 0.06 0.02 0.06 1 0.42
KHYBER
46 22 33 32 2 6 1 0.11 0.10 0.03 3 0.75
PAKHTUNKHWA
PUNJAB 83 35 8 24 0.50 2 0.22 0.12 0.06 0.08 2 2.38
SINDH 64 34 16 24 1 2 0.22 0.16 0.05 0.09 2 0.54
149
Table: 6.8 also shows that opportunities for female in case of labour
and personal business are higher than male counterpart specifically in the regions
where comparatively the rural development has been discovered to be low. This
evidence is also in line with the country evidence [GoP (various issues-i)] whereby it
is found out that in disadvantaged areas of the country the female and youth have
been contributing for family as an unpaid helping worker.
It depicts from comparative analysis among male category shown in
Figures: 6.8 that in case of agriculture (which is the highest and predominant source
of employment), the provinces of Punjab and Sindh have comparatively more
opportunities than other provinces while Khyber Pakhtunkhawa has least
opportunities in this regard. This is why the vicinities belonging to Punjab and Sindh
feel less need to indulge in personal business, labour and trade as is evident from
columns of ‘Personal Business’, ‘Trade’ and ‘Labour’ of the Table: 6.8. So far as the
sectors of ‘Services’ and ‘Industry’ is concerned the available evidence is not
sufficient enough to be analyzed for comparative analysis. Similar results could also
be inferred by comparative analysis of female category in this regard.
SOURCES OF EMPLOYMENT FOR STATUS OF INDUSTRY

FEMALE (Spatial Distribution) (Spatial Distribution)
40 7.00
35 6.00
30 5.00
25
4.00
20
3.00
15
2.00
10
1.00
5
0 0.00
1 2 3 4 5 6 1 2 3 4
S e c t o r N um b e r I nd us t r y N umbe r
Balochist an Khyber Pakht unkhwa Punjab Si ndh Balochist an Khyber Pakht unkhwa Punjab Sindh
150
6.2.8 Status of Industry
The Lewis model of “structural transformation”1 has attained a
remarkable position within the theories of development. Under the perspective of this
theory the vital role of small and medium size industries could not be neglected for
employment generation in rural areas. Hence, keeping in view the importance of
industry for development of rural areas, this sub-section of the study takes into
consideration it as the specific focus of analysis. As per evidence presented in
Table: 6.9, 93% of MOUZAs have no mode of industry as an alternative source of
employment. Out of remaining MOUZAs, 4% have a mode of “Cottage” industry,
3% have a mode of “Small Scale” industry, 2% have a mode of “Medium Scale”
industry and 1% percent MOUZAs have a mode of “Large Scale” industry as an
alternative source of employment. The status of “Cottage” and “Small Scale”
industry has been presenting a tormenting state of affairs for development of rural
areas because these two types of industry could help to improve non-farm (an
important engine of rural development) sector of rural areas.
From the comparative analysis among provinces as depicted from
Figure: 6.10, it is obvious that Punjab and Sindh are more advantageous regions in
this regard whereas Balochistan is again proved to be the most disadvantaged region
of the country. However, situation of Khyber Pakhtunkhawa is also equivalent to
Balochistan in case of “Cottage” and “Small Scale” industries. Hence, in the current
scenario we may easily conclude that provinces having mountainous areas are
1
Laureate economist Arthur Lewis explained the phenomenon by which surplus of labour in
agriculture sector could be utilized in Industry by way of transformation.
151
comparatively less developed regions in Pakistan. Despite of the fact that
mountainous and non-productive land should be the focus of non-farm sector, our
governments has failed to provide certain incentives to initiate non-farm activities in
these areas. Such evidence is sufficient to conclude that there may be a skewed
spatial distribution among provinces while favouring Punjab and Sindh.
Table:6.9
STATUS OF INDUSTRY
MOUZAs Having the Facility of Industry by Scale

Unit
LARGE MEDIUM SMALL
COTTAGE NONE
SCALE SCALE SCALE
More Than Less Than Run by
Capacity of Workers 10-250 0
250 10 Household
Industry Number 1 2 3 4 5
Number 490 722 1406 1707 44284
PAKISTAN
Percent 1 2 3 4 93
BALOCHISTAN 0.06 0.17 1 3 96
KHYBER
0.23 0.39 1 3 96
PAKHTUNKHWA
PUNJAB 2 2 4 4 92
SINDH 1 1 4 6 91
6.2.9 Social Organizations
Social organizations and social setup play an important role in poverty
reduction of any society. Specifically rural sector has been taken as the utmost
beneficiary in this process [Suharko (2007), Edwards (1999), Bebbington (1996)].
This sub-section attempts to explore the information on accessibility of NGOs and
other social organizations within the rural communities of Pakistan.
152
Table:6.10
SOCIAL ORGANIZATIONS
MOUZAS Encompassing Facility By Gender
Unit
NON-GOVERN- CITIZEN COMMUNITY
COMMUNITY
MENTAL COMMUNITY CENTER/ NONE
ORGANIZATION
ORGANIZATION BOARD LIBRARY
Organization Number 1 2 3 4 5
Male Female Male Female Male Female Male Female Male Female
Gender
Number 1869 873 165 46 2514 653 241 111 43411 45971
PAKISTAN
Percent 4 2 0.35 0.10 5 1 1 0.23 91 97
BALOCHISTAN 3 2 0.22 0.09 2 1 0.16 0.05 95 98
KHYBER
7 2 1 0.10 10 3 0.44 0.14 84 95
PAKHTUNKHWA
PUNJAB 2 1 0.25 0.09 4 1 1 0.31 94 98
SINDH 8 5 0.20 0.11 5 2 1 0.31 88 94
Note : Two decimals are used for small values & 0=negligible value.
It is obvious from the column No. 5 of the Table: 6:10 that overall
there are 94 percent MOUZAs within Pakistan where no NGO or other type of
community or social organization is working for providing help to these communities
for the purpose of improving their way of life. This is a very sorrow state of affairs
for rural development of Pakistan. Furthermore, most of such organizations have
been working in Pakistan with the help of foreign assistance. Hence, it looks that still
lot of efforts are required to be initiated for setting up such organizations which could
help to improve development in rural areas. It is also necessary to generate awareness
regarding benefits of these organizations indigenously so that such helpful institutions
could be built up as per need of the society.
Spatial analysis is representing a little bit different scenario in case of
social organizations as shown by the Figure: 6.11 below.
153
SOCIAL ORGANIZATION FOR MALE MASS COMMUNICATION
12 100
90
10
80
8 70
60
6 50
40
4
30
2 20
10
0 0
1 2 3 4 1 2 3 4 5
Or gani z at i on N umber
F a c i l i t y b y N u mb e r
Balochist an Khyber Pakhtunkhwa Punjab Sindh

Balochist an Khyber Pakht unkhwa Punjab Sindh
Even data for spatial analysis is not sufficient enough to be concluded,
but for the sake of analysis Figure: 6.11 clearly show that Balochistan is again proved
to be least developed region of the country. However, the region of Punjab is also
looking disadvantageous one in case of social organization while Khyber
Pakhtunkhawa and Sindh are comparatively more developed regions. Such a situation
is not in line with overall evidence of spatial distribution of rural development in
Pakistan. This may be happened because of the fact that social organizations in
Pakistan are mostly financed by the foreigners, who provide finance on the basis of
geographical needs of the country and are not biased in this regard.
6.2.10 Mass Communication
So far as the facilities of mass communication is concerned, it is
noteworthy that the development of rural areas of Pakistan could be considered as
sufficient because 97 percent of MOUZAs have the facility of Radio transmission
while 67 percent of the MOUZAs have the facility of T.V telecasting. The facility of
154
newspaper is available to 27 percent of MOUZAs. On this account that literacy is not
a basic requirement for grasping the reflections being transferred through the senses
of listening and viewing, the rural inhabitants may show their interest in the media of
radio and T.V. This is why these types of media are being provided by the concerned
corners to rural communities. Therefore, it could be concluded that illiteracy of rural
communities is a hurdle in case of newspaper availability. Due to illiteracy the rural
people may have no interest in newspaper, and resultantly newspaper are not being
delivered by the publishers in remote and rural areas. Transport infrastructure may
also a cause along with illiteracy. The availability of cable along with T.V will be a
sign of modernization but it is also a costly process and it will be difficult for the
people who are fighting for their livelihoods to afford such services. Overall a good
space of media is available in rural communities which represent a middling level of
rural development.
Table:6.11
MASS COMMUNICATION FACILITIES

Unit MOUZAS Encompassing The Facility
NEWS
RADIO TELEVISION CABLE NONE
PAPER
Facility No 1 2 3 4 5
Number 43032 31927 2420 12953 2266
PAKISTAN
Percent 91 67 5 27 5
BALOCHISTAN 87 18 2 10 12
KHYBER
94 53 1 22 4
PAKHTUNKWHA
PUNJAB 90 88 7 30 3
SINDH 91 65 7 47 5
155
Spatial analysis is in line with the earlier analysis in this regard while
pointing out the Balochistan as the least developed region which is followed by
Khyber Pakhtunkhawa. On the other hand Punjab and Sindh could be considered to
have a moderate level of rural development in this regard. These facts are crystal
clear from Figure: 6.12.
6.3 RURAL DEVELOPMENT: ACCESSIBILITY TO

SERVICES
In this section of the descriptive analysis we may want to capture the
status of rural development in shape of those services which are accessible by the
rural inhabitants at some distance from their origins of residence. These types of
services may or may not available normally within the boundaries of communities;
therefore, we try to find out the distances of the services from the rural people. These
services comprises of social sector, communication, energy, and markets. We have
to keep in mind that actually rural development will be achieved if we may succeed to
provide these services within the boundaries of rural communities so that big
proportion of the populace may be able to utilize basic facilities at their doorsteps.
However, for the sake of analysis we may present the situation in the followings
under distance wise analysis:
6.3.1 Social Sector Facilities
Social sector development more often than not takes into consideration
the education and health conditions of the populace. These services could also be
termed as social infrastructure of the country. In this section we will focus our
156
attentions toward educational and health institutions to be available to the residents of
rural vicinities.
Table: 6.12
SOCIAL SECTOR FACILITIES (Accessibility Analysis)
Number of MOUZAs by Distance
From Facility(Average For Boys OVERALL
and Girls)
MEAN MOUZAS
TYPE OF FACILITY DIST- WITHIN 10 KM
LESS MORE ANCE (PERCENTAGE)
1 10
THAN 1 THAN 10 (KM)
KM
KM KM
1 2 3 4 5 6
Education
PRIMARY SCHOOL 35381 8761 3340 15 92.96
MIDDLE SCHOOL 12304 25403 9775 13 79.41
HIGH/HIGHER SECONDARY 4626 25759 17097 17 63.99
SCHOOL
COLLEGE 626 13171 33686 32 29.06
VOCATIONAL CENTER 497 10040 36945 43 22.19
MEAN 10686.60 16626.50 20168.40 23.80 57.52
Health
HOSPITAL/DISPENSARY 4838 25874 16770 17 64.68
RURAL HEALTH CENTER 4694 26390 16398 16 65.46
BASIC HEALTH UNIT 5469 26678 15335 15 67.70
CHILD & MOTHER CARE
3002 23189 21291 22 55.16
CENTRE
POPULATION WELFARE
5466 23743 18273 19 61.52
CENTRE
N.G.O. DISPENSARY 1808 16358 29316 34 38.26
PRIVATE DOCTOR [MBBS] 5043 23340 19099 20 59.78
MIDWIFE FACILITY 11398 18909 17175 22 63.83
VETERINARY FACILITY 5679 27096 14707 16 69.03
MEAN 5266.33 23508.56 18707.11 20.11 60.60
* Within 10 KM = 2+3: Note : For small values decimals up to two places have been used.
Prepared by: Authors
6.3.1.1 Education
An obvious fact out of Table: 6.12 for the facility of education is that
as the level of education is increased facility will be available at a larger distance.
This fact is in line with rationality because comparatively the education up to primary
157
level has been considered as significant factor for poverty reduction and human
development. Overall three fourth of total number of MOUZAs have the facility of
primary schools within the range of 1 KM and nearly 92 percent of MOUZAs have
this facility within the range of 10 KM. Mean distance of primary schools from rural
communities is 15 KM. Vocational institutions are also of high importance in
development process of rural communities. But the mean distance of rural
communities from vocational institutions is calculated to be 43 KM which is not a
healthy state of affairs for rural development in Pakistan. On average more than 50
percent of MOUZAs are located with 10 KM range from all level of educational
institutions. On behalf of accessibility analysis, an average level of rural development
could be discerned in shape of educational institutions.
Spatial distribution depicted from Figure: 6.13 and Table: 6.13 clearly
point out that Balochistan is the least developed region in this regard while Punjab is
highest developed, while Khyber Pakhtunkhawa and Sindh have moderate level of
rural development.
Education Sector Facilities Health Sector Facilities

120. 00 90.00
80.00
100. 00
70.00
80. 00 60.00
50.00
60. 00
40.00
40. 00 30.00
20.00
20. 00
10.00
0.00 0.00
1 2 3 4 5 1 2 3 4 5 6 7 8 9
F a cility by S r N o F a cilit y by S r N o
Balochistan Khyber Pakht unkhwa Punjab Sindh Balochist an Khyber Pakhtunkhwa Punjab Sindh
158
6.3.1.2 Health
When we look over Table: 6.12 for health facilities, it come to the
knowledge that overall 60 percent of the total number of MOUZAs are located within
the range of 10 K.M from all types of health facilities whether it is dispensary, or
B.H.U or R.H.C1 or even the facilities of veterinary. However, when we observe the
Column No. 2 of the table for analyzing that what proportion of the total number of
MOUZAs (i.e. 47482) are enjoying these facilities within a range of 1 K.M, then it
come to the notice that on average near about only the10th part of the total MOUZAs
have this facility (i.e. 5266), which again a sorrow state of affairs regarding rural
development of Pakistan.
So far as spatial distribution is concerned, the Figure: 6.14 coupled
with Table: 6.13 confirm the earlier analysis of skewed distribution favouring Punjab
and Sindh and notifying Balochistan as the least developed region. The region of
Khyber Pakhtunkhawa normally attained a third position in the spatial distribution
analysis and same is the case for social sector services.
Till yet, it is obvious from the spatial distribution analysis of rural
development in Pakistan that the provinces of Punjab and Sindh are advantageous
regions of the country while Khyber Pakhtunkhawa and Balochistan are
disadvantageous one. However, on the whole the Punjab is evident to be a most
advantageous region while Balochistan has been documented as the least
disadvantageous region of the country. Such a picture of spatial distribution is in line
1
Abbreviations are described in acronyms. All such health facilities are very basic facilities for inputs
in health sector.
159
with the characteristics of developing countries like Pakistan where dualism and
unequal distribution prevail dominantly.
Table: 6.13
SOCIAL SECTOR FACILITIES (Accessibility Analysis)
A Comparative Analysis of the Provinces (Spatial Distribution)
MOUZAs Within 10 KM (Percentage)

TYPE OF FACILITY
Sr No Khyber
Balochistan Punjab Sindh
Pakhtunkhawa
1 2 3 4 5
Education
1 PRIMARY SCHOOL 67.95 95.21 98.51 93.34
2 MIDDLE SCHOOL 40.91 78.63 91.16 75.01
HIGH/HIGHER SECONDARY 26.72 58.40 76.80 63.56
3 SCHOOL
4 COLLEGE 10.40 25.39 34.59 17.50
5 VOCATIONAL CENTER 6.58 17.84 28.58 21.74
Health
1 HOSPITAL/DISPENSARY 36.03 59.13 74.45 67.27
2 RURAL HEALTH CENTER 32.47 59.44 77.50 64.31
3 BASIC HEALTH UNIT 31.11 64.90 79.51 64.99
CHILD & MOTHER CARE
19.45 50.11 67.53 53.65
4 CENTRE
POPULATION WELFARE
24.80 56.16 74.99 57.08
5 CENTRE
6 N.G.O. DISPENSARY 14.08 29.49 47.28 45.56
7 PRIVATE DOCTOR [MBBS] 19.85 56.35 70.08 68.65
8 MIDWIFE FACILITY 32.58 56.00 73.48 74.61
9 VETERINARY FACILITY 15.58 34.63 40.40 30.80
6.3.2 Transport, Communication and Energy Sectors Facilities

Social overhead capital i.e. economic infrastructure attained a vital
position in development process of any country. In current sub-section of this study
we endeavor to collect the facts and figures regarding transport, communication and
energy facilities being enjoyed by the rural areas of Pakistan.
160
Table: 6.14
TRANSPORT COMMUNICATION & ENERGY SECTOR FACILITIES
(Accessibility Analysis)
Number of MOUZAs by Distance
From Facility OVERALL
MEAN MOUZAS
TYPE OF FACILITY DIST- WITHIN 10 KM*
LESS MORE ANCE (PERCENTAGE)
1 10
THAN 1 THAN 10 (KM)
KM
KM KM
1 2 3 4 5 6
Transport and Communication
METALLED ROAD 28460 12248 6771 19 85.73
TRANSPORT 31756 11960 3763 13 92.07
FIXED LINE TELEPHONE 9451 16556 21472 24 54.77
COMPUTER/INTERNET 5607 16853 25017 26 47.30
P.C.O. 16897 18086 12496 19 73.68
POST OFFICE 7757 26029 13693 17 71.16
MEAN 18818.50 14404.25 14255.75 20.50 69.97
Energy
ELECTRICITY 38435 3566 5478 33 88.46
DIESEL / PETROL PUMP 7228 24460 15794 19 66.74
CNG / LPG 1064 10501 35913 58 24.36
MEAN 15575.67 12842.33 19061.67 36.67 59.85
* Within 10 KM = 2+3: Note : Decimals are avoided. For small values decimals up to two places have been used.
6.3.2.1 Transport
Column No. 2 of the Table: 6.14 present the number of MOUZAs
which are at a distance of 1 K.M from the facility. The matelled road and transport
facility is available on average to 30,000 MOUZAs out of 47,482 MOUZAs which
constitutes a little more than 50 percent portion of the total. It means that half of the
MOUZAs in Pakistan are not enjoying the facility of roads infrastructure within a
range of 1 K.M. However, when we expand the range from 1 K.M to 10 K.M it looks
from column No. 6 that 85 and 92 percent MOUZAs are enjoying respectively the
161
service of matelled road and transport and till yet about 10 percent MOUZAs lack this
facility.
Trans port Comm unication Facilities Energy Facilities

120.00 120.00
100.00 100.00
80.00 80.00
60.00 60.00
40.00 40.00
20.00 20.00
0.00 0.00
1 2 3 4 5 6 1 2 3
Fac i l i t y by S r N o Fa c il i t y b y S r N o
Balochist an Khyber Pakht unk hwa Punjab Sindh Balochist an Khyber Pakht unkhwa Punjab Sindh
6.3.2.2 Communication
Only 7757 MOUZAs (out of 47482 i.e. about one sixth segment of
total) have post office within a range of 1 K.M while 71 percent MOUZAs are located
at a distance of 10 K.M from post office. Similar analysis could also be observed
from the table for the services of telephone and internet services.
6.3.2.3 Energy
So far as we talk about energy infrastructure as mentioned in above
table, the distance wise availability of electricity for MOUZAs is highest while that
for petroleum & diesel services is modest and least for CNG & LPG services. These
are the commercial energy resources which may be utilized for commercial purposes.
Analysis of these services for range of 1 K.M and 10 K.M represent the same picture
as is evident earlier in transport and communication services. Load-shedding in the
services of electricity and C.NG/L.P.G is another source of under-development for
162
rural areas of Pakistan. Even that the infrastructure is available but services will not
be provided all the time which creates hurdle in economic activities of the region.
Further, the situation will be aggravated by spatial discrimination in case of load-
shedding because rural areas of Pakistan have to bear comparatively more load-
shedding than urban areas.
Table: 6.15
TRANSPORT COMMUNICATION & ENERGY SECTOR FACILITIES (Accessibility Analysis)
MOUZAs Within 10 KM (Percentage)

TYPE OF FACILITY
Sr No Khyber
Pakhtunkhawa
1 2 3 4 5
Transport and Communication
1 METALLED ROAD 49.38 79.03 97.36 91.60
2 TRANSPORT 72.81 90.62 97.59 93.56
3 FIXED LINE TELEPHONE 19.57 54.89 66.13 46.35
4 COMPUTER/INTERNET 15.91 45.07 58.00 42.19
5 P.C.O. 31.60 66.72 88.89 71.25
6 POST OFFICE 23.24 63.62 88.35 68.15
Energy
1 ELECTRICITY 54.68 85.80 97.75 92.98
2 DIESEL / PETROL PUMP 24.42 49.46 86.04 68.38
3 CNG / LPG 5.07 18.17 32.19 25.75
6.3.2.4 Spatial Distribution
On the basis of Table: 6.15 along with Figures: 6.15 & 6.16, it is clear
that spatial distribution of Transport, Communication and Energy services is uneven.
The rural areas in the province of Punjab are largest user of the facilities while that of
Balochistan are least users. This shows the tilt of balance in favour of Punjab when
we consider the spatial distribution analysis of development in the light of services
163
provision by the public sector. However, Sindh and Khyber Pakhtunkhawa attained an
average level of rural development in comparative statistics.
6.3.3 Market and Banking Sector Facilities
The market and banking sector infrastructure has been evaluated in this
section of the study wherein data regarding different types of markets and financial
institutions, which are accessible for the rural areas of Pakistan, has been trying to be
presented with the help of tables and graphs.
6.3.3.1 Markets
Markets for agricultural inputs are available to 50 percent of total
MOUZAs in Pakistan within the range of 10 K.M, however, within the range of
1 K.M only one thirteenth portion (nearly 3500 MOUZAs) out of total number of
MOUZAs have been enjoying this facility. Keeping in view commercial aspect of
these types of facilities, such a status of accessibility could be termed as satisfactory
for the rural inhabitants but still 50 percent of the total segment is not in a position to
enjoy this status. The markets for food items are available to only 30 percent
MOUZAs within the range of 10 K.M, and less than one sixtieth portion of total
MOUZAs are approaching food items’ markets within the range of 1 K.M, which
again corresponds to an abysmal depiction of rural development in Pakistan.
Efficient markets will be proved helpful source of rural development
which not only reduce the transaction costs but also ready to lend a hand for obtaining
inputs and selling outputs at market rate without any exploitation of anti-market
forces.
164
6.3.3.2 Banks
Banking facilities could be proved very helpful in economic
development of rural sector of the economy because it helps to improve technological
progress in agriculture and non-agriculture sectors. It is very costly to adopt new and
modern technology for the purpose of increasing output but if it could be
accomplished, it increases the technical efficiency of these sectors. Accomplishment
of such a costly task depends upon efficient financial markets. Banking and Non-
banking sectors form the financial market. Pakistan is a developing country where
still non-banking sector is not established properly. Therefore, there is no question of
analysis for non-banking sector in rural areas of Pakistan. However, in the followings
we endeavor to explain the facts and figures of banking infrastructure for rural areas
of Pakistan.
Market Facilities (Spatial Distribution) B a nk ing F ac ilities ( Spatial D istributio n)
60.00
80.00
70.00 50.00
60.00
40.00
50.00
40.00 30.00
30.00 20.00
20.00
10.00
10.00
0.00 0.00
1 2 3 4 5 6 7 8 1 2
Fa c il i t y by S r N o Fac i l i t y by S r N o
Balochist an Khyber Pakht unkhwa Punjab Sindh Balochist an Khyber Pakht unk hwa Punjab Sindh
Banking facility is available to 42 percent of total number of MOUZAs
within the range of 10 K.M while online facility is available to only 26 percent of
MOUZAs. This state of affairs clearly shows that banking infrastructure for rural
165
areas of Pakistan has not attained an adequate level because more than half of the
MOUZAs in Pakistan have no facility of Banking within the range of 10 K.M.
Table: 6.16
MARKETS & BANKING SECTOR FACILITIES (Accessibility Analysis)
Number of MOUZAS by Distance
From Facility OVERALL
MEAN MOUZAS
TYPE OF FACILITY DIST- WITHIN 10 KM*
LESS MORE
1 10 ANCE (PERCENTAGE)
THAN 1 THAN 10 (KM)
KM
KM KM
1 2 3 4 5 6
Markets
LIVESTOCK MARKET 781 13753 32950 38 30.61
GRAINS MARKET 767 14153 32562 40 31.42
FRUITS MARKET 590 13809 33083 41 30.33
VEGETABLES MARKET 652 14624 32206 41 32.17
GOVT. PROCURE. CNT 1210 14411 31859 48 32.90
SEEDS SHOP 3972 21277 22232 26 53.18
FERTILIZERS SHOP 3291 20674 23516 26 50.47
PESTICIDES SHOP 3147 20800 23534 26 50.43
MEAN 1801.25 16687.63 28992.75 35.75 38.94
Banking Facilities
COMMERCIAL BANK 1702 18299 27480 29 42.12
ON-LINE BANKING 490 11899 35093 45 26.09
MEAN 1096.00 15099.00 31286.50 37.00 34.11
With the help of Figures: 6.17 & 6.18 and Table: 6.17, it could be
easily inferred that in case of market and banking sector facilities also, the region of
Balochistan has been remained far behind as compare to the other regions of Pakistan
which fact has already been come to the surface throughout this analysis. Similarly,
the region of Punjab is highest beneficiary in this perspective and the province of
Sindh is second highest beneficiary. So far as the province of Khyber Pakhtunkhawa
is concerned it maintained its third highest position as usual.
166
Table: 6.17
MARKETS & BANKING SECTOR FACILITIES (Accessibility Analysis)
MOUZAS Within 10 KM (Percentage)

TYPE OF FACILITY
Sr No Khyber
Pakhtunkhawa
1 2 3 4 5
Markets
1 LIVESTOCK MARKET 10.22 27.45 34.50 43.96
2 GRAINS MARKET 8.15 24.12 37.87 45.68
3 FRUITS MARKET 7.45 22.31 38.19 39.51
4 VEGETABLES MARKET 8.76 22.95 40.79 41.27
5 GOVT. PROCURE. CNT 6.64 16.47 45.06 44.95
6 SEEDS SHOP 12.68 39.57 70.08 55.46
7 FERTILIZERS SHOP 12.21 36.23 66.66 54.57
8 PESTICIDES SHOP 12.20 36.31 66.54 54.58
Banking Facilities
1 COMMERCIAL BANK 10.73 30.38 55.69 44.37
2 ON-LINE BANKING 6.86 17.52 34.99 27.81
6.4 COMPOSITE INDEX OF PRINCIPAL VARIABLES
In this section of the study, an effort has been made to construct a
composite index of principal variables relating to rural infrastructural development
discussed above. Such an attempt will be proved helpful to observe the overall
performance of the country regarding rural infrastructural development. Principal
variables selected for this purpose are infrastructures used to provide facilities of
education, health, transport and communications, energy, credit and sales & purchase
of inputs and outputs (markets) to the rural people. Therefore, information of all these
variables will be summarized in the composite index and status of rural infrastructural
development in Pakistan will be highlighted compositely and swiftly.
167
In the section titled above as “Rural Development: Accessibility to
Services” mentioned above, accessibility of rural people to the core services of
development has been analyzed wherein distance approach was utilized so as to
measure the status of rural development. Now, the same data (mentioned in Tables:
6.14, 6.15 & 6.16 above) has been used for the purpose of construction of composite
index and the same measure i.e. number of villages wherein the service is accessible
(via infrastructure) within the range of 10 KM, has been taken into consideration so as
to create similarities in both the analyses i.e. individual and composite.
So as to construct the composite index we follow the methodology
used in Morris and Liser (1977), Mukherjee (1980), Iyengar and Sudarshan (1982),
and Patra and Acharya (2011). As per this methodology, for the purpose of
construction of an index, weighted average of principal infrastructural services has
been computed in such a way that weights varies inversely to the variation in different
components of principal variables. Let presents the value of the different
components of a principal variable of infrastructure (i.e. ). Then,
Where, Max and Min means maximum and minimum values
respectively. In this way will be measured whose value ranges between zero to one.
From the matrix of [ ], infrastructural development index of principal variables will
be constructed as under:
168
I=
Where
= , and m presents number of principal variables,
0< < 1 and = 1, such that:
= and =
In this way inverse relationship of weights with variations in
components of principal infrastructural variables is obvious. Composite index has
been measured in Table: 6.18.
Table: 6.18
COMPOSITE INDEX OF PRINCIPAL VARIABLES
Principal Weights Average of Components of
Wm x Zm
Variables (Wm) Principal Variables (Zm)
Education 0.163337984 0.500770719 0.081795
Health 0.222618537 0.273811425 0.060955
Transport &
0.181419921 0.475442228 0.086255
Communication
Energy 0.153936082 0.44628072 0.068699
Markets 0.150841474 0.623052995 0.093982
Banks 0.127846002 0.5 0.063923
Sum 1 0.455609
Composite Index of Principal Variables have observed to be 0.45
which means that on average there are 45 percent MOUZAs wherein all the
infrastructure services on the whole are available within the range of 10 KM, which
again is a clear sign of under-development.
169
6.5 CONCLUSION
It has been discussed earlier in Chapter No. 4 that for the purpose of
quantification we prefer to use rural infrastructural development as an indicator of
rural development. Hence, in this chapter we have analyzed rural development in
Pakistan while taking into consideration rural infrastructural development as variable
of interest. In the above analysis, an effort has been made to present the data
regarding rural infrastructural development in Pakistan flawlessly, appropriately and
comprehensively. However, we don’t claim that our data and its presentation have
been consummated with perfections because throughout the history of knowledge
corrections are always needed to improve the quality of knowledge. Therefore, we
made simply an attempt only, which may have the space for correction with the help
of further research in this area of study.
First of all we take into consideration the rural development in
Pakistan while focusing our attention towards the infrastructure and public services
being encompassed within the borders of rural communities. These services have
been utilized by the rural inhabitants in their surroundings e.g. land utilization,
sources of irrigation, sources of drinking water, filtration, toilet, sources of fuel,
residential public facilities, social set up of the vicinities, and media services etc. It
has been crystal clear from the facts & figures given in Section: 6.2 that still rural
areas of Pakistan are underdeveloped. An apparent failure in achieving an adequate
level of infrastructure has been depicted from the data presented in this chapter. Poor
status of rural infrastructure could be easily witnessed. Therefore, rural infrastructural
development in Pakistan could not be termed as helpful for enhancing the quality of
170
life of rural inhabitants. It has also come to the notice that in case of those services
which have been available to rural inhabitants naturally i.e. without the efforts of
humanity such as natural sources of drinking water and fuel etc, the status of service
utilization by the rural inhabitants is comparatively better because nature not only
provides its benefits to all but also distributes the facilities among them equally.
Same fact is evident from the spatial distribution of these services on the basis of
provinces of the country i.e. Balochistan, Khyber Pakhtunkhawa, Punjab and Sindh.
Whereas in case of those services which are available to humanity on the basis of
human efforts such as public residential facilities, filtration, media services, irrigation,
industry etc, unequal distribution is an obvious characteristic of status of development
in rural areas of Pakistan. In this way it could be easily concluded that for the
services which are encompassing within the rural vicinities of Pakistan, there is a poor
state of rural development in Pakistan. And there is strong need to improve these
conditions so that people residing in rural areas of Pakistan could enjoy the basic
necessities of life.
As per definition of rural areas mentioned in Chapter No. 4 the rural
areas normally comprises of 5000-10000 population. Similarly, the rural
communities which we analyze in this chapter with the help of “Pakistan 2008
MOUZA Statistics” are also comprises of the population over 5000. Hence, rural
infrastructure should be available within the vicinity. Non-availability within the
vicinity is itself a sign of underdevelopment of the rural areas in Pakistan. However,
for the sake of collecting comprehensive evidence regarding status of rural
development while utilizing all the possible ways and maximum available evidence,
we contribute distance wise analysis in our study. This analysis comprises of social
171
sector development, communication and energy sector development and market &
banking sector development. On average these types of facilities are available at a
distance of 28 KM from the rural communities which is a discrete signal of
underdevelopment for rural areas of Pakistan.
We also use the ranges of 1 K.M and 10 K.M for accessibility of the
services to the rural inhabitants. When we use the range 1 K.M, it will be found out
except the services of education, transport and electricity all other services are
available to less than 3000 MOUZAs only (out of 47482 MOUZAs). And the
services of education, transport and electricity is available to half of the MOUZAs
within the range of 1 K.M, which shows that still half of the MOUZAs are not able to
enjoy these services even within the range of 1 K.M from their locale. If we increase
the analysis up to the range of 10 K.M, even then on average only half of the
MOUZAs will be able to enjoy all these facilities. Similar is the finding for analysis
conducted as composite index in Section: 6.4 while keeping in view the accessibility
of the infrastructure to the rural communities within the range of 10 K.M. All such
facts and figures either at individual analysis or at composite analysis are enough to
conclude that distance wise analysis also represent a situation of underdevelopment
for the rural regions of Pakistan.
As it is witnessed in above analysis that on average half of the
MOUZAs are enjoying the public services within the range of 10 K.M, therefore, for
the purpose of spatial distributive analysis we select the range of 10 K.M. In spatial
distributive analysis we want to capture the distribution of rural infrastructural
development in Pakistan on the basis of its four provinces i.e. Balochistan, Khyber
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Pakhtunkhawa, Punjab and Sindh. On the basis of the analysis, it is found out that
percentage number of MOUZAs enjoying the public facilities in Punjab is largest and
that of Balochistan is smallest whereas it is at moderate level for the provinces of
Sindh and Khyber Pakhtunkhawa. Notwithstanding, overall the region of Sindh has
an advantage over Khyber Pakhtunkhawa. Hence, inequality in distribution of public
services is the major conclusion of the comparative analysis consummated on the
basis of provincial data. Skewed spatial distribution in favour of Punjab while
ignoring Balochistan is undoubtedly visible from the data tables presented above in
the analysis for the purpose of examining the status of spatial distribution of
infrastructure in rural areas of Pakistan. Inequality itself points out underdevelopment
of the rural areas of the country, therefore, rural development in Pakistan could be
termed as an area with no inclusive progress and improvement.
On the basis of above paragraphs, we finally reach to the conclusion
that in case of Pakistan still rural development in shape of infrastructural development
has not been grasped up to that level which is sufficient to achieve economic
development. Either we take into consideration the availability of public services
provided to rural inhabitants at their doors or we consider the accessibility of public
services by the rural inhabitants at some distance from their vicinities, insufficient
rural development is crystal clear from the facts and figures mentioned above. Rural
Development in Pakistan is further evident to be distorted by the way of unequal
spatial distribution because comparative advantage of some provinces over the other
is an obvious characteristic of the comparative analysis of the data. Hence, finally we
want to mention that Pakistan is facing a poor state of rural development which is
further aggravated due to inequality in its spatial distribution among provinces.
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CHAPTER 7

AND ECONOMIC GROWTH IN PAKISTAN: A
MICRO ANALYSIS
7.1 INTRODUCTION
After analyzing status of Rural Development in Pakistan, now we may
try to find out the effects of Rural Development on growth and poverty reduction of
Pakistan. The outcomes of rural development will be quantified separately for
economic growth and poverty reduction in three different chapters. First two chapters
(i.e. Chapter No. 7 & 8) will take into consideration the economic growth while next
chapter will explore this topic for poverty reduction.
Economic growth for poverty reduction is an area of research, which
holds contradictory evidence as the same fact is evident from our discussion in
Section: 4.2.2.1. It was observed therein that even with the background of
contradictory results, economic growth could be proved helpful for poverty reduction.
Hence, in these two chapters within the perspective of economic growth for poverty
reduction, we want to explore the role of Rural Development as a determinant
economic growth so that we can measure the indirect channel of our framework
which pointed out that when we intervene with the variables of rural infrastructural
174
development, it will help to enhance economic growth which ultimately contributes in
the process of poverty reduction.
In our analysis we use rural infrastructural development as an indicator
of rural development. In case of Pakistan we face limitations in collecting data on
rural infrastructural development at macro level because the published data sets of
GoP have provided restricted information on infrastructure and it is difficult to
segregate the data on regional basis (i.e. urban and rural). So, we are unable to find
any way to separate rural infrastructure from urban infrastructure at macro level.
Whereas at micro level while using cross-section data, if we are able to find the
variables of rural infrastructural development then it is hard to find the data on
economic growth of Pakistan at micro level because growth is a variable which could
only be measured in time series data set because quantification of growth require time
element. This is why we are constrained to conduct our analysis at two levels i.e. at
micro level and macro level separately. Firstly in Chapter No. 7 it has been tried to
capture the impact of rural infrastructural development on household’s per capita
income while considering household’s per capita income as a variable at micro level
which could point out towards economic growth of Pakistan. Even per capita income
of households is not the true representative of economic growth at micro level but it
may have the force to create variations in total output of the economy in one point of
time. As we know that economic growth is representative of variations in total output
of any economy from one point of time to another point of time. This is why we want
to use per capita income as a dependent variable of our analysis at micro level so that
we may be able to find out the impact of rural infrastructure on it. Such an analysis
could be proved helpful to assess the variations to be occurred in economic growth of
175
the country at micro level through per capita income of households. Secondly, in
Chapter No. 8 we may attempt to probe the relationship between rural infrastructural
development and economic growth at macro level. This may help us in verifying the
results of micro analysis conducted in Chapter No. 7.
At micro level we select Household Integrated and Economic Survey
of Pakistan for the year 2005-06 [GoP (2005-06)] which is the latest data set which
collects the data of rural infrastructural development through community
questionnaire along with collecting the data regarding income, consumption,
education, health, asset-holding of households. In this way by utilizing a mix analysis
of micro and macro variables we may attempt to find out the impact of rural
infrastructural development on economic growth of Pakistan.
7.2 RURAL INFRASTRUCTURAL DEVELOPMENT AND

INCOMES OF RURAL INHABITANTS IN PAKISTAN: A
MICRO STUDY
On the basis of our discussion reported in Chapter No. 3,
Section: 3.4.2, we try to construct a single equation model in Section: 7.2.1 and then
we may utilize Multiple Regression Technique on our data so as to measure the
impact of rural infrastructural development on incomes of rural inhabitants. By this
way, we may try to capture the force of rural infrastructural development which
creates variations in economic growth of Pakistan. Income per capita of households
will be used here as dependent variable so that we may be able to find out changes in
the financial conditions of rural people. Regression results will be reported in
Section: 7.2.2. Regression results will be found out not only for Pakistan but also
176
decomposed the results for provinces so that impact of rural development on
household’s incomes could be analyzed on comparative basis. The concluding
remarks will be mentioned in Section: 7.3.
7.2.1 Model
In this chapter for the purpose of estimation we develop a hypothesis
that Rural Development helps to enhance income-per-capita of households, therefore,
we will construct an equations in which we take household’s income per capita per
month (HHI) as dependent variable. The equation is developed on the basis of
ideology mentioned in literature.
MOA/MSU/UA Research Team (1992) explore a number of factors
determining rural households income which comprises of two main sets of
determinants i.e. vector of assets (land, value of livestock etc), and vector of
household structure variables (household head’s attributes, household’s composition
etc). Reardon (1998) finds that as a policy variable the rural infrastructural
development could also play a vital role for increasing rural non-farm activities.
While exploring the factors determining the growth and poverty reduction in Africa,
Deininger and Okidi (2003) employed household panel survey data and constructed a
model of economic growth at micro level. They found that access to infrastructure,
agricultural exports, human and physical capital have the force not only to enhance
economic growth but also to reduce poverty. Nkonya et al (2004) also modeled
household’s primary income and found public services as an important element in this
regard. They also employed household level data for this purpose. Fan, Nyange and
Rao (2005) investigated the role of public services for enhancement of household’s
177
income while using household level survey and found that public services play a vital
role for household’s income augmentation.
Following the model used by Fan, Nyange and Rao (2005), we try to
construct a single equation model for capturing the role of rural infrastructural
development as a determinant of household’s income. On the basis of multiple linear
regression model, following equation has been developed:
HHI = + i Xi + {i / i, m N, i = 1,2,...m,...N}---------(7.1)
Admittedly at micro level, incomes of households vary due to the
variations in household’s socio-economic and demographic characteristics.
Therefore, Equation: 7.1 shows that income per capita of households depends upon
household socio-economic and demographic characteristics (Xi). The Xi is a set of
household’s socio-economic and demographic characteristics and m is number of
independent variables to be included in equation for socio-economic and demographic
characteristics. Household’s demographic characteristics may be comprises of size of
households, household head’s age, household head’s education, household head’s
gender etc. The socio-economic characteristics have been exposed by value of
livestock, and land owned by household etc. All these variables have been used in
model so as to find their impact on incomes of households at micro level because
same have been taken important variables as micro determinants of household’s
income in literature as mentioned above. We will exploit these variables in our model
as renowned explanatory variables of household’s income while exploring the impacts
of rural infrastructural development variables in our model for Pakistan. We
hypothesize that rural infrastructural development has positive role in enhancing
178
income/consumption of the people at micro level. Hence a number of variables
capturing rural infrastructural development i.e. community level characteristics (i.e.
electricity, gas, road, school, basic health units, telecommunication etc) have been
included in the model so that we may check the strength of these variables for their
role to enhance income. If we symbolize variables of rural infrastructural
development by (Yj), then Equations: 7.1 will be modified in following presentations
respectively:
HHI = + i Xi + j Yj + {i / i, m N, i = 1,2,...m,...N}
{j / j, n N, j = 1,2,…n...,N}------------(7.2)
Where n is the number of independent variables included in the model
for community level characteristics. Community characteristics comprises of social
sector characteristics (health and education infrastructure), economic characteristics
(infrastructure for electricity, gas etc) and transport, communication (roads, transport
equipment, telephone infrastructure etc). The term shows the error term in the
model which may capture the effects of those variables which could not be entered
into the model. The terms , s, and s show the coefficient of each variable which
may capture the marginal effects of the independent variable on dependent variable.
On the basis of available data we attempt to evaluate functional form of the model and
we have to select best functional form for our model. In the equation mentioned
above we have used dummy variables in our model, therefore, log-log and linear-log
functional forms of the model could not be evaluated for comparative purposes
because logarithm of ‘0’ will be indeterminate. Hence we have to select either linear
or log-lin functional form of the model. In this case we have to compare two models:
179
one with dependent variable as linear (i.e. HHI) and other with dependent variable
with log (i.e. LNHHI). In this case literature provides limited information for
selection criteria of functional form. However, on the basis of regression results of
both these two models while comparing significance of independent variables and
value of R2, we can choose log-lin model, which provides best combination of results.
But best combination of results is no more a valid criteria because in this way we may
focus on statistical relationship while ignoring importance of economic relationship.
Therefore, instead of focusing over sign and significance level of s, we just compare
the value of R2 for both the functional forms of Model. But in this case R2 is not
comparable1, hence, for better comparison of R2 value, we calculate “Quasi R2” on the
basis of following formula [Studenmund (2006)].
^
[HHI – antilog (log HHI)]2
Quasi R2 = 1 – _
[HHI – HHI]2
There is not much difference between R2 and Quasi R2 (i.e. 0.018226),
therefore, again we are left with no criteria for selection of functional form. Hence,
again we look toward literature for help and following Nyange and Rao (2005), and
Imran Sharif Chaudhry (2003), we select log-lin functional form of model for
estimation purposes. Hence, equation 7.3 will become:
LNHHI = + i Xi + j Yj + {i / i, m N, i = 1,2,...m,...N}
{j / j, n N, j = 1,2,…n......N}---(7.3)
All the variables used in model along with their hypothesis have been
defined in Table: 7.1. The variables and their hypothesis have been drawn on the
basis of literature in this regard [MOA/MSU/UA Research Team (1992), Larde de
1
If dependent variables are different then value of R2 of the models are not comparable.
180
Palomo et al (2000), Yunez-Naude and Taylor (2001), Deininger and Okidi (2003),
Imran Sharif Chaudhry (2003), Nkonya et al (2004) Croppenstedt (2006), Gustavo
and Alberto (2006), Karttunen (2009), Aikaeli (2010), Ibekwe (2010), Ibekwe et al
(2010)].
7.2.2 Regression Estimates of Rural Infrastructural Development

for Rural Household’s Income
After brief introduction of model now we may move forward to the
estimation of our data. We use statistical package E-Views for the purpose of
estimation. Estimation has been accomplished on the basis of following assumptions:
(i) The model is liner in parameters.

(ii) Variance of independent variables is not equal to zero.
(iii) Mean of error term is equal to zero.
(iv) Variance of all the error term is same i.e. homoscedasticity
(v) There exist no exact multicollinearity among independent variables
(vi) All the error terms are distributed independently i.e. no auto-
correlation.
The results are reported in the followings:
7.2.2.1 Estimation Results for Pakistan
For the purpose of estimation we contain 8480 observation after
cleaning process of data because in some certain cases either value of one of the
variable was not available or the available value will be an outlier and has to tackle
under data cleaning procedure provided by FBS. Value of R2 is sufficient (i.e. 0.23)1
to say that overall the model is good fit in this analysis. F-statistic, with a value of
1
As per Gujrati (2003), in cross-section data sets normally the value of R2 remained low due to
diversity of the cross-sectional units. Therefore, alternatively the approach of using F-statistic is
sufficient to show that impact of all the independent variables simultaneously is not zero.
181
237, shows that in the model there exists considerable impact of independent
variables with a 1% level of significance.
We have two main vectors of independent variables i.e. one relates of
household level characteristics and other relates to community level characteristics.
Therefore, in the following paragraphs we may discuss both these two vectors
separately. This will help us not only to find out the strength of the variables in
question i.e. rural infrastructural development in comparative sense but also help to
explore the topic relating to determinants of rural household incomes.
First of all we may discuss the vector relating to household level
characteristics. The variable of HHS is significant at 1% level but the relationship of
the variable with household’s income is not in line with hypothesis discussed in
Table: 5.1 above. In this analysis it is found out that as the household size is
increased, household’s income will be decreased. The main focus of this study is on
rural sector of the Pakistan. Joint family system is still a main characteristic of
households in developing countries including Pakistan and joint family system is
working strongly in rural areas. This is why in a family structure like Pakistani rural
areas, most of the family members are dependent while few family member are
independent/earner which pointed out towards high dependency ratio. It is also
important to mention here that we have measured household’s income in per capita
sense. Hence, as the number of dependents is increased per capita income will be
decreased and vice versa. On this behalf we should not be surprised by the negative
relationship of HHS with household’s income. However, in a case when dependency
182
Table: 7.1 Log-Linear Regression Estimates of Rural
Infrastructural Development and Rural
Household’s Income: Result For Pakistan
Independent
Coefficient t-Statistic Probability
Variables
C 5.027678 76.36588 0.0000
HHS -0.055089 -20.13490 0.0000
HHHA 0.026653 35.53561 0.0000
HHHG 0.513606 13.01585 0.0000
VLS 0.000639 11.59116 0.0000
ROAD2 -0.102767 -2.587213 0.0097
ROAD3 -0.051962 -1.606506 0.1082
ELECT 0.303673 7.214453 0.0000
GAS 0.138147 3.732920 0.0002
PS 0.009172 3.440036 0.0006
BHUD -0.000682 -1.026443 0.3047
PHOND -0.002815 -2.601108 0.0093
R2 0.235913 F Statistic 237.6819
Adjusted R2 0.234920 Probability (F Statistic) 0.000000
Number of Observations 8480

Estimates computed by authors on the basis of data collected through PSLM Survey
[GoP (2005-06)] using E-Views
183
ratio is low and number of earners is high in a family structure, the positive
relationship between HHS and household income would be a correct hypothesis. As
shown in Table: 7.1, in this analysis HHHA, and HHHG are statistically significant at
1% level and their relationship with dependent variable is as per expectation because
theory suggests that household head’s age, and gender are positively related to income
of household. Hence, it is a positive sign for the analysis in question. Similarly, VLS
is not only significant at 1% level but also has the positive relationship with the
dependent variable as per expectation because it is hypothesized that if the household
has more livestock, the probability of their income generation will be increased.
Now we turned to the vector relating to community characteristics.
Keeping in view two important elements i.e. role of public sector for provision of
different types of services, and the problems arising through multicollinearity, we
select six variables of community characteristics for the purpose of analysis i.e.
ROAD (ROAD1, ROAD2, ROAD3), ELECT, GAS, PS, BHUD and PHOND.
Variables of ROAD3 and BHUD have been proved insignificant in the analysis while
ELECT is significant at 1% level. ROAD2, GAS, PS and PHOND are significant at
5% level. So far as their relationship with dependent variable is concerned we can
observe that all the variables have expected relationship as per hypothesis mentioned
in Table: 7.2. Two of the variables i.e. BHUD and PHOND which we have quantified
through accessibility of households in distance of KM from their area of residence,
have shown negative relationship. The reason is that as the distance of the public
services is increased it refers to low level rural development. Hence, low level of
rural develop will be a cause of low level of household’s income. So far as variable
of ROAD is concerned ROAD1 (matelled road) has been taken as reference category
184
while ROAD2 (paved road) and ROAD3 (un-paved road) are included in model. As
per results ROAD1 has been shown a positive relationship with household income
and impact of ROAD1 is higher than ROAD2, and ROAD3 whereas impact of
ROAD2 is less than ROAD3. But ROAD3 is shown to be insignificant. On the
whole we may say that ROAD1 has more importance for household incomes than
ROAD2. Matelled road shows higher level of rural development than the paved road.
Hence, higher the rural development, higher will be the rural household’s income.
7.2.2.2 Estimation Results for Provinces
After analyzing regression results for Pakistan while using 8480
observations, now we may decompose the analysis among provinces of Pakistan i.e.
Balochistan, Khyber Pakhtunkhawa, Punjab and Sindh. The observations used in
decomposed analysis are 1184, 1841, 3645, and (total=8480) respectively for all
provinces. Now, number of observations have been reduced which ultimately puts its
impact on estimation results. However, keeping in view comparative nature of
analysis, now we have not dropped any variable as we have done in data analysis of
whole data (regarding Pakistan) so as to avoid problems of multicollinearity.
7.2.2.2.1 Estimation Results for Balochistan
Overall the model is good fit for the data set of Balochistan as the same
fact is evident from the value of R2 i.e. 0.24 while F-statistic is 34.81 and significant
at 1% level which is sufficient to believe that independent variables have significant
185
Household’s Income: Result For Balochistan
Independent
Variables
C 3.141963 8.469971 0.0000
HHS -0.078927 -8.060200 0.0000
HHHA 0.035821 13.36111 0.0000
HHHG 1.992403 5.810793 0.0000
VLS 0.004765 5.985625 0.0000
ROAD2 -0.199157 -3.887197 0.0001
ROAD3 -0.443054 -1.968607 0.0492
ELECT 0.337871 3.148531 0.0017
GAS -0.011316 -0.085578 0.9318
PS 0.024338 2.212426 0.0271
BHUD 0.000238 0.151352 0.8797
PHOND 0.003359 1.846982 0.0650
R2 0.246302 F Statistic 34.81810

[GoP (2005-06)] using E-Views
186
impact on dependent variable. The variable of HHS is again significant at 1% level
and has an inverse relationship with household income as in case of Pakistan.
Reason of its inverse relationship has already been discussed above while blaming
high dependency ratio in rural areas of Balochistan. Variables of HHHA, and HHHG
are also significant at 1% and as per our expectation in line with the hypothesis. They
all show a positive relationship with household income which confirms the results of
analysis conducted on the whole data set of Pakistan. Similarly VLS is significant at
1% level and has a direct relationship with household income which again follows the
analysis of Pakistan.
So far as community level characteristics are concerned we find that
GAS and BHUD are insignificant in case of Balochistan which follows the analysis of
Pakistan for the variable BHUD but one more variable has been proved insignificant
in case of Balochistan i.e. GAS. It is also worth mentioning here that relationship of
GAS has shown inverse relationship with household income which is against our
expectation. But the GAS is proved to be insignificant in our data for Balochistan,
therefore, no need to justify the result on the basis of economic theory. The variable
of PS is significant within the range of 5% and has the direct relationship with the
household income as per expectation. The variable of ELECT is significant nearly at
1% level and has the positive relationship with household income, which also follows
the analysis of Pakistan. So far as the variable of ROAD is concerned the results are
in line with the results obtained in analysis of Pakistan that ROAD1 has more strength
than ROAD2 and ROAD2 has more strength than ROAD3 i.e. higher the rural
development by providing a better road, higher will be the income of household. At
last we may observe that PHOND is significant at 10% level but have a positive
187
relationship with the household income which means that as the distance of phone
shop is increased the households will earn more income. In other words we can say
that as the level of rural development is decreased, household’s income will be
increased. Such a relationship is against our expectation. The province of
Balochistan is a least developed region of the country as the same fact has already
been observed in Chapter No. 6 of this study when we analyze the status of rural
development in Pakistan. As per social phenomenon of rural regions in Pakistan, it
could be observed that in early stages of development when people find a facility of
phone they use it for strengthening their social and family contacts, therefore, it will
be cause of increase in family expenditures. Normally, in the absence of a phone
facility we use the service of post office for informing our relatives regarding family’s
matters of happiness and sorrows due to which a little number of relatives will join
different types of ceremonies. Ultimately, family has to bear comparatively little
expenditures on such ceremonies if the phone facility is not available. On account of
these reasons we may say that as the distance of phone shop is increased in an under
developed region like Balochistan, family’s expenditures will be reduced, which will
be a cause of their increased income because income will be defined as:
Income1 consumption + change in net worth
[World Bank (2009)]
However, as the development process has increased and reached to a
sufficient level, then households also use to utilize phone facility for business and
commercial purposes, therefore, their incomes will be increased. The increased

1
Data on Income has been available on annual basis, which has been converted to per capita per
month by dividing with 12 and number of family members.
188
income is then sufficient enough to overcome the expenditures incurred on social and
family set up of the households. Therefore, hypothesizing decreased distance from
phone facility for increased household income is correct but in set up like Balochistan
which is under-developed in nature and still in a phase of development, a positive
relationship of distance of phone facility with household income may not be
surprising.
7.2.2.2.2 Estimation Results for Khyber Pakhtunkhawa
Overall, the model is good fit for the data set of Khyber Pakhtunkhawa
with R2 value of 0.22 and F-Statistic value of 46.99 having significance level of 1%,
therefore, we could easily reject the null hypothesis that all the coefficients of
independent variables are simultaneously equal to zero.
The variable of HHS is significant at 1% level and has an inverse
relationship with the household income which is similar to our results in case of
Pakistan and Balochistan. Variables of HHHA, and HHHG are also significant at
1% level and their relationship with household income is evident to be positive in
Table: 7.4. Variable of VLS is also significant at 1% level and positively related with
household income. Overall the vector of household level characteristics show the
same behaviour in all the three analyses conducted so far while using the data sets of
Pakistan, Balochistan and Khyber Pakhtunkhawa.
The variables of ROAD2, ROAD3, GAS and BHUD are proved to be
insignificant in case of Khyber Pakhtunkhawa. BHUD has been observed to be
189
Household’s Income: Result For Khyber
Pakhtunkhawa
Independent
Variables
C 4.796180 19.17455 0.0000
HHS -0.034775 -7.922357 0.0000
HHHA 0.020688 14.36126 0.0000
HHHG 0.355072 5.603576 0.0000
VLS 0.000583 7.042841 0.0000
ROAD2 0.095665 0.944403 0.3451
ROAD3 0.064729 1.136865 0.2557
ELECT 0.932592 3.987743 0.0001
GAS 0.027857 0.384384 0.7007
PS 0.015321 3.378533 0.0007
BHUD 0.000591 0.420797 0.6740
PHOND -0.008372 -3.329136 0.0009
R2 0.220330 F Statistic 46.98756

[GoP (2005-06)] by using E-Views
190
insignificant in all the analyses conducted so far. However, GAS is proved
insignificant for Balochistan and Khyber Pakhtunkhawa, while ROAD2 is shown to
be insignificant for the analysis of Khyber Pakhtunkhawa only. Electricity is again
significant at 1% level and has a positive relationship with household income. PS and
PHOND are also proved to be significant at 1% level and have expected relationship
with household income. So far as the variable of ROAD is concerned, the only
reference category i.e. ROAD1 is significant at 1% level but all the other two
variables i.e. ROAD2 and ROAD3 are insignificant, therefore, we can consider that
result of the analysis for Khyber Pakhtunkhawa shows the variable of ROAD as
insignificant for household’s income. Unexpectedly, the variable of BHUD has shown
here a positive relationship with household income against the hypothesis as
mentioned above in Table: 5.1, but as we have also observed that it is statistically
insignificant, therefore, we can conclude that in case of data set relating to Khyber
Pakhtunkhawa, available evidence for BHUD is invalid.
7.2.2.2.3 Estimation Results for Punjab
The Model is fitted very well with a value of R2 equal to 0.28. Along
with R2, when we want to confirm the overall goodness of model through F-statistic,
then we find out that value of F-statistic is also sufficient to suppose that there exist a
reasonable relationship between independent variables and dependent variable. The
value of F-statistic is 126 and the same is significant at 1% level.
The results of the vector related to household characteristics has shown
the same behaviour which we have already observed in all the above analyses. All the
variables i.e. HHS, HHHA, HHHG, and VLS have been proved to be significant at
191
Household’s Income: Result For Punjab
Independent
Variables
C 5.368587 49.22861 0.0000
HHS -0.067569 -15.16338 0.0000
HHHA 0.022285 20.82039 0.0000
HHHG 0.697141 14.44037 0.0000
VLS 0.000515 7.853139 0.0000
ROAD2 -0.055285 -1.092495 0.2747
ROAD3 -0.262406 -4.950906 0.0000
ELECT 0.145762 1.752590 0.0798
GAS 0.281699 5.245408 0.0000
PS -0.005275 -1.034490 0.3010
BHUD -0.001928 -1.670241 0.0950
PHOND -0.005267 -0.924703 0.3552
R2 0.276514 F Statistic 126.2294

Estimates obtained by authors’ calculations on the basis of data collected through PSLM Survey
192
1% level and their relationship with household income is as per expectation except the
relationship of HHS. But we have already discussed and justified the cause of
negative relationship of HHS with household incomes.
In case of community level characteristics, first of all we may analyze
the relationship of ROAD. Reference category i.e. ROAD1 along with ROAD3 are
found to be significant at 1% level whereas ROAD2 is insignificant. Impact of
ROAD1 is higher than ROAD2, and ROAD3. Similarly, impact of ROAD2 is higher
than ROAD3. Unfortunately, ROAD2 is insignificant, therefore, we may say that
ROAD1 is more beneficial than ROAD3 i.e. rural development in shape availability
of better road has more impact on rural household’s incomes. The variable of ELECT
has expected relationship with household’s income and is significant at 5% level.
And the GAS is also positively related with household’s income in line with the
expectation presented by the literature in this regard. The GAS is also significant at
1% level. The variable of PS has a negative relationship with household’s income but
at the same time it has been proved an insignificant variable. The variable of BHUD
has shown an expected relationship and also significant. So far as the variable of
PHOND is concerned, it has been proved insignificant despite of the fact that it shows
an expected relationship with the dependent variable. In case of Punjab, nearly two
variables from community characteristics have been proved insignificant.
7.2.2.2.4 Estimation Results for Sindh
Goodness of fit of the model for Sindh is shown by value of R2 in
Table: 7.6, which is equal to 0.33. The value of F-statistic is 83.93. F-statistic is
significant at 1% level.
193
Household level characteristics of the model in case of Sindh also have not changed
its response in the analysis. The variable of HHS has inverse relationship with
dependent variable and is significant at 1% level. The variables of HHHA, and
HHHG are also significant at 1% level and their relationship with the household
income is positive. Similarly, the variable of VLS is positive and significant at 1%
level. Throughout our analysis from Pakistan to Sindh, we found that the vector of
household characteristics have shown similar results on account of their relationship
with the dependent variable and significance level, which is a very good sign of the
analysis in the sense that it follows the theory which have already been proved in
repeated researches conducted in Pakistan and Worldly.
In case of Sindh, variable of ROAD has shown the similar results that
ROAD1 and ROAD2 are significant at 1% and 5% level respectively and impact of
ROAD1 is higher than ROAD2. The variable of ROAD3 is proved to be
insignificant. The variable GAS has shown unexpected relationship with the
dependent variable but in case of data regarding the province of Sindh, it has been
observed as insignificant. The variable of ELECT even shows an expected sing but
insignificant here. Even the variable of PS has the expected relationship but same has
also been noticed as insignificant. In case of Sindh, the only two variables which
have been proved significant are BHUD and PHOND. Significance level of BHUD is
nearly at 5% while that of PHOND is 1%. Both these two variables have the expected
signs. In case of vector of community level characteristics, the analysis of Sindh has
shown a little bit different outlook as against our analysis conducted for Pakistan
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Household’s Income: Result For Sindh
Independent
Variables
C 3.354135 13.25171 0.0000
HHS -0.063435 -11.48192 0.0000
HHHA 0.023889 15.62274 0.0000
HHHG 2.496246 10.74426 0.0000
VLS 0.003723 12.17172 0.0000
ROAD2 -0.230990 -2.114276 0.0346
ROAD3 0.022020 0.323185 0.7466
ELECT 0.013229 0.157238 0.8751
GAS -0.014800 -0.201493 0.8403
PS 0.006175 1.080692 0.2800
BHUD -0.002776 -1.898293 0.0578
PHOND -0.017505 -4.639981 0.0000
R2 0.339279 F Statistic 83.93370

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because comparatively more variables have been proved insignificant here.
7.3. CONCLUSION
At micro level variations in rural household’s income will be taken as
a basis of variations in total output, therefore, it could be able to accelerate/decelerate
the economic growth. However, the variable of interest here is rural household’s
incomes. Major determinants of rural income as observed in Table: 5.1 are household
size, household head’s gender, household head’s age, value of livestock contained
with household, and availability of rural infrastructure to households in their
community i.e. matelled road, paved road, un-paved road, electricity, gas, primary
schools, basic health units and facility of phone. However, higher impacts have been
documented for household’s gender and availability of electricity in the rural
vicinities. We could say that rural infrastructural development could have been
proved an important variable for augmentation the incomes of rural inhabitants. Out
of rural infrastructure we find that the effects of electricity and gas are comparatively
high which points out towards role of these variables in production activities of farm
and non-farm sectors of rural areas. It has been further detected out of the analysis
that comparatively the role of vector relating to rural infrastructural development is
less significant than the role of the vector of household’s characteristic for
enhancement of incomes of rural people. This is due to the fact that community level
characteristics have played secondary role and household level characteristics have
the primary role in the lives of the rural families. Therefore, we find that even rural
infrastructural development has the force for income enhancement of the rural
populace but its role for this purpose is that of secondary nature. Importance of
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education and health for enhancement of rural income is evident from prominent
literature in this regard, but the fact come out of this research is this that when we talk
about infrastructure than importance of education and health infrastructure is that of
secondary nature whereas infrastructure for electricity and gas has shown a vital role
in income enhancement capacity of rural areas. This may be due to the fact that rural
people lack resources and are unable to manage even their family expenditures.
Therefore, they feel strong need for expansion in economic activity of their regions
and economic activity depends upon farm and non-farm production units. Expansion
in farm and non-farm production activities may depend upon availability of electricity
and gas. This is why in case of infrastructure, availability of electricity and gas
infrastructure has more importance than accessibility of education and health
infrastructure.
When we turn to the comparative analysis among provinces of
Pakistan, we observe that overall the results have been observed to be similar to the
results of analysis in totality of data for Pakistan. The only difference which we
notice is that in case of provinces, the relationship of vector relating to community
level characteristics with household’s income is comparatively weak than its
relationship observed in totality. The reason behind may be the reduction of sample
observations because in totality we use large number of observation whereas for
provinces small number of observations are utilized. The vector of household level
characteristics again has been proved as primary determinant and community level
characteristics are noticed as secondary determinants of rural household’s income.
The accessibility of gas has been proved to be most important infrastructure for rural
income enhancement in case of province of Punjab. The availability of electricity has
197
been noticed as important variable in this regard for the provinces of Punjab, Khyber
Pakhtunkhawa and Balochistan. The variable of primary school as rural infrastructure
has been observed to be important for the provinces of Khyber Pakhtunkhawa and
Balochistan. On the other hand in case of province of Sindh, the variables of
telecommunication and health institutions have shown more importance for rural
household’s incomes. Overall we can observe that the variables which are important
for Punjab are also important for Pakistan. This information leads to the fact that
more observations from Punjab play a dominant role in analysis. Even we face this
shortcoming in comparative analysis, but importance of comparative analysis could
not be neglected because of the fact that it represents the specific needs of each
province separately for the provision of infrastructural variable e.g. need of Khyber
Pakhtunkhawa and Balochistan is the provision of primary school along with
electricity, that of Sindh is health institutions and telecommunication.
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CHAPTER 8
AND ECONOMIC GROWTH: MACRO
EVIDENCE FROM PAKISTAN (1981-2010)
8.1 INTRODUCTION
This chapter may attempt to explore the relationship between rural
infrastructural development and economic growth of Pakistan. Such a relationship
may be proved helpful to strengthen the analysis conducted at micro level in Chapter
No. 7.
For macro analysis three major variables will be employed for
capturing rural infrastructural development in Pakistan. These variables are the
infrastructures of roads, health and irrigation. Keeping in view limitations in
availability of data for rural and urban infrastructures relating to educational
institutions and electrification, the variables could not be included in the model. Even
then analysis of this study is sufficient to draw the conclusion for indirect relationship
of infrastructure with poverty reduction through economic growth because the
analysis has been conducted in two major directions i.e. micro and macro level. At
macro level, time series framework has been employed for finding out the impact of
rural infrastructural development on economic growth of Pakistan. As we mentioned
earlier that under the limitations regarding data availability, in case of Pakistan it is
199
difficult (if not impossible) to quantify rural infrastructure because no renowned
published data set provides disaggregated data for infrastructure on the basis of rural
and urban regions of Pakistan except for the variables used in this study as proxies.
Therefore infrastructure related to roads & transportation, health institutions and
irrigation will be utilized in this study so as to represent rural infrastructural
development.
After discussing concise introduction to the topic in the followings we
mentioned the model in Section: 8.2. The results and estimation has been specified in
Section: 8.3. So far as conclusions are concerned, Section: 8.4 confers the conclusion.
Ratner (1983) could be termed as a pioneer empirical study which
explores the impact of infrastructure on private investment while using a Cobb-
Douglas production function. Aschauer (1989), Holtz-Eakin (1992) also examined
the infrastructure as a determinant of productivity/output in a production function.
While including infrastructure variables in the production function, Holtz Eakin
(1989) and Munnell (1990) also focused on issue of productivity. Barrow (1990)
reframed the endogenous growth theory presented by Aschauer (1989) and consider
public spending (for infrastructure variables) as an important aspect of long term
economic growth. Infrastructure variables were used specifically as determinant of
economic growth by Wylie (1996), who also exploits the production function for
modeling infrastructure as a determinant of economic growth of Canada. Canning
and Pedroni (1999) used panel data set from 1950-1992 with countries as cross-
sections and found heterogeneous response of infrastructural development for
economic growth across the countries. Demurger (2001) found out the impact of
200
infrastructure on economic growth of China while following endogenous growth
model developed by Aschauer (1989) and extended by Barro (1990). Chakraborty
and Guha (2009) concluded rural infrastructural development (private and public) as
potential factors for economic growth of rural India. So far as Pakistan is concerned,
Khan and Sasaki (2001) used production function approach for capturing the
relationship between productivity of public capital and economic growth and found
that public and private capital complementarily are suitable investment in this regard.
8.2 Theoretical Background and Model
The empirical studies which explore the impact of infrastructural
development on economic growth utilized the production function approach. Usually
the studies take into consideration the Cobb-Douglas production function i.e.
Y = bLK
Where Y captures output, b is the factor productivity, L presents the
labour, K presents the capital, and , are output elasticities of labour and capital
respectively. In production function, infrastructure variables have been included
while extending the neoclassical growth model as under:
Y = bLK I
Where, “I” is the vector of infrastructure variables, which affects the
output (Y) as an additional input in production function. Keeping in view Solow type
models [Solow (1956)]; this type of model is now open to the possibility of constant
returns to scale. Hence, in line with the Demurger (2001), we want to estimate
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following growth equation wherein an extended form of framework given by Barro
(1990) has been utilized.
Gt = + i Xit + j Yjt + k Zkt + t {i / i, m N, i = 1,2,...m,...N}

{j / j, n N, j = 1,2,...n,...N}
{k / k, o N, j =1,2,...o,...N}--------(8.1)
This Barro-type framework allows the test of conditional convergence
by the addition of Solow type set of variables, and such variables will reflect the
differences in steady-state equilibrium. In this equation, Gt presents the growth, Xit is
the vector relating to factors of production i.e. labour and capital, Yjt is a vector of
rural infrastructure variables to be included in the model for finding out their impact
on economic growth, and Zkt is a vector of economic environment of the economy to
be included in the model as renowned and prominent determinants of economic
growth. The constant and coefficients have been indicated by , s, s whereas t
represents error term of econometric modeling. So far as functional form of the
model is concerned, we select Log-Log (or double log) functional form for estimation
because we know that base of the model mentioned in Equation (8.1) is a production
function. For such a model a better functional form for estimation purposes may be a
double log form.
8.3 Estimation
Results are shown by the Table: 8.1 given below. Before discussing
interpretations, we find it necessary to take into consideration problem of stationarity1
and spurious regression because in this section of the thesis, we are analyzing the time
series data set. A major hurdle of time series analysis is the problem of non-
1
By Stationarity in a time series variable we mean that the basic properties of the variable (constant
mean, constant variance, and dependency of ACF on lag only) remain unchanged over time.
202
stationarity. For having reliability of the regression results in time series analysis,
stationarity in dependent and independent variables of the model is the basic
condition. Because, if dependent variable along with one or more independent
variables of the model is non-stationary, then estimated coefficients may have been
shown by high level of significance spuriously. Therefore, results will not be reliable
statistically. So, in time series analysis some specific techniques have been utilized to
get rid of spurious correlation and un-reliable regression results. Hence, firstly we
may talk about the problems relating to stationarity, thereafter we may represent the
results of estimation.
8.3.1 Problems Relating to Stationarity and Spurious Regression
Econometrics provides several sophisticated techniques to resolve the
problem relating to non-stationarity such as lagged variable technique, ARIMA
modeling, Box-Jenkins methodology, Johnson’s procedure and ARDL approach to
time series analysis. But before deciding to acquire one of these methodologies, it
will be better to inquire about the order of integration of the variables of the model.
In case that all the variables of the model have an integration order of same level1,
then it could be easily concluded that there exist no problem relating to non-
stationarity in the model. Because it is believed that if all the variables of the model
have same order of integration, then residuals of the estimated model will be
automatically stationary. This technique is known as co-integration. Once we
obtained co-integration then we should estimate the model simply by using OLS
1
i.e. either I(0) or I(1) or I(2) etc. These are the order of integration which shows that the variable is
stationary at level, first difference or second difference respectively.
203
methodology. In this way, the results obtained out of the estimation will not be
spurious and will be reliable and trustworthy. Hence, we want to obtain the series of
residuals out of estimation of the model presented in Equation (7.4). Mathematically
speaking we want to get error term ( t) of the estimated model i.e.
^ ^ ^ ^ ^
t = Gt i Xit j Yjt k Zkt
Thereafter, we check the stationarity of the residual’s series while
using ADF procedure. If series of residuals is stationary at level i.e. I(0), then we may
conclude that variables of the model uses for estimation are co-integrated. Therefore,
there exist no problem of spurious correlation in the estimation, and coefficients
obtained through estimation are reliable and trustworthy. We follow this procedure
for our data set and find that residuals are stationary at level. Hence, we simply
regress the model while utilizing OLS methodology.
8.3.2 Regression Results
The model is over all very good fit with a high value of R2 i.e. 0.98.
Similarly, F-Statistic also shows that there is significant simultaneous impact of all
the independent variables on dependent variable. The value of d-statistic1 (i.e. 1.81)
is sufficient to show that there exists no problem of auto-correlation in the analysis.
Vector of production function has been proved a significant vector
because CAPS and LFPR are significant within the range of 5% level of significance.
1
Durbin-Watson Statistic.
204
Table: 8.1 Double-Log Regression Estimates of Rural
Infrastructural Development and Economic
Growth of Pakistan (1981-2010)
Independent
Variables
C 2.779548 3.980891 0.0007
LCAPS 0.216620 2.227530 0.0370
LFPR 0.269037 2.622832 0.0159
LINF -0.019674 -0.219720 0.8282
LOPEN 0.113545 0.518141 0.6098
LROADS 0.024337 3.072388 0.0058
LRHI 0.073843 2.917585 0.0082
LEIRR 0.063384 1.667562 0.1102
MA (2) -0.438482 -2.044922 0.0536
F Statistic 299.0225
R2 0.987983
Probability (F Statistic) 0.000000
Durbin Watson Statistic 1.817961
Estimates computed by authors on the basis of data collected through secondary sources with the
help of E-views
205
Their relationship with LGDPPC is as per our expectation that labour and capital
affect the dependent variable positively.
When we take into consideration the vector of rural infrastructural
development, we find that two of the variables i.e. LROAD and LRHI are significant
at 1% level whereas the variable of LEIRR has been observed to be insignificant. All
the three variables have shown an expected sign which points out a positive
relationship of these variables with the dependent variable.
Lastly, we may put light on the vector of economic environment. The
variable of LINF has a negative/inverse relationship with RGDP which is in line with
our hypothesis because double digits inflation (as in the case of Pakistan) has always
been taken as adverse factor for economic growth of any country. The LINF has been
proved statistically an insignificant variable for the data set which we employ for
estimation. On the other hand in case of variable of LOPEN, we find that trade
liberalization has been evident to be an insignificant variable in our model and its
relationship with dependent variable has been observed to be as per expectation on the
basis that it has shown positive impact on economic growth of Pakistan.
8.4 CONCLUSION
After analyzing micro framework in Chapter No. 7, now we may turn
to the determinants of economic growth at macro level analyzed in Table: 8.1. Macro
evidence in this regard endorses the micro analysis discussed above. We find that in
case of Pakistan labour, capital, and rural infrastructural development has the force to
enhance economic growth of Pakistan. However, the vector of production function
206
(i.e. labour and capital) has shown strong impact on economic growth. The effects of
the vector relating to rural infrastructural development have been found to be modest
whereas the vector of economic environment has shown the least impact for the data
set we utilize for analysis purposes. Our main focus is on rural infrastructural
development which even has shown the force for enhancement in economic growth
but it has been observed that rural infrastructural development has shown
comparatively a weak relationship with economic growth. The conclusion of
comparatively weak strength of vector of infrastructure in comparison to vector of
production function is based on the comparative analysis of statistical significance of
both the vectors of the model. There may be many reasons for this weak strength but
we suggest two reasons in this regard. Firstly, due to lack of capital, financial
constraints and urban biased policies, governments have not given their due focus
towards rural infrastructural development of Pakistan. Secondly, however, if a little
attention has been paid, such an attempt was destroyed due to unequal distribution
across different regions i.e. provinces of the country (Conclusions of Chapter No.6).
207
CHAPTER 9
AND POVERTY ALLEVIATION IN PAKISTAN:
AN EMPIRICAL ANALYSIS
9.1 INTRODUCTION
In this chapter we will make an attempt to find out the impact of rural
infrastructural development on poverty reduction. Serious limitations arises when we
take into consideration time series data for Pakistan on poverty and infrastructural
variables as we have earlier discussed in Chapter No. 7 that data regarding to
infrastructure is not available for rural and urban areas of Pakistan separately,
therefore, it may be difficult to conduct an analysis of rural sector while examining
the impact of infrastructure variable. However, luckily we find household level data
set i.e. GoP (2005-06), which is based on the household survey conducted by FBS
wherein along with collection the data of household characteristics, the data on
community level characteristics have also been collected through a separate
community questionnaire. So far as data on poverty in Pakistan is concerned for time
series analysis, no definite source is available which may be proved helpful to provide
comparable, credible and reliable data in this regard because FBS has frequently
changed its methodology for data collection during 1990s [Arif (2006)]. However, if
we talk about household level data sets in one point of time, then we may easily say
that HIES data sets of FBS are a best source of data which could be used for poverty
208
analysis on the basis of cross-sections. On account of these two main reasons, for this
analysis we select cross-sectional data provided by FBS for the year 2005-06 i.e. GoP
(2005-06). In the same pattern as we followed in previous chapter, we not only
conduct the analysis for the data set of Pakistan but also decomposed the analysis for
provinces of Pakistan separately i.e. for data sets of Balochistan, Khyber
Pakhtunkhawa, Punjab and Sindh.
9.2 MODEL
As we earlier mentioned in Chapter No. 3 that there are a number of
studies such as Saith (1981), Ahluwalia (1985), Gaitha (1989), Ravallion and Datt
(1994), Datt and Ravallion (1997), and Sikander and Mudassir (2008), which
investigated determinants of poverty while using single equation model. Similarly,
different studies focusing the determinant of rural poverty also used single equation
model e.g. Hossain and Sen (1992), Alian and Sadoulet (2000), Apata et al (2010). In
the same line studies examining the determinants of poverty in Pakistan [Shirazi
(1995), Dawood et al (2008), Siddiqui (2009), Imran Sharif Chaudhry (2009), Asma
and Maqsood (2010)] and determinants of rural poverty in Pakistan [Malik (1996),
Imran Sharif Chaudhry (2003), Amara Amjad Hashmi et al (2008), Malik (2012)] also
followed the single equation model. So far as if we talk about the impact of
infrastructure on poverty, then Shenggen Fan has presented enormous work [Fan,
Hazzel and Haq (2000), Fan, Hazzel and Thorat (2000), Fan et al (2003), Fan,
Jitsuchon and Methakunnavut (2004), Fan et al (2002), Fan, Zhang and Rao (2004),
Fan and Chan-Kang (2005), Fan et al (2006)] and suggested infrastructure as an
important determinant of poverty. Shenggen Fan mostly covered this topic at macro
209
level and used simultaneous equation model for analysis purpose. Whereas keeping
in view serious limitations in data collection at macro level, when Fan, Nyange and
Rao (2005) discovered this topic at micro level and investigated the infrastructure as a
determinant of poverty, then they also used single equation model for analysis
purposes.
In this study we specifically focus our attention toward rural
development while quantifying rural development through rural infrastructure and try
to examine the role of rural infrastructural development in poverty reduction of
Pakistan. On the basis of above mentioned discussion and following Fan, Nyange and
Rao (2005), we use single equation approach for modeling rural infrastructure as the
determinant of poverty. So on account of the reasons well described in Section: 3.4.2,
we construct following equation:
POVERTY = + i Xi + {i / i, n N, I = 1,2,...n,...N}----------(9.1)
In Equation: 9.1, is the constant term, and Xi represents the vector of
household’s level characteristics in the model. This vector comprises of the
independent variables which have the force to capture socio-economic and
demographic attributes of households. We include this vector in the model because in
the literature it represents well known determinants of poverty at micro level. So far
as s are concerned, they represent the coefficients of the independent variables
relating to vector of household’s level characteristics of the model, and is the error
term to be incorporated in the model so as to capture the impact of those variables
which have not been included in the model but they could play their role in this
210
regard. So as to find out the impact of all the independent variables on poverty
reduction we take POVERTY as dependent variable in the model for the purpose of
regressing independent variables on POVERTY.
As earlier mentioned, the purpose of this study is to find out the impact
of rural infrastructural variable on poverty reduction, therefore, now we may
introduce the vector of community characteristics in the model (i.e. Yj):
POVERTY = + i Xi + j Yj + {i / i, n N, I = 1,2,...n,....N}
{j / j, m N, I = 1,2…m...N}----(9.2)
Here, represents the coefficients of the vector relating the community
characteristics of the model. POVERTY is a qualitative variable having two
attributes (i.e. whether the household is poor or non-poor), therefore, dummy variable
technique has been used to quantify this variable. Wherever we want to use dummy
as dependent variable, we have to follow the method of qualitative response
regression models such as LPM, Logit model, or Normit model etc. We follow the
literature for choosing Logit model instead of Normit model for the purpose of
estimation because in case of poverty as qualitative response variable, normally the
researchers choose Logit Model. However, there is no convincing reason to prefer
one over the other out of these two models (i.e. Logit, and Normit) because the only
difference between the two is that in Logit model, the distribution has shown a
slightly flatter tails compare to the distribution of Normit or Probit models. So far as
LPM is concerned we observed a number of problems such as non-normality,
heteroscedasticity, and that it assumes unrealistically that dependent variable
211
increases linearly with independent variable. These problems have automatically
been solved when we use Logit model for the purpose of estimation.
9.3 REGRESSION ESTIMATES OF RURAL

INFRASTRUCTURAL DEVELOPMENT FOR POVERTY
ALLEVIATION IN PAKISTAN
In the following paragraphs we present the results of estimation while
using Tables: 9.1 to 9.5. Estimation for Pakistan and for the all the provinces of
Pakistan i.e. Balochistan, Khyber Pakhtunkhawa, Punjab and Sindh have separately
been mentioned. In this way, we not only attempt to incarcerate the overall impact of
infrastructural development on poverty reduction of Pakistan but also try to capture
the comparative analysis within provinces to explore this topic in a little bit depth.
9.3.1 Estimation Results for Pakistan
In Logit regressions, there is no specific way to find out model’s
overall goodness of fit. However, normally in practice, the McFadden R2 has been
used instead of R2 to serve this purpose. So far as F-statistic is concerned, this
statistic has been replaced by LR statistic in Logit regression. LR statistic serves the
same purpose as has been served by F-statistic in simple regression i.e. with how
much confidence we can say that all the independent variables simultaneously have a
considerable impact over dependent variable. Similarly, t-statistic of simple
regression has been quantified here with z-statistic while capturing the significance
level of coefficients. In column of Coefficient of the Tables: 8.2 to 8.6, we represent
those coefficients which explain the impact of independent variables on Logit (i.e.
natural logarithm of Odd Ratio). Logit have no economic meaning, therefore, we
convert the Logit into Odd Ratio by taking antilog of Logit. As early as we convert
212
Logit into Odd Ratio, coefficients have been converted into odds as shown by the last
columns of Tables: 8.2 to 8.6. On the other hand Odd Ratio has the force to explain
economic interpretation and odds show the likelihood of households to be poor.
Overall model is good fit with McFadden R2 value of 0.14 and the LR
statistic also shows a considerable high value with 1% significance level.
First of all we may evaluate household level characteristics. Except
HHHG, all the household level characteristics (i.e. HHHA, HHHE, HHS, DR, and
PR) have been proved to be significant at 1% level while HHHG has a significance
level of 10%. So far as their relationships with the dependent variable is concerned,
all the variables have expected signs as we can observe in the table that HHHG,
HHHE, HHHA, and PR have inverse relationship whereas HHS and DR have direct
relationship with poverty as we have already hypothesized on the basis of literature in
this regard.
On the other hand when we try to evaluate the vector of community
characteristics (i.e. rural infrastructural development) we find that all the variables
(ELECT, GAS, PS, BHUD and PHOND) except ROAD have expected signs.
ROAD1 has been taken as the reference category and represented by the constant.
ROAD1 is significant at 10% level, ROAD2 is significant at 5% level, and ROAD3 is
significant at 1% level. Therefore, we can observe that highest impact on poverty has
been shown by un-paved road while second highest impact was shown by matelled
road and third highest impact was observed by un-paved road. As per our hypothesis,
higher the rural development i.e. a better condition of road infrastructure, less should
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Table: 9.1 Logit Regression Estimates of Rural
Infrastructural Development and Rural Poverty:
Results For Pakistan
Independent
Coefficient z-Statistic Probability Odd
Variables
C 0.369631 1.905976 0.0567 1.447
HHS 0.047657 6.621234 0.0000 1.049
HHHA -0.024344 -11.186110 0.0000 0.976
HHHG -0.179198 -1.787296 0.0739 0.836
HHHE -0.126490 -16.794570 0.0000 0.881
PR -1.269385 -9.963761 0.0000 0.281
DR 0.468132 15.340570 0.0000 1.597
ROAD2 -0.224418 -2.069476 0.0385 0.799
ROAD3 0.292320 3.552242 0.0004 1.340
ELECT -0.396249 -3.786653 0.0002 0.673
GAS -0.377397 -3.304925 0.0010 0.686
PS -0.010623 -1.407971 0.1591 0.989
BHUD 0.004883 2.818057 0.0048 1.005
PHOND 0.000085 0.031975 0.9745 1.000
LR Statistic 1418.4160
2
McFadden R 0.148451
Probability LR (Statistic) 0.0000

x
Note : Odd = e where x is the value of concerned coefficients
Estimates computed by authors on the basis of data collected through PSLM [GoP (2005-06)] using
E-Views
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be the chance for household to be poor. This hypothesis has only been observed for
paved and matelled roads, but not for un-paved road. Hence, in case of road
infrastructure, it has been observed that significant and highest impact on poverty
reduction has been shown by un-paved road. For un-paved roads, our result is in line
with Fan et al (2005) which focused only on road infrastructure for poverty reduction
of China and concluded that low type roads have more impact on poverty reduction.
The variables of PS and PHOND are not significant but have expected sign, whereas
the variables of ELECT, GAS and BHUD have been proved significant at 1% level
which shows important implications not only for result relating to vector of
community characteristics but also for its comparative analysis with vector of
household characteristics.
9.3.2 Estimation Results for Provinces
In the followings, now we may represents result of our analysis for
provinces of Pakistan. In the analysis, we have included all those variables which
have been analyzed in case of Pakistan, however, in case of Khyber Pakhtunkhawa,
the statistical package has shown syntax error for ELECT variable, so, we are unable
to include this variable in the model for Khyber Pakhtunkhawa, otherwise, we have
analyzed the same model as we have analyzed in case of Pakistan so that a better
comparison could be presented.
9.3.2.1Estimation Results for Balochistan
The model is overall good fit in the sense that it shows the value of
215
McFadden R2 equal to 0.18 while having LR-statistic equal to 259.41 at a significance
level of 1%.
In case of vector relating to household characteristics, in our analysis
the variable of HHHG has shown a negative relationship with the dependent variable
as against the hypothesis mentioned in Table: 8.1, but this variable has been proved
insignificant, therefore, no further need to justify the result for its conflicting
relationship because in our data set it has no importance for analysis. The variables of
HHHA, HHHE, and PR have shown a negative relationship with poverty and
confirmed our hypothesis. Similarly, the variables of HHS and DR show a positive
sign as per expectation on the basis of hypothesis. So far as significance of all these
variables is concerned, they have been proved significant at 1% level.
When we observe the vector of community characteristics we find that
the variable of ROAD has been proved insignificant because C, ROAD2, and ROAD3
are insignificant. Similarly, GAS, PS and PHOND have also been proved
insignificant. The signs of GAS and PHOND are as per expectation whereas the sign
of PS has been shown against hypothesis mentioned in Table: 8.1. As the variable of
PS has been proved insignificant in our data set, therefore, it has loose its importance
for analysis purposes. Whereas the variable of ELECT has been proved significant at
1% level and the variable of BHUD has show a significance level of 5%. So far as
the relationship of ELECT is concerned, we find that it has shown the expected
relationship i.e. improvement in Rural Development in shape of infrastructural
development of rural areas has been proved beneficial for poverty reduction. On the
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Results For Balochistan
Independent
Variables
C 1.010031 1.363835 0.1726 2.746
HHS 0.070455 3.402095 0.0007 1.073
HHHA -0.023456 -4.060987 0.0000 0.977
HHHG 0.352714 0.55965 0.5757 1.423
HHHE -0.134659 -6.816251 0.0000 0.874
PR -2.881777 -6.120465 0.0000 0.056
DR 0.364478 4.017472 0.0001 1.440
ROAD2 -0.342237 -1.365225 0.1722 0.710
ROAD3 0.204648 1.012229 0.3114 1.227
ELECT -1.201713 -5.286117 0.0000 0.301
GAS -0.150562 -0.439307 0.6604 0.860
PS 0.024053 1.002625 0.3160 1.024
BHUD -0.006378 -1.952375 0.0509 0.994
PHOND -0.00415 -1.142833 0.2531 0.996
McFadden R2 0.178138
Note : Odd = ex where x is the value of concerned coefficients
E-Views
217
other hand the variable of BHUD has not shown this behaviour. It has already been
found out in Chapter No. 6 that Balochistan is the least developed province of
Pakistan, hence, people of Balochistan, on account of lack of public health facilities,
has to rely on indigenous health facilities i.e. (HAKEEM, dispenser resided near their
vicinities etc), and their transaction costs have been saved. It may be a cause of
negative relationship of this variable with POVERTY in case of Balochistan.
9.3.2.2 Estimation Results for Khyber Pakhtunkhawa
The model which we use for the analysis of Khyber Pakhtunkhawa has
shown that McFadden R2 is equal to 0.13 whereas LR-statistic attains a value of
233.39 on a significance level of 1%. It could be easily assessed that model is good
fit because the impact of all the independent variables simultaneously is significantly
different from zero.
The vector of household characteristics shows that variable of HHHG
is not significant. The variable of HHS is significant at 5% level and all other
variable of household characteristics has been observed to be significant at 1% level.
So far as the relationships of the independent variable relating to household
characteristics, are concerned it could be noticed that all the variables show expected
signs. The variables of HHS and DR have inverse relationship while variables of
HHHA, HHHG, HHHE and PR have direct and positive relationship with POVERTY.
Now we may also take a look over the vector of community level
characteristics to be exploited by the households. The variable of ROAD has been
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Results For Khyber Pakhtunkhawa
Independent
Variables
C -0.58159 -1.733394 0.0830 0.559
HHS 0.027108 2.026912 0.0427 1.027
HHHA -0.017815 -3.727511 0.0002 0.982
HHHG -0.126319 -0.654083 0.5131 0.881
HHHE -0.095151 -5.880756 0.0000 0.909
PR -1.37206 -4.573823 0.0000 0.254
DR 0.354856 5.975596 0.0000 1.426
ROAD2 -0.246113 -0.779225 0.4358 0.782
ROAD3 0.151896 0.898826 0.3687 1.164
GAS -0.061423 -0.252283 0.8008 0.940
PS -0.020609 -1.331962 0.1829 0.980
BHUD 0.012373 3.033095 0.0024 1.012
PHOND 0.021347 3.101419 0.0019 1.022
2
McFadden R 0.124851

Estimated computed by authors on the basis of data collected through PSLM [GoP (2005-06)] using
E-Views
219
proved as insignificant because both the variables i.e. ROAD2 and ROAD3 are
insignificant. However, impact of un-paved road has been observed as highest one.
Even the relationships of the variables of GAS and PS has been noticed to be inverse
with POVERTY as per expectation but, these two variables have also been proved as
insignificant. The variable of BHUD has a positive sign and has direct relationship
with POVERTY as per our expectation because more is the distance of basic health
unit from the household’s vicinity, less will be Rural Development, and higher will be
the chance for household to be poor. The variable of BHUD is significant at 5%
level. Similarly, the variable of PHOND is significant at 5% level and has a direct
relationship with POVERTY.
9.3.2.3Estimation Results for Punjab
Now we may look at the analysis for Punjab. Goodness of the model
fitted for the analysis has been shown by the value of McFadden R2, which is equal to
0.18. On the other hand the value of LR-statistic has been equal to 709.16 with a
significance level of 1%. These values are sufficient to say that overall the model is
good fit on our data.
A look over the vector of household level characteristics shows that the
variable of HHS is significant at a level of 10%. On the other hand the variables of
HHHA, HHHG, HHHE, PR and DR are significant at 1% level. This analysis is
mostly similar to our analysis conducted for the data of Pakistan because expected
signs of all the variables could be noticed easily in Table: 8.5. The variables of
HHS and DR have inverse relationship whereas the variables of HHHA, HHHG,
HHHE and PR have direct and positive relationship with POVERTY and same are
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Results For Punjab
Independent
Variables
C 0.993851 2.816362 0.0049 2.702
HHS 0.024484 1.853052 0.0639 1.025
HHHA -0.025332 -7.221526 0.0000 0.975
HHHG -0.441472 -3.314442 0.0009 0.643
HHHE -0.149831 -11.689310 0.0000 0.861
PR -1.791729 -9.027337 0.0000 0.167
DR 0.444364 9.537766 0.0000 1.559
ROAD2 -0.166913 -1.089476 0.2759 0.846
ROAD3 0.722341 4.806925 0.0000 2.059
ELECT -0.429975 -1.788880 0.0736 0.651
GAS -0.594057 -3.005547 0.0027 0.552
PS 0.029806 1.889761 0.0588 1.030
BHUD 0.011636 3.397684 0.0007 1.012
PHOND -0.016188 -0.944128 0.3451 0.984
McFadden R2 0.176807

E-Views
221
statistically significant for the data set which we have employed for the province of
Punjab.
Now we may evaluate the vector of community characteristics shown
in the Table: 8.5 for Punjab. The variable of ROAD2 is insignificant, while the
variables of ROAD3 and ROAD1 (reference category) are significant at 1% level. So
far as relationship of the ROAD variable is concerned, it is in line with the analysis
conducted for whole of the PAKISTAN, and same is justified in the light of study
conducted by Fan et al (2005). It is observed from the analysis that un-paved road has
been proved more beneficial than matelled road. The variables of ELECT and GAS
have shown the expected relationship with POVERTY that if households have these
facilities in their vicinity, then less is the chance for households to be poor. The
variable of ELECT is significant at 10% level while the variable of GAS is significant
at 1% level. Against our expectation, the variable of PS has shown a positive and
direct relationship with the POVERTY which means that if the number of primary
schools in the vicinity of the household is high, then more is the chance for household
to be poor. The variable of PS is also significant at 5% level. Such a relationship is
surprising and we find no reasoning to justify the result. However, we may suppose
that in case of PS variable, by replacing the sample selected for Punjab or by
increasing the number of observations of the sample, the relationship of PS with
POVERTY may be obtained as inverse and negative. The reason behind this
supposition is that for the data sets of Balochistan and Khyber Pakhtunkhawa, this
variable has been proved insignificant whereas for data sets of Sindh (a different
sample) and Pakistan (an increased sample), the variable of PS has been proved
statistically significant and has an inverse and negative relationship with POVERTY.
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The variable of BHUD is significant at 1% level and has expected relationship with
POVERTY. On the other hand the variable of the PHOND has unexpected
relationship because it shows that as the distance of phone shop from household
vicinity is increased (i.e. low rural development), less is the chance that household
will be poor. However, such an unexpected relationship has not been proved
statistically significant, therefore, the result of PHOND for this analysis has lost its
importance.
9.3.2.4 Estimation Results for Sindh
When we look at the Table: 6.6 for goodness of fit of the model, we
find that overall the model is good fit because the value of McFadden R2 has been
observed as 0.19 while LR-statistic attains the value of 412.63 with a significance
level of 1%. These values are sufficient to believe that in case of province of Sindh,
all the independent variables of the model simultaneously have a significant and
reasonable impact over POVERTY.
As usual first of all we may evaluate the vector of household characteristics. In case
of Sindh, this vector has been proved significant and behaved as per our expectations
in this regard. The variables of HHS and DR are significant at 1% level and have
shown to be a positive relationship with POVERTY as per our expectation on the
basis of hypothesis mentioned in Table: 8.1. The variables of HHHA, HHHE and PR
are also significant at 1% level and their relationship with POVERTY is negative and
inverse which supports our hypotheses in this regard. On the other hand even the
relationship of variable HHHG is in line with the hypothesis but this variable has
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Results For Sindh
Independent
Variables
C -0.225174 -0.31227 0.7548 0.798
HHS 0.133874 7.911255 0.0000 1.143
HHHA -0.025678 -5.247339 0.0000 0.975
HHHG -0.47549 -0.768403 0.4422 0.622
HHHE -0.13247 -8.659035 0.0000 0.876
PR -1.391119 -4.925703 0.0000 0.249
DR 0.616496 8.113381 0.0000 1.852
ROAD2 -0.353261 -0.977595 0.3283 0.702
ROAD3 0.23007 1.18951 0.2342 1.259
ELECT 0.081104 0.333118 0.7390 1.084
GAS -0.323303 -1.386594 0.1656 0.724
PS -0.042674 -2.394501 0.0166 0.958
BHUD 0.013483 3.074438 0.0021 1.014
PHOND 0.032243 2.949641 0.0032 1.033
2
McFadden R 0.190552
x
Note : Odd = e where x is the value of concerned coefficients
E-Views
224
been proved insignificant in our data set for the province of Sindh. These results are
shown to be similar to the results of the analysis conducted for the data set of
Pakistan.
So far as the vector of community level characteristics is concerned we
find that the variable of ROAD has been observed to be insignificant because all the
attributes of this variable i.e. ROAD1, ROAD2, and ROAD3 are evident to be
insignificant in Table: 8.6.
The variable of electricity has shown a positive relationship against our
hypothesis in this regard but it has been proved statistically insignificant in the
analysis. The relationship of the variable of GAS is even as per expectation but same
has also been noticed as insignificant. The variable of PS has a negative and inverse
relationship with POVERTY, which is not only in line with our hypothesis mentioned
in Table: 8.1 but also statistically significant at 5% level. Statistical significance of
the variables BHUD and PHOND has been proved at 1% level as mentioned in Table:
8.6 and relationship of these variables with POVERTY is evident to be positive and
direct. Such a relationship supports our hypothesis that as the distance of household’s
community from phone shop and basic health unit is increased, Rural Development
will be lower, and more will be the chance for household to be poor.
9.4 CONCLUSION
In this chapter we take into consideration the role of infrastructural
development for poverty reduction of rural households. First of all we may discuss
the analysis for whole data set i.e. data set of Pakistan. In this regard we find that
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vector of household’s characteristics i.e. household size, household head’s age,
household head’s education, household head’s gender, participation ratio and
dependency ratio, have played a vital role for poverty reduction of the rural
households. On the other hand the vector of community level characteristics also
played their role for poverty reduction but comparatively their relationship with
poverty reduction is a little bit weak than the vector of household’s characteristics.
The conclusion of comparatively weak relationship of community level characteristics
with poverty reduction of rural areas is due to the reason that we have employed six
variables for measuring impact of infrastructure on rural poverty reduction but only
three variables have shown their statistical significant impact on poverty reduction i.e.
electricity, gas and basic health units. On the other hand, the statistical relationship of
the roads variable with poverty reduction has also been proved to be partially
significant. So far as the core vector of community level characteristics is concerned
electricity and gas has been proved to be most important variables for poverty
reduction of households. We conclude this on account of the marginal effects of
electricity and gas while observing the values of odds as 0.67, and 0.69 respectively.
Lower value of odd points out that probability of a household to be poor is lower than
its probability to be non-poor i.e. there is more likelihood for a household to be non-
poor. The variables of electricity and gas contribute significantly for expansion of
economic activity of any region on account of their force for improving production
activities of farm and non-farm sectors of rural areas. Consequently the enhanced
economic activity leads toward better income sources which ultimately helps
households to fight against the giant of poverty.
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Now we may put light on province wise analysis regarding the
relationship of infrastructure with poverty reduction in rural areas of Pakistan. In line
with the analysis conducted for whole the data set of Pakistan, the province wise
analysis also confirms the comparative weakness of relationship of rural
infrastructural development with rural poverty reduction because household’s level
characteristics have proved to be more significant than community level
characteristics. Either we may talk about Balochistan, or Khyber Pakhtunkhawa or
Punjab or Sindh, the obvious result of the analysis is the strong role of household
level characteristics for poverty reduction of rural areas. This does not mean that
there exists no role of community level characteristics for poverty reduction. The
analysis also shows the important role of community level characteristics in shape of
rural infrastructure but in comparative sense its role is secondary in nature because
primarily we found the role of household level characteristics.
Lastly when we focus on each province separately for role of rural
infrastructure in rural poverty reduction then we observe that for Balochistan,
electricity has played a vital role for poverty reduction while showing the lowest
value of odd i.e. 0.33. In case of Khyber Pakhtunkhawa, the role of health
infrastructure and telecommunication infrastructure has shown to be comparatively
most important (with odds equal to 1.01) among all infrastructural variables. So far as
the province of Punjab is concerned, we can observe that the rural infrastructure
relating to gas and electricity has proved to be comparatively more effective for rural
poverty reduction than other infrastructural variables of the analysis. On the other
hand in province of Sindh the rural infrastructure of education sector has the highest
impact on poverty reduction of rural areas while the variables of health and
227
telecommunication infrastructure has also been noticed as important variables in this
regard. Again we can notice that the data set with larger number of observations (i.e.
the data set of Punjab) has the force to affect analysis of whole data set i.e. analysis of
Pakistan because both stress that the gas and electricity are important variables for
poverty reduction in rural areas of Pakistan. But simply on this account we cannot
ignore the importance of province wise comparative analysis because as earlier
mentioned that such an analysis could be able to point out specific and different
infrastructural variable to play its role for poverty reduction of each province of
Pakistan as we have already observed in above discussion.
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CHAPTER 10
CONCLUDING REMARKS AND POLICY
IMPLICATION
10.1 INTRODUCTION
In this study we have investigated the status of rural infrastructural
development in Pakistan along with exploring the impact of rural infrastructural
development on economic growth and poverty reduction with special reference to
rural areas of Pakistan. The study has been divided into two main sections i.e. section
related to helping material and the section discussed core part of the thesis. Section of
helping material comprises of four main chapters. In Chapter No. 1, we introduce
main theme of the study along with discussing the objectives of the study. Chapter
No. 2 attempts to analyze the economy of Pakistan within the background of the
subject matter of the study. So far as the review of literature is concerned, in Chapter
No. 3 we try to assemble important, recent, and available evidences not only from all
over the World but also from Pakistan. This chapter may be helpful to represent the
foundation of the study on the basis of the renowned and prominent research in this
regard. Lastly, in Chapter No. 4 of the helping section of the study we endeavor to
analyze the theoretical background of our study and discussed important theories
which support our hypothesis. Core analysis of this study has been divided into five
chapters. In Chapter No. 5, we briefly discussed issues related to datasets and
methodologies to be utilized in this study. After this chapter, we represent our core
229
analysis in four chapters i.e. Chapter No. 6, Chapter No. 7, Chapter No. 8 and Chapter
No. 9. In these chapters we utilize time series and cross-sectional data sets to perform
descriptive and inferential analysis at macro and micro level. This last chapter of
study comprises of conclusions and policy implication drawn on the basis of core
analysis of the thesis. Brief conclusions have already been drawn in the concerned
chapters, however, keeping in view convenience and easement of the readers now we
may represent and rearticulate the conclusions in a sequence.
10.2 RURAL DEVELOPMENT IN PAKISTAN
In chapter No. 6, we analyze status of rural development in Pakistan.
Our main findings are as under:-
i) After analyzing the facts and figures we reach to the conclusion that
overall the status of rural development in Pakistan could be termed as
poor because most of the public services have not been available to
rural inhabitants in their area of residence. If the services are available
within the vicinities then these services are not sufficient to improve
the quality of life in rural communities of Pakistan.
ii) When we focus rural life of the people, we observe two types of
facilities to be available to rural communities. One is available
naturally, and other is available with human efforts. Naturally
available facilities are not only available sufficiently but also
distributed equally among the provinces whereas in case of man made
public facilities in shape of rural infrastructure we could easily observe
230
not only the poor state of rural development in Pakistan but also the
unequal distribution of public facilities among provinces.
iii) The public services which are not available within the rural vicinities
have been noticed to be available on average at a distance of 28 KM
from the area of residence of rural populace, which is also an obvious
sign of underdevelopment of the rural areas of Pakistan.
iv) It could also be perceived from facts and figures presented in Chapter
No.6 that most of the public services are not available to more than
half of the MOUZAs within the range 10 KM from their area of
residence. If we limit the range to 1 K.M than except education,
transport and electricity again no other service is available even to half
of the MOUZAs in Pakistan.
v) So far as we talk about spatial distribution of rural infrastructural
development among the provinces of Pakistan we find the skewed
distribution of rural infrastructure while favouring the province of
Punjab and pointing out the province of Balochistan as
disadvantageous region in this regard. On the other hand a moderate
level of rural infrastructure is available to the provinces of Sindh and
Khyber Pakhtunkhawa. Unequal distribution among different regions
is again an apparent symbol of underdevelopment of the rural
communities of Pakistan.
231
10.3 IMPACT OF RURAL DEVELOPMENT ON ECONOMIC
GROWTH OF PAKISTAN
As we want to find out the impact of rural infrastructural development
on economic growth of Pakistan. For this purpose we conduct the analysis at two
levels i.e. micro and macro. At micro level (in Chapter No. 7) we utilize rural
household’s income as dependent variable for representing the economic growth at
micro level because household’s income has the force to create variations in economic
growth while at macro level (in Chapter No. 8) we take into consideration the
economic growth itself as dependent variable so as to verify our analysis conducted at
micro level. Therefore, we represent findings of these two analyses in the
followings:-
10.3.1 Micro Analysis: Impact of Rural Infrastructural

Development on Rural Household’s Income
i) Our analysis regarding Pakistan notifies that household’s
characteristics (household size, household head’s education, household
head’s gender, household head’s age and value of livestock) along with
community level characteristics (matelled road, electricity, gas,
primary schools and basic health units) have a considerable role for
augmentation of rural household’s income. However, it has been
further found out that electricity and gas could be termed as most
important variables in this regard because marginal effects of these
variables are noticed to be highest.
232
ii) When we focus our attention towards comparison of household level
characteristics and community level characteristics for playing their
role in enhancing rural household’s income, again we find that
community level characteristics have proved to be secondary factors in
this regard. This does not mean that rural infrastructural variables have
no role for income augmentation of rural households. Even, these
variables have shown an important role for this purpose but these have
been recognized as comparatively less significant relative to household
characteristics.
iii) The disaggregated analysis on the basis of provinces wherein we
explore the determinants of rural household’s income, also supports the
findings presented in Para No. (i) & (ii) above that rural infrastructural
variables even have the force to enhance household’s income but these
variables are statistically less significant than the variables of
household’s characteristics.
iv) Out of the disaggregated analysis we also notice that for the province
of Punjab the availability of electricity and gas in rural communities
has the robust impact on rural household’s income. In case of Khyber
Pakhtunkhawa and Balochistan, the analysis points out the variables of
electricity and primary schools as most important in income
augmentation of rural households. In contrary to all the other
provinces, the analysis regarding the province of Sindh presents the
233
variables of telecommunication and health institution to have highest
marginal effects for rural household’s incomes.
v) We also become aware of a shortcoming of disaggregated analysis that
when we analyze the provinces separately, then on account of large
number of observations the data set of province of Punjab has the force
to affect the analysis conducted for whole data set. We conclude this
on the basis of our findings attained through analysis of Pakistan and
analysis of Punjab because findings of Pakistan are similar to the
findings of province of Punjab. However just on behalf of this
shortcoming we could not ignore disaggregated analysis because on
the basis of disaggregated analysis we would be able to find out the
most important variable of rural infrastructure for each of the province
separately as we observed in Para No. (iv) above.
10.3.2 Macro Analysis: Impact of Rural Infrastructural

Development on economic growth of Pakistan
i) At macro level the variables of labour, capital, trade openness, and
rural infrastructural development (in shape of irrigation facilities) has
been detected to be the major determinants of economic growth in
Pakistan. So far as the variables of inflation, literacy rate and
expenditures for rural development are concerned, in our data set these
have been identified to be insignificant variables for economic growth.
234
ii) We also find that the vector of production function has played an
imperative role for economic growth of the country. The variables of
labour and capital have been proved to be core determinants of
economic growth in Pakistan.
iii) So far as impact of rural infrastructural development on economic
growth of Pakistan is concerned, we find that this vector has also been
proved an important factor in this regard because expenditure for
irrigation facilities have been proved to be statistically significant and
positively related with economic growth. But role of rural
infrastructure for growth enhancement of Pakistan is observed to be
secondary in nature because comparatively the vector of production
function may have shown a high level of significance in this regard.
10.4 IMPACT OF RURAL DEVELOPMENT ON RURAL

POVERTY ALLEVIATION OF PAKISTAN
In Chapter No. 9, we explore the topic for poverty reduction of
Pakistan at micro level and our findings are as under:-
i) Again we find that variables of household’s characteristics (household
size, household head’s age, household head’s education, household
head’s gender, dependency ratio, participation ratio) and community
level characteristics (electricity, gas, basic health units, and roads) have
shown significant impact on poverty reduction of rural areas of
Pakistan.
235
ii) So far as comparison of household level characteristics and community
level characteristics (rural infrastructural development) is concerned
we find that community level characteristics have secondary role for
poverty reduction while household level characteristics have played
primary role in this regard.
iii) Out of community level characteristics, the impact of gas and
electricity on poverty reduction of rural areas of Pakistan has again
been proved as highest as we have already observed in case of analysis
relating to impact of rural infrastructural development on household’s
income.
iv) Disaggregated analysis in this regard also supports our findings while
exploring the role of rural infrastructural development in poverty
reduction of rural areas. Community level characteristics have been
proved to be important determinants of poverty reduction but their role
for this purpose is of secondary nature.
v) Disaggregated analysis captures that for the province of Balochistan
electricity has been detected as most important infrastructure variable
to fight against the problem of poverty relating to rural areas. When
we talk about the province of Khyber Pakhtunkhawa, we find health
and telecommunication infrastructure as important one for this
purpose. For Punjab, these are the variables of Gas and Electricity
while for Sindh the variable of educational infrastructure (primary
schools) has been found to be most important determinant of poverty
236
reduction in rural areas of Pakistan. The shortcoming of disaggregated
analysis while affected by the data set with large number of
observations (i.e. data set of Punjab) is also detected in case of analysis
focusing determinants of rural poverty reduction at micro level in
Pakistan.
10.5 CONCLUDING PARAGRAPH
After a thorough look over above conclusions, we may end up our
conclusions in one paragraph as under:-
The rural infrastructural development in Pakistan has not attained an

adequate level. The status of rural infrastructural development could not
be termed as satisfactory and sufficient for improving the quality of life in
rural areas of Pakistan. Such an underdevelopment in provision of
infrastructure to rural areas of Pakistan has further been devastated by an
unequal distribution among different provinces of the country. Skewed
spatial distribution of infrastructural variable in rural areas of Pakistan is
an obvious result of the analysis which points out Punjab as most
advantageous region while Balochistan as most disadvantageous region in
this regard. So far as role of rural infrastructural development in
economic development of Pakistan is concerned, we find that rural
infrastructural development has the force to enhance economic growth of
Pakistan, to augment rural household s income and also to reduce poverty
in rural areas of Pakistan. It has also been noticed that role of rural
infrastructure for above mentioned objectives is that of secondary nature
with comparison to renowned determinants in this regard. Specifically,
availability of electricity and gas has been proved as the robust
infrastructure variables for obtaining these objectives in case of Pakistan.
We also find by disaggregated analysis of the data set that impact of
different types of variables in different provinces is different and for each
province a different type of infrastructural variable has been proved
237
important in enhancing economic growth, augmentation of rural
household s income and reducing rural poverty.
10.6 POLICY IMPLICATIONS AND RECOMMENDATIONS
Out of above analysis we may be able to recommend some suggestions
in this regard which may be proved helpful in designing the policies at government
level of Pakistan for the purpose of enhancement in economic growth, augmentation
of rural household’s income and rural poverty reduction in Pakistan. All the
suggestions have been mentioned while keeping in view these main objectives of
economic development in Pakistan. Our suggestions are just the guiding principles on
the basis of our contributions in this regard which we think to be proved useful for
obtaining these main objectives. We will not claim these suggestions as the firm,
solid and compact solutions in this regard. On the basis of our perception, we present
the suggestions in followings on the basis of their importance while following
descending order.
i) Now we live in a World of awareness and knowledge when it has
already come to surface that equality, empowerment, and freedom
without any discrimination are the basic right of humanity. Therefore,
rural populace has also these rights. Specifically when about 70 % of
the population lives in rural areas (as is the case of Pakistan), then
development of rural vicinities could not be ignored. It is crystal clear
from analysis in Ch. No. 6 that rural communities in Pakistan are
suffering from low level of rural infrastructural development.
238
Therefore, top most priority of the government should be the provision
of rural infrastructural development in rural areas up to an adequate
level so that rural inhabitants may be able to improve quality of their
lives.
ii) When we talk about role of public sector to attain millennium
development goals then in case of Pakistan we suggest not focusing at
rural infrastructural development as the first priority. On the basis of
our analysis we recommend that for enhancement of economic growth
first priority should be given to the variables of labour and capital at
macro level while at micro level the variables relating to household
level characteristics (i.e. household size, household head’s age,
education and gender, livestock, participation ratio, dependency ratio)
should be taken as first priority to be interfered so as to attain the
objectives of augmentation in rural household’s incomes and rural
poverty reduction because in our analysis it has been confirmed that
these renowned factors are comparatively more significant for
obtaining the main objectives than the variables of rural infrastructural
development.
iii) For the purpose of exploration the rural infrastructural development is
the main theme of this thesis. On the basis of our analysis we suggest
that to attain the main objectives of economic development in Pakistan
as mentioned above, we should take into consideration the variables of
infrastructural development at a second priority for policy designing of
239
the country in respect to millennium development goals because in this
study these variables have been observed to be secondary in nature for
obtaining these main objectives within Pakistan.
iv) Whenever the focus of government is to provide infrastructure
facilities to rural areas of Pakistan then we are of the point of view that
infrastructure utilized for the provision of electricity and gas should be
taken as top priority element of policy designing because these two
variables of infrastructure have been detected to have the force for
achieving the main objectives mentioned above. These variables of
infrastructure may have been proved useful in increasing economic
activities in rural areas of Pakistan.
v) As regards to provision of infrastructure on the basis of provinces of
Pakistan we suggest that for the province of Punjab provision of
electricity and gas should be taken as most important infrastructure so
as to reduce poverty and enhance rural household’s incomes. In case
of province of Sindh we recommend that the infrastructure of primary
schools to be helpful for poverty reduction while infrastructure of
telecommunication and basic health units may be useful for
enhancement of rural household’s income. So far as province of
Khyber Pakhtunkhawa is concerned we are of the point of view that
availability of infrastructure relating to telecommunication and basic
health units should have the highest importance to reduce poverty
while the availability of electricity and primary schools in the rural
240
vicinities should be at priority to augment rural household’s incomes.
The infrastructure of electricity should be provided to the province of
Balochistan for the purpose of poverty reduction while the
infrastructure of electricity and primary schools should be installed in
Balochistan so as to enhance incomes of rural households.
vi) Lastly we think it also important to suggest that at macro level quality
of data in Pakistan should be improved. Macro data should be
disaggregated not only on the basis of provinces but also on the basis
of urban and rural regions. The data relating to poverty should also be
the main focus of government in Pakistan because on the basis of this
data we may be able to perform poverty analysis which will be helpful
not only to explore the status of poverty but also to find out the impact
of different policies implemented for this purpose. After our analysis,
we find following main areas to be considered specifically by the
government of Pakistan:-
a) Availability of reliable time series data on poverty in

Pakistan.
b) Disaggregating macro data on the basis of rural and urban
regions.
c) Availability of district level data relating to consumption,

income and infrastructure in micro data sets such as HIES,
PSLM etc.
241
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In The Name of Allah, The Most Beneficent AND The Most Merciful

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IN THE NAME OF ALLAH,

THE MOST BENEFICENT

A Thesis Submitted to:

BAHAUDDIN ZAKARIYA UNIVERSITY, MULTAN

Under the Supervision of:

Professor Dr. Shahnawaz Malik

Rao Ishtiaq Ahmad,

I, Rao Ishtiaq Ahmad, a Ph. D Research Scholar in

(RAO ISHTIAQ AHMAD)

In this study we have three main objectives. First of all we want to

The rural infrastructural development in Pakistan has not attained an

So far as role of rural infrastructural development in economic

ACO Agricultural Census Organization

It was a laborious assignment! And it is a day of thanksgiving! First of all

thanksgiving to the Almighty ALLAH who enabled me to agglomerate this dissertation

Hazrat Muhammad (SAWAW) on behalf of whose personality I thought to choose the

will they ever be (In’Sha’Allah).

All the words of gratitude and veneration fall incapacitated to express my

I, however, would like to mention a few names of my family members

my brothers-in-law and sisters-in-law; Riasat Ali, Muhammad Pervez, Robina, Tahira,

special place in my heart for all of them.

I am also highly indebted to Dr. Babar Aziz (F.C College University,

Government) for their constructive, beneficial and up-to-the-minute preliminary help

during my research work.

It would be injustice if I will not mention here the ingenuous endowment

and Muhammad Akram Khan (Additional Agricultural Census Commissioner,

me leave in this regard.

RAO ISHTIAQ AHMAD

1.1 BACKGROUND OF THE STUDY

Economic Growth is the necessary but not sufficient condition for

economic development. In the absence of equitable distribution, even high economic

reduction. Out of different channels of equitable distribution, government’s role has a

significant position. Recently beneath Market-Friendly approach, it is recognized that

although ‘Free Market’ has a momentous job for economic development of

Government’s role for rural development is one of important elements to promote

pro-poor government spending has substantial effect on poverty reduction.

to be helpful in employment generation and productivity enhancement in both these

reducing poverty because it creates market disintegration in rural sector, it diminishes

opportunities of employment for rural inhabitants in farm and non-farm sectors, it

In earlier studies even infrastructural development was not the core

economic growth, capital formation, industrialization, public finance etc.

Rosenstein-Rodan (1943) discussed the problems of industrialization and described

be considered properly for promotion of industrialization in eastern and south eastern

European countries. Nurkse (1953) took into consideration the under-developed

should be broken for improvement in capital formation. Ekstein (1957) mentioned

different policy weapons for enhancement of economic growth and suggested

investment in public services as one of the important factors. Rostow (1959)

but it is lumpy in nature.

It is also found out that public intervention through infrastructure not

regional inequalities. Binswanger and Deininger (1997) mentioned poor

infrastructure as a core characteristic of rural areas. The infrastructure has been

to rural areas. While discussing importance of public investment for poverty

reduction depending upon agro-ecological characteristics of different zones. Keeping

sector has been recognized as an important measure of rural development.

Infrastructure can be divided into four major categories namely: Social

Infrastructure (education, health, sanitation etc), Agricultural Infrastructure

make expenditures in developing infrastructure for rural development. Improved

it promotes agricultural growth and then agricultural growth props up overall