Decomposition of changes in poverty measures: Sectoral and institutional considerations for the poverty reduction strategy paper of Pakistan

Abstract

This paper aims at developing a better understanding of the measured changes in aggregate poverty in Pakistan between 1979 and 1998-99 to explore the fundamental premises of an appropriate poverty reduction strategy for Pakistan. In devising an effective approach to anti-poverty policy, the Pakistan government's Poverty Reduction Strategy Paper, PRSP, is taken as the starting reference. The paper utilises certain theoretical advances in poverty decomposition. The "sectoral decomposition" of changes in poverty decomposes the changes in poverty in Pakistan into intrasectoral effects, intersectoral population shifts and their interaction. The "growth-equity decomposition" of a change in poverty quantifies the relative contribution of growth versus redistribution to changes in poverty measures. The quantitative significance of the sectoral impact of poverty on the rural population from the sectoral poverty decomposition technique strongly suggests the need for more targeted interventions for combating rural poverty. Notwithstanding the importance of redistributional measures, the growth-equity poverty decomposition technique emphasises the relatively greater importance of consumption growth in poverty alleviation. The paper acknowledges that the approach of the PRSP is well focused. However, a more comprehensive and coordinated strategy for addressing rural poverty in Pakistan is outlined in the study. The paper also stresses the necessity to overcome the prevailing governance crisis to lay the foundation of a successful poverty reduction strategy in Pakistan. In this context, it argues that the key problem areas that have emerged in the implementation of Pakistan's new "Devolution Plan" are related to the lack of funds, capacity and systems.