THE POLITICAL ECONOMY AND REGINAL DISPARITIES IN PAKISTAN

A disparity between the standards of living applying within a nation. Then it is difficult to quantify the prosperity or poverty of a region.

Regional disparity in Pakistan: In Pakistan, historically, regional economic disparity has been an important political

issue. During the 1960's the economic disparity between East and West Pakistan fuelled the movement for provincial autonomy in East Pakistan and subsequently the movement for national independence in what became Bangladesh in 1971.During the late 1970's and 1980's the issue of regional disparity between the provinces of what remains of Pakistan has acquired an explosive potential. However, this is an issue that has been charged by emotion, and it may be time now to begin a serious analysis to enable effective policy formulation for overcoming the problem. It is important to note that not only does the overall growth rate of provincial income vary between provinces but recent research sug- gests that there is also considerable inter-provincial variation in the level of poverty and changes over time. What is interesting is that the pattern of variation in the inter-provincial economic growth rates may not be congruent with the pattern of variation in the inter-provincial poverty levels. Therefore, the emotional charge of regional identities mobilized on the basis of differing regional economic growth rates could be mitigated by the fact that a province like the Punjab for example, with a relatively high provincial growth rate also has a relatively high level of poverty measured in terms of the percentage of population below specified calorific norms. TH MECHANISM The early studies on regional disparities focused on economic inequality between EastWest Pakistan. The first major study on regional disparity within (West) Pakistan was 1

conducted by Hamid and Hussain in which they estimated district-level value added in large scale manufacturing and agriculture, and also district level economic and social infrastructure. The study showed that not only inter-provincial inequality increased over time, but also the degree of inequality within provinces accentuated. What was interesting was that the regional disparity was positively correlated with the level of growth, i.e., the rank ordering of intra-provincial inequality was congruent with the rank ordering of provincial growth rates. The study indicated that when growth occurs within the framework of the market mechanism there is a cumulative tendency for the relatively developed regions to grow faster than the relatively less developed regions. The developed regions enjoy internal and external economies, and advantageous for further investment. The in specific regional factors growth underlying cumulative of divergence increased communications, trained manpower, in the attractiveness of regions for further facilities, public utilities, technical investment and hence know- how, disparity banking and lower costs of production relative to other regions which make the initiating region cumulatively more

rates are: Concentration as growth

maintenance facilities. Conversely, adversely affecting

is concentrated skill and

in the developed region, thereby

region, it pulls capital and skilled labour the age composition, backward areas.

from the backward

capital endowment of the

CHANGE IN SPATIAL CONCENTRATION OF INDUSTRY The evidence shows that in 1959-60, as much as 39 percent of the value added in industry is accounted for by Karachi. This is followed by Lahore and Faisalabad. These three districts together accounted for 60 percent of the value added industry. The rest of the industry was fairly evenly distributed across the local core and the inner periphery. Over time the local cores, inner periphery and outer periphery all gained at the expense of the national core, although at the end of the period, Karachi still accounted for 35 percent of value added in industry, and the Central Punjab districts constituted 19 percent. In Central Punjab the most rapidly industrializing district is Sheikhupura, in northern Punjab it is Jhelum, and in Sind the most dynamic district in terms of industrial growth is Dadu. 2

INCIDENCE AND INTENSITY OF POVERTY: THE REGIONAL DIMENSION In 1991 a recent paper, Aly Ercelawn has estimated both the incidence and the intensity of poverty in each of the provinces of Pakistan for rural and urban households respectively. This has been done by first specifying the minimum expenditure required for a daily intake of 2550 calories per adult equivalent, using existing dietary patterns. The calorie-expenditure function on the basis of which the expenditure norm was derived allowed for both provincial and locational differences. The incidence poverty indicated the percentage of households below the poverty line. Poverty line is defined as the expenditure below that required for a calorific intake of 2550 calories daily per adult equivalent. The intensity of poverty estimates were based on the widely recognized proposition that an intake of between 70 to 80 percent of the calorific norm over a sustained period constitutes very high risk of starvation and undernourishment. The results of Ercelawn's study suggest that in Pakistan, the incidence of poverty highest in the Punjab and lowest in the NWFP. The percentage of households below the Punjab, poverty 27 line in rural areas are approximately 31 percent in percent in Baluchistan, 18 percent in Sind and 15 percent in NWFP.

In urban areas while Punjab has the highest incidence of poverty, Sind has the lowest.4 Thus the percentage of urban households below the poverty line are approximately 25 percent in Punjab, 23 percent in Baluchistan, 14 percent in NWFP and 0 percent in Sind. If we define the intensity of poverty as the percentage of households unable to acquire more than 75 percent of the calorific norm, then Ercelawn's estimates show that for the rural areas the intensity of poverty is highest in Baluchistan and lowest in Sind. The percentage of households unable to reach 75 percent of the calorific norm in rural Pakistan is 19 percent in Baluchistan, 10 percent in Punjab, 12 percent in NWFP and 6 in Sindh. Disparity in Health Sector: The factors determining the health behaviors may be seen in various contexts: physical, socio-economic, cultural and political. Therefore, the utilization of a health care system, 3

public or private, formal or non-formal, may depend on socio-demography factors, social structures, level of education, cultural beliefs and practices, gender discrimination, status of women, economic and political systems environmental conditions, and the disease pattern and health care system itself. A main driver for the health seeking behavior is the organization of the health care system. In many health care systems there is tension between the public and the private health sector. The private health sector tends to serve the affluent; thus the public sector resources should be freed for the poor. A dynamic cooperation, either formal or informal, between the two sectors is a must but the private sector is rarely taken into account in health planning scenarios. The public and private sector may complement or substitute for each other. There are very often resource mixes with doctors working in the public sector also establishing their own private practice. Features of the service outlet and confidence in the service provider also play a major role in decision making about the choice of health facility. Regional Disparity in Educational Sector in Pakistan: Pakistan emerged as an independent nation in 1947 breaking apart from India on the basis of a two-nation theory. The Muslim majority province of East Bengal (subsequently East Pakistan) joined Punjab, North-West Frontier Province, Sind and Baluchistan to form the undivided Pakistan. However, after a quarter-century of union with West Pakistan, the Eastern part of Pakistan broke away in 1971 As economic activity becomes increasingly knowledge based, disparities in educational opportunities opportunity enables the play poor a more to important role in determining the distribution of income and poverty. A greater equity in the distribution of educational capture a larger share of the benefits of economic growth, and in turn contributes to higher growth rates. In contrast, large-scale exclusion from educational opportunities results in lower economic growth and persistent Education income inequality. This research appraises Index (DEI) is prepared. Further, it education inequalities in Pakistan at the district level. To summarize district performance in terms of education, a District explores the socioeconomic inequalities in education by linking DEI with the

level of district economic development. Education helps to improve living standards and 4

enhance the quality of life, and can, thereby, provide essential opportunities for all. Many of the worlds states, through international conventions and commitments, have recognized education has education become as a human more important right. than In a rapidly ever. Faced changing with world, increasing need

globalization, the rapid spread of democracy, technological innovation, the emergence of new market economies, and changing public/private role, countries more highly educated and skilled populations, skills and information to compete and thrive. Typically, poverty and inequality are perceived of in terms of income. Differences in income and wealth matter because they define opportunities for reducing poverty. But differences in income reflect deeper inequalities in life-chances, including inequalities in education. Wide income disparities tend to coexist with under-investment in human capital that translates into lower long-run economic growth. The empirical evidence suggests that there is a high correlation between income and education levels, as well as between income and educational inequalities. The relationship between education and income equality is linked to the returns associated with education. Consider the present situation where the technological change and the globalization increasing relative demand for technologically skilled workers. If the demand for unskilled labor is contracting or growing at a slower rate than the demand for skilled labor, then wage inequalities will increase. The gap between rich and poor will then start to widen and income inequality will continue to grow. Moreover, if there is a large disparity in the educational opportunities between the rich and poor, mainly educated workers capture the benefits of economic growth. This, in turn, exacerbates income inequality. Beyond the discussion on the importance of education for economic growth, the value of education to the individual is so high that access to education is recognized as a human right in international law. Countries ratifying the United Nations (UN) convention on the Rights of the Child recognize the right to education on the basis of equal opportunity. 5 nature of trend are manifested by a rapidly and individuals need added

Therefore to promote this right to education, access should be provided without any discrimination. The characteristics to which discrimination in education list provision could should also be

linked are wide-ranging. Gender, ethnicity and disability are obvious examples and are explicitly mentioned by the UN Convention. But the include spatial discrimination in terms of low or no provision of education facilities. Literacy rate It needs to be highlighted that from census to census the definition of literacy has been undergoing a change; resultantly the literacy figure has vascillated irregularly during the last 5 census. An update of the five censuses is as under:

Year of Male census

Female Total Urban Rural

Definition being "literate"

of Age group

1951

19.2% 12.2% 16.4% --

--

One who can print in any language

read

clear

All Ages

1961

26.9% 8.2%

16.3% 34.8% 10.6%

One who is able to read with Age 5 and understanding a simple letter in any language above One who is able to read write in some language with understanding One who can and write a simple letter who can read and Age 10 and Above

1972

30.2% 11.6% 21.7% 41.5% 14.3%

1981

35.1% 16.0% 26.2% 47.1% 17.3%

newspaper Age 10 and Above a newspaper Age 10 and

1998

54.8% 32.0% 43.9% 63.08% 33.64% One 6

read

2004 2009

66.25% 41.75% 54% 69% 45% 57%

71% 74%

44% and write a simple letter, in any language 48% Above

Table below shows the literacy rate of Pakistan by province. Province Punjab Sindh KhyberPakhtunkhwa Balochistan Literacy Rated 20.7% 30.2% 1981 27.4% 31.5% 1998 46.6% 45.3% 2009 59% 59%

15.5%

16.7%

35.4%

50%

10.1%

10.3%

26.6%

45%

Table below shows the literacy rate of Federally Administered Areas. Literacy Rate

Region

1981 Islamabad 47.8%

1998

2007

72.88% 87% 55% 62%(2004)

Azad Kashmir 25.7%

Gilgit-Baltistan 3% (female) 37.85% 53%(2006) Tribal Areas 6.38% 17.42% 22%

School attendance Population aged 10 & over that has ever attended school, highest and lowest figures by region. Islamabad has the highest rate in the country at 85%, whilst Jhal Magsi has the lowest rate at 20%.

Province

Highest

Lowest Muzaffargarh and Rajanpur

Punjab

Rawalpindi (77%) (40%)

Sindh

Karachi (78%)

Jacobabad (34%)

Khyber-Pakhtunkhwa Abbottabad (67%) Upper Dir (34%) Balochistan Quetta (64%) Jhal Magsi (20%)

Gender disparity

Among other criticisms the Pakistani education system faces is the gender disparity in enrollment levels. However, in recent years some progress has been made in trying to fix this problem. In 1990-91, the female to male ratio (F/M ratio) of enrollment was 0.47 for primary level of education. It reached to 0.74 in 1999-2000, showing the F/M ratio has improved by 57.44% within the decade. For the middle level of education it was 0.42 in the start of decade and increased to 0.68 by the end of decade, so it has improved almost 62%. In both cases the gender disparity is decreased but relatively more rapidly at middle level.

The gender disparity in enrollment at secondary level of education was 0.4 in 1990-91 and 0.67 in 1999-2000, showing that the disparity decreased by 67.5% in the decade. At the college level it was 0.50 in 1990-91 and reached 0.81 in 1999-2000, showing that the disparity decreased by 64%. The gender disparity has decreased comparatively rapidly at secondary school. However, the gender disparity is affected by the Taliban enforcement of a complete ban on female education in the Swat district, as reported in a January 21, 2009 issue of the Pakistan daily newspaper The News Disparity in Agriculture sector The stagnant agriculture sector of the Fifties was transformed into a dynamic one in Pakistan by the technological breakthroughs made in the early Sixties. The installation of private tubewells, introduction of high-yielding varieties (HYVs) for various crops, the rising use of chemical fertilizers and insecticides and the mechanization of tillage operations have ensured growth rates of agricultural output unknown in the Indo-Pakistan subcontinent. Although the desirability of these technological changes in terms of growth cannot be doubted, it was argued in many studies that the technology would likely lead to increasing rural income disparities in Pakistan thus thwarting the desired impact of growth on economic development [Alavi (1976); Falcon (1970); Gotsch (1976); Gotsch (1976a); Griffin (1974); and Hamid (1974)]. The conclusion that rural income distribution worsens is attributed in part to interclass disparities but to a large extent to growing income differences among the various regions [Alavi (1976); Falcon 0970); Gotsch (1973); and Griffin (1974)]. In making the case for growing regional income disparities, these studies held the view that the benefits of the technology would remain restricted to irrigated areas alone. Barani areas, with their dependence on natural precipitation alone, would be severely constrained in the adoption of high-yielding varieties (HYVs) and the application of chemical fertilizers (Falcon 1970). These apprehensions led to the conclusion of rising interprovincial 10

disparities; Punjab with an elaborate system of canals and private tubewells is likely to make tremendous gains in agricultural production relative to other provinces especially Balochistan and NWFP where agricultural production has shown no visible signs of improvement [Alavi (1976); Falcon (1970); and Griffin (1974)]. MEASURING INEQUALITY IN AGRICULTURE SECTOT IN PAKISTAN An empirical investigation of the trend of regional income distribution in agriculture requires consistent time-series data on value added by agriculture in various regions. As there is a general lack of consistent time-series data on national accounts disaggregated by regions, one must look for the alternative sources of data of regional incomes. Among the most viable of these sources is the valuation of crop-production data by districts. This adds tremendously to data requirements and calculation work. Not only does it requires time-series data on production estimates of each and every agricultural commodity by districts but also relevant price statistics to arrive at gross value of agricultural output at the district level. Although highly laborious, we had no option but to undertake the task of preparing estimates of gross value of agricultural output for each district since 1960-61 to 1982-83. As a first measure of regional disparity, we aggregate the district data into shares of provinces in gross value of agricultural output. In order to proceed further, the gross value of output of each district was divided by its respective population in agriculture to arrive at per capita incomes. Although agricultural population estimates for districts are not available other than population census years, they were interpolated on the basis of inter-censal growth rates of agricultural population in various districts. The calculation of per capita incomes was essential to arrange districts from lowest to highest per capita income and to calculate their income shares. The Gini coefficients reported in this paper have been based on cumulative shares of population and of incomes of the various districts ordered by the lowest and highest per capita income.

11

(iv)

How To. Measures of Regional disparity:

Interest of income inequality has led to development of several ways of measuring it .two types of measuring are of interest static and dynamics. Static measures provide a snapshot of these inequalities at a point of time whereas the dynamic measures the capture historical trends. These are described in below turn: (a) Static measures of regional disparity: The measurement of regional disparity is an arduous task and no single statistical is able to capture its myriad dimensions. The selected measures are briefly described in the following paragraphs. (i) Maximum to minimum ratio (MMR) A comparison of the per capita GRDP (gross regional domestic product) of the region with the highest income to the region with the lowest income (minimum per capita GRDP) provides a measure of the range of these disparities. If this measure is small (close to 1), then it would mean that the dierent regions have relatively equal incomes. If this measure is large, then the interpretation is more problematic, as it does not tell us if the high ratio is due to substantial variation in the distribution of per capita GDRPs or the presence of outliers. Nevertheless, maximum to minimum ratio (MMR) provides a quick, easy to comprehend, and politically powerful measure of regional income inequality. (ii) Coecient of variation The coecient of variation (CV) is one of the most widely used measures of regional in-equality in the literature. The CV is a measure of dispersion around the mean. This dispersion can be calculated in a few dierent ways. Several authors have used the standard deviation of the logarithm of real per capita GRDP. In this study, however, theCV as dened below attempts to capture the dispersion of per 12

capita GRDP. This measure is standardized and can be used to make comparisons between countries and over time (especially if GRDP data are only available in current prices). In the following analysis, the CV is calculated in two ways. The rst, the simple coecient of variation is an unweighted measure as given below: (Yi Yu ) 2 N cvw = i =1 Yu
n

where yi is the GRDP per capita of state i, N is the number of regions and is the mean per capita GRDP. is computed as the mean of the per capita GRDPs without weighting them by population as follows: Yu = 1 N

Y
I

This is slightly dierent from Williamsons (1965, p. 11) formula for the unweighted CV,where the mean GRDP per capita, Y , is taken asthe national mean per capita GRDP. The Williamson measure is not appropriate in this application as it uses a weighted measure for the denominator and an unweighted one for the numerator. CVu varies from 0 for perfect inequality (equal percapita GRDP for the different regions) to N 1 for perfect inequality (only one region has all the GDP). Although this measure can be used for comparisons of regional disparities in countries across time, it is problematic for comparisons between countries because the inequality value is sensitive to the number of regions. This problem is somewhat overcome by the weighted coecient of variation, where each regional deviation is weighted by its share in the national population. This measure is calculated as given below:

cvw =

(Y Y )
i =1 i

pi P is the national mean per capita GDP. P is the

Yi is the GRDP per capita of region i, Y and

national population and pi is the population of state i.CVw varies from 0 for perfect equality to ( P pi ) / pi for perfect inequality where region i has all the GDP. This is better than CVu for 13

cross country comparison as the measure of inequality depends not on the number of regions but on the population proportion of the regions .

(i)

Relative mean deviation (Rw)

Following Kakwani (1980, 1990) and Williamson (1965, p. 16) we also compute the relative mean deviation of per capita GRDP as follows: pi P

Rw =

(Y Y )
i i

yi is the GRDP per capita of region i, and Y is the national mean GRDP per capita. P is the national population and pi is the population of state i. Rw is a measure weighted by population proportions of the regions. As CV is computed by squaring dierences, it could be unnecessarily sensitive to outliers. Rw, which avoids this problem can thus be used to check the CV results. Rw varies from 0 for perfect equality to 2 for perfect inequality. Kakwani (1980) divides Rw by 2 to get his measure of relative mean deviation, as it gives the desirable property of the measure becoming equal to 1 for perfect inequality. But, as we use Rw only to check our CV results for outlier eects, we do not follow Kakwani (1980) in this regard. (iv) Gini index (G) The Gini index like the CV is widely used in the inequality literature. Following Kakwani(1980), we compute the unweighted Gini indexas follows: Gu = ( 1 1 ) (YI YJ )2 2Yu n(n 1) i j

Yi and Yj are the GRDPs per capita of region and j respectively. n is the number of regions, and Yu is the unweighted mean of the per capita GRDPs. Gu varies from 0 for perfect equality to 1 14

for perfect inequality. The Gini index thus measured is the arithmetic average of n(n-1) dierences of per capita GRDPs, taken as absolute values divided by the maximum possible value of this average, 2Yu . The weighted Gini index, which weights each dierence of per capita GRDPs by respective population proportions is calculated as shown below:

Gu = (

pp 1 ) (YI YJ ) 2 i j 2Yu i j P

Y is the national mean per capita GDP. pi and pj are the populations of regions i and j respectively. P is the national population, and n the number of regions. Gw varies from 0 for perfect equality to 1-(pi/P) for perfect inequality. If pi is small compared to P, i.e., if the region with a small proportion of the population produced all the GDP then the value for perfect inequality would approach 1. (v) Theil index (T ) A nal measure of inequality used in this paper is an information or entropy measure of inequality. Following Theil (1967), it is computed as follows: x T = xi log( i ) qi i xi is the GDP share of region i of region i and qi is the population share of region i. For equal per capita GRDPs, i.e., with GRDPs proportional to regional populations, T takes a value of 0. For a P case where region i produces the entire GDP, T becomes, log( ) where P is total population of Pi the country, and pi is the population of state i. Note here that as the population share of region i goes down, T rises if region i produces the entire GDP.

(b)

Dynamic concepts of regional inequality:

15

While a snapshot view of regional income disparities is illuminating, a longer-term perspective is more helpful in ascertaining the impact of public policies. This requires developing time prole of static measures and discerning whether these inequalities appear to diminish he so-called convergence hypothesis) or accentuate (divergence hypothesis) over time. A strong convergence hypothesis suggests that quality in factor productivity and income levels will be achieved regardless of initial conditions provided diusion and adoption of technological change is unrestrained. A weak convergence hypothesis, on the other hand, requires competitive market structures to send the right signals for allocation of productive factors (see Boldrin, 2001). Under the weak convergence hypothesis, dierences in technology alone do not explain the dierences in factor productivity. Lack of competitive price signals such as those observed with regional incentives and subsidies, infant industry protection, barriers to trade etc. may perpetuate regional dierences in factor productivity and income. At the conceptual level, regional convergence is assured under perfect competition, constant returns to scale with no external eects and free and cost-less mobility of factors across relatively homogeneous (with respect to resource endowment, topography, composition of population, human capital, political and legal environment, informal culture, etc.) regions within the nation state. This requires that political units are commensurate with reasonably large geographic areas with reasonably diverse endowments so that regional income dierentials are attributable to policy and institutional considerations rather than simply to irreversible acts of nature. For example, one should not expect to have convergence among three completely heterogeneous regions comprising solely desert, mountainous and arable lands. Regional convergence becomes more dicult to achieve under increasing returns to scale and with 16

externalities of investment and growth. Strong nonconvergence (divergence) hypothesis places a greater emphasis on path dependency (initial conditions matter), increasing returns to scale, and externalities of investment as sources of dierences in factor productivity and growth (see Krugman, 1991; Romer, 1990). Realization of increasing returns to scale and/or agglomeration economies under perfect mobility in one of the regions and not others would accentuate regional divergence. Divergence would also happen if factors are either unable (due to impediments) or unwilling (say age and ethnicity consideration) to move. Under strong divergence hypothesis, inequality in levels of income and resource endowments will prevent convergence in regional growth rates. Under a weak divergence hypothesis, attainment of a minimum threshold of physical and knowledge capital in the leading regions is necessary for persistence in the divergence of growth paths.Thus some regions that attain the minimum thresholds in these factors may form clubs or growth poles and may grow faster than others and achieve club convergence. Publicpolicies to break this regional concentration of powers may have tradeos between national growth and overcoming regional inequalities (for a discussion of this issue in the European Union context, please see Boldrin, 2001). In federal countries regional inequalities are likely to be given signicant importance in evaluating any tradeos that may be observed. various countries. Two statistical concepts are helpful in look-ing at the dynamics of regional inequalities. First, a reduction in the dispersion of regional income over time is termed as convergence. Second, any catching up in incomes by relatively poorer regions through faster growth is called b convergence (see Barro & Sala-i-Martin, 1995, p.383). we have estimated a growth equation based on a log-linear approximation around the steady state of the Solow growth model. This is similar to the one suggested in Barro and Sala-iMartin (1992, 1995). The model is as follows: 17

y 1 1 eT ln( i ,t ) = i ( ) ln( yi ,t T ) + ui ,t T yi ,t T T

where yi;t is the per capita GRDP of the ith region at time t, yi;tT is the per capita GRDP in the ith region at the beginning of the time interval under study and ui is an independently distributed error term. For our purposes, we rearranged Eqn. (8) and estimated the following convergence equation: ln( yi ,t ) ln( yi ,t T ) = i + ln( yi ,t T ) + ui ,t

Convergence and convergence analyses may not always give similar results. For instance,
there could be a signicant decrease in convergence (divergence), with a change in the ranks of the regions. A poorer region could grow so fast that it could overshoot on the richer side, leading to greater overall dispersion . Convergence analysis could capture this divergence as convergence, or it may show an absence of either. Therefore, it is important to do both types of analysis to understand what is really happening. Conclusion: The measures of regional disparities show that a sizable disparity in per capita incomes continuously persists among the four regions of Pakistan. The extent of regional disparities in labor productivity and employment ratio are also high and have increasing trend since 1982. In the case of two regions, the disparity in per capita incomes. The estimation results of regional population functions indicate that relatively higher job opportunities give incentive to people to move from one to another region.

18