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THE LAHORE JOURNAL

OF

ECONOMICS

Lahore School of Economics


Muhammad Aslam Khan

Poverty Reduction and Human Development: Issues and Strategy

Jawwad Noor

Contemporary Neoclassicism

and its Methodology

Rukhsana Kalim

A Measure of the Elasticity of Substitution in the Manufacturing Sector of Pakistan

Aqdas Ali Kazmi

A Study on Saving Functions

for Pakistan:

The Use and Limitations of Econometric Methods

Salman Ahmad

Forecasting Dual-Gap for Pakistan

Mohammad Afzal

Import Functions for Pakistan – A Simultaneous Equation Approach





Anjuman Mimaran

Concepts, Strategies and Proposals for the Development

of Urban Communities

Comment:

Ali Ataullah & Minh Hang Le


Interest and the Modern Economy:

A Reply

Note:

Qais Aslam


Pakistan’s Debt Position and the Question of Debt Retirement

Book Reviews:

Sumble Sharif Butt


The Quality of Growth

Shamyla Chaudry


Migration, Common Property Resources and Environmental Degradation: Interlinkages in India’s Arid and Semi-arid Regions

Nina Gera


Towards Good Governance

Volume 6, No.2



July-Dec, 2001


THE LAHORE JOURNAL

OF

ECONOMICS



Editorial Board

Dr. Shahid Amjad Chaudhry - Editor

Prof. Viqar Ahmed - Editor

Dr. Salman Ahmad - Editor

Ms. Nina Gera - Co-Editor

Editorial Staff: Tele. No: 5874385
Telefax: 0092 - 42 - 5714936
E-mail: les@brain.net.pk
Web address: www.lse.edu.pk
Publisher : Lahore School of Economics, Lahore, Pakistan.
Correspondence relating to subscriptions and changes of

address should be sent to The Lahore Journal of Economics,

105-C-2, Gulberg III, Lahore - 54660 - Pakistan
Instructions to authors can be found at the end of this issue.

No responsibility for the views expressed by authors and

reviewers in The Lahore Journal of Economics

is assumed by the Editor, the Co-Editor and the Publishers.



Copyright by: Lahore School of Economics


62001
THE LAHORE JOURNAL OF ECONOMICS

Contents Vol. 6, 2001




Poverty Reduction and Human Development: Issues and Strategy 1

Muhammad Aslam Khan

Contemporary Neoclassicism and its Methodology 33



Jawwad Noor

A Measure of the Elasticity of Substitution in the

Manufacturing Sector of Pakistan 43

Rukhsana Kalim

A Study on Saving Functions for Pakistan:

The Use and Limitations of Econometric Methods 57

Aqdas Ali Kazmi

Forecasting Dual-Gap for Pakistan 103



Salman Ahmad

Import Functions for Pakistan – A Simultaneous Equation Approach 109


Mohammad Afzal

Concepts, Strategies and Proposals for the development

of Urban Communities 117

Anjuman Mimaran

Comment:

Interest and the Modern Economy: A Reply 131



Ali Ataullah & Minh Hang Le

Note:

Pakistan’s Debt Position and the Question of Debt Retirement 137



Qais Aslam

Book Reviews:

The Quality of Growth 163


Sumble Sharif Butt


Migration, Common Property Resources and Environmental

Degradation: Interlinkages in India’s Arid and Semi-arid Regions 167


Shamyla Chaudry


Towards Good Governance 169

Nina Gera


Poverty Reduction and Human Development: Issues and Strategy

Muhammad Aslam Khan1


Growth is vital to reducing all aspects of poverty… But growth unaccompanied by other measures may neither boost the income of the poor much, nor lead to much progress on the non-income aspects of poverty. On both counts, human development progress has a part to play.”(Poverty and Human Development, World Bank, 1980, p. 63)

Abstract

The paper assesses trends in poverty and improvements in the material conditions of life of millions of people living in poverty and human deprivation. It discusses the growth and poverty dimensions and associated structural problems. Determinants of poverty in Pakistan are discussed with a view to identify areas of intervention and public policies. Poverty reduction and human development programmes are discussed to show that pumping financial resources to address the issue of poverty is not a correct strategy for poverty reduction and human resource development. The paper discusses the poverty reduction strategy to assess government commitment to poverty reduction and human resource development in a sustainable manner. It concludes that poverty reduction and human development in Pakistan is dependent on many factors particularly the strengthening of institutional capacity and availability of human and financial resources.

Introduction

Reducing poverty, in its income and human development manifestations, is the over-arching objective of development. Development has its core transformations in economic activity, living conditions and values (Lewin, 2000a). Food security, basic education, freedom from disease and adequate nutrition are basic human needs that should be met for improvements in the material conditions of life (Lewin, 2000b). Poverty has many faces. Its magnitude, however, varies with its definition. Widespread literature on the issue has provided various explanations of poverty. For example, poverty is viewed as deprivation in well-being (World Bank, 2000); lack of resources to obtain the minimum necessities of life (Kakwani, 2001); a person is poor if his/her welfare or utility level falls below a certain level (Barr, 1993; Goedhart, T., Halberstadt, V., and van Praag, 1977); capability deprivation (Sen, 1987); lack of real opportunity of access to food (Sen, 1998), access to adequate source of nutrition (Reutlinger and Selowsky, 1976; Sukhate, 1977; and Srinivasan, 1981). According to the voices of the poor, poverty is much more than a simple explanation (Narayan, 2000). It is vulnerability of a person or a group of people to adverse events outside their control (World Bank, 2001).

Pakistan has achieved remarkable economic progress in terms of both growth in gross domestic product (GDP) and structural changes in the composition of output. Real GDP has grown at an annual average rate of above 5.5 per cent since the 1960s. Performance in the key sectors during this period has generally been satisfactory (Figure 1). Manufacturing value-added has grown at more than 7 per cent per annum. The service sector has achieved an annual average growth rate of 6.1 per cent, while the growth of agricultural value-added averaged 4.2 per cent per annum (Government of Pakistan, 2001). Per capita income has increased from less than US$100 in 1956 to US$470 in 1999 (World Bank, 2000).



Figure 1: Growth rates of GDP and key sectors



Source: Government of Pakistan, 2001. Pakistan Economic Survey 2000-01, Ministry of Finance, Economic Adviser’s Wing, Islamabad: Government of Pakistan.

Notwithstanding this generally good performance, the economy has not done as well as it could have. Growth has not been uniform. It failed to ‘trickle down’ to the poor and as a result social inequalities widened (Haque and Montiel, 1992). Evidence from various sources suggests that poverty in Pakistan since the early 1990s is rising. The prime reason of increase in poverty in the 1990s is attributable to the relatively low rate of economic growth (implying a slow increase in per capita income) coupled with rising unemployment and level of cost of living (Planning Commission, 2001); pressure of population growth on goods and services and social deprivation, which include access to physical and social assets such as certain quantity of food, land, health care, education, drinking water, and sanitary facilities. Low investment in human resource development also intensifies the poverty problem (ADB, 1997).

After 52 years into the life of Pakistan, the country is still faced with the problem of weak social indicators. Even now almost every indicator of well-being such as literacy, education, health, nutrition, safe drinking water and sanitation, access to family planning services compares poorly with countries at the same level of per capita income (Appendix-I). Pakistan has a low level of adult literacy with some 52 per cent of the population over 10 years being literate. Illiteracy is particularly high for the poor and especially women and girls. This comprises 20.6 million males and 29.4 million females (HDC, 1999). The country, in terms of the human development index (HDI) is ranked 138 out of 174 countries (UNDP, 1999). Pakistan also fares worse on all the six dimensions of governance (less government effectiveness, more graft, political instability, more regulatory burden, less rule of law and less accountability) measured by Kaufmann et al. 1999b.

A number of studies have measured and defined poverty in Pakistan. Most of these studies measured poverty in absolute terms based on income or consumption as the assessment basis. The calorie-based approach used widely to determine poverty, however, differ significantly for methodologies and assumptions used (Appendix-II). These studies suggest that poverty in Pakistan increased rapidly in the 1960s, then declined sharply in the 1970s up to mid-1980s and began to increase again from the late 1980s (Naeem, 1973, Irfan and Amjad, 1984; Amjad and Kemal, 1997; Jafri, 2000, Qureshi and Arif, 2000). Using the same approach and consistent time series data and 2150-calorie average per adult equivalence calories requirements, it has been observed that between 1986-87 and 1999-2000 poverty has increased rapidly from 21.3 per cent in 1996-97 to 30.0 per cent in 2000-01 (Figure 2). The incidence of poverty is higher in rural areas compared to urban areas.



F
igure 2: Poverty incidence – headcount (%)

Source: Appendix III.


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