Influencing Factors of Poverty in Pakistan: Time Series Analysis

Abstract

Poverty is one of the emerging problems being discussed and debated in various developed and developing countries including Pakistan. This study investigates influencing factors of poverty in Pakistan and discusses the theoretical linkages between poverty and its main macroeconomic variables. For this Johansen co-integration technique has been applied with multi diagnostics tests. The macroeconomic variables taken in this study are agricultural ratio to GDP, ratio of Foreign Direct Investment (FDI) to GDP, ratio of the primary education, ratio of the domestic credit to private sector and military expenditure as percentage of GDP. Results of the study show that all these variables have significant effect on poverty. In the case of agricultural ratio to GDP, an increase in agricultural output leads to decrease poverty. Education enrollment also has significant negative impact on poverty in long run. It helps in reducing poverty and improving the socio economic status of both the individuals as well as the society. Domestic credit has also significant negative impact on poverty but military expenditure has significant positive impact on poverty in Pakistan. Keywords: Headcount Index, Foresing Direct Investment, Economic Growth, Pakistan, JEL Classifications: C50, I32, E60, E62