Implications of De-Industrialization for Poverty and Income-Inequality in Pakistan

Abstract

Abstract This study endeavors to identify the dynamic link among growth, inequality and poverty, instigated from deindustrialization, in Pakistan over the time period 1970-2013. The Reduced-form Vector Autoregressive Model (VAR) is applied to estimate the empirical model. According to the results, trade openness has declining (mounting) impact on poverty (income inequality) over the specified time period. Moreover, the industrial sector share in GDP has appeared as a major contributing factor in tackling income inequality and poverty. This implies that the deindustrialization, as an emergent of trade liberalization, neutralizes the policy effect for income distribution and poverty in Pakistan. Besides, the Kuznet’s hypothesis has been proved to be true in case of Pakistan where GDP growth has led to increase in the income inequality. The role of industrial sector growth in tackling poverty and income inequality has emerged as vital but the move towards rapid trade liberalization has placed this sector in more competitive position and the persistent nature of income inequality has subdued the growth effects on poverty. The results underlie very pertinent policy to focus on the sector-specific growth in order to tackle the welfare issues. And a cautious move towards trade liberalization is also suggested.