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International Conference On Structural Reforms for Inclusive Development



2015 Publish by: Applied Economics Research Centre, University of Karachi. & Bureau of Composition, Compilation & Translation, University of Karachi, Karachi. Edited By: Muhammad Sabihuddin Butt Nighat Bilgrami Shaista Alam Ambreen Fatima Cover design by: Aisha Designer Sobia Yusha [email protected] www.aishadesigner.com Disclaimer The findings, interpretations and conclusions expressed in this anthology are entirely those of the authors and should not be attributed to the Applied Economics Research Centre and Bureau of Composition, Compilation & Translation, University of Karachi. Any text that has not been referenced or cited as per the authors’ guidelines is the sole responsibility of the author(s).

ISBN-13: 978-969-7575-01-5 Applied Economics Research Centre, University of Karachi. University Road, Karachi-75270, Pakistan. Phone #: (92-21)-99261541-43 http:www.aerc.edu.pk & Bureau of Composition, Compilation & Translation, University of Karachi. University Road, Karachi-75270, Pakistan. PABX: (92-21)-99261300-6

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International Conference on Structural Reforms for Inclusive Development ICSRID 2015: Conference Programme

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Page No. Session 1: FISCAL REFORMS Federal Transfers and Fiscal Equalization in Pakistan” by Dr. S. Ashraf Wasti Session 2: GOVERNANCE AND HUMAN SECURITY The Nexus Between Elite Domination and Economic Development in Pakistan by Mr. Naeem Akram Political Regime and Economic Growth: An Empirical Investigation for Pakistan by Mr. Muhammad Arshad and Changyong Choi When Was The Growth Pro-Poor? : Verdicts Drown from the Empirics of Political Regimes of Pakistan by Dr. Tasneem Zafar and Raees Aslam Session 3: SECTORAL GROWTH AND REFORMS Finance-Growth-Energy Nexus and the Role of Agriculture and Modern Sector: Evidence From ARDL Bounds Test Approach to Cointegration in Pakistan by Dr Faridul Islam, Muhammad Shahbaz and Muhammad Sabihuddin Butt Economic Analysis of Energy Alternatives: A Monolithic Approach Comprising Factors Matrix, Digital Attenuation and Newton- Cotes Integration Processes; by Mr. Ejaz Gul, Dr. Imran Sharif Chaudhry and Dr.Ramazan Sari Measurement of Child Poverty in Pakistan using Multiple Deprivation by Ms. Lubna Naz, Adeel Ali and Nighat Bilgrami Session 4: SOCIAL SECTOR REFORMS A Disaggregated Model of Social Capital and Household Welfare in Pakistan by Dr. Nuzhat Ahmed and Dr Mahpara Sadaqat Measuring Gender Inequality in Education Attainment: Comparison of Punjab and Sindh” by Mr. Noman Saeed and Professor Dr. Ding Yibing Examining the Relationship between Inequalities in Gender Wage and Economic Growth in Pakistan by Mr. Asghar Ali and Li Jun Jiang Session 5: External Sector Reforms Does FDI Really Stimulates Domestic Investment in Pakistan by Mr. Syed Hasnaat Shah, Hafsa Hasnat/ Li Zheng Role of International Capital Flows in Economic Expansion: The Recent Experience From Pakistan” by Mr.

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Muhammad Umair and Syed Ammad Ali Session 6: Banking and Finance The Term Structure of Government Bond Yields in an Emerging Market: Empirical Evidence from Pakistan Bond Market by Mr. Wali Ullah and Dr. Muhammad Nishat Macroeconomic and Bank Specific Determinants of NonPerforming Loans in Pakistan: An Empirical Case Study by Mr. Muhammad Shafiq-ur-Rehman and Nighat Bigrami Nexus Between Disaggregated Savings and Economic Growth in Pakistan by Ms. Ayesha Malik, Shafaq and Dr Mohsin Hasnian Ahmad Macroeconomic Determinants of Stock Market Volatility in Pakistan by Mr. Syed Monis Jawed, Shaista Alam and Ambreen Fatima Is the Policy Rate Still Effective by Dr. Azhar Iqbal, Dr. Faizan Iftikhar and Adeel Ali Session 7: Environmental & Tourism Issues

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Tourism Potential and Constraints: An Analysis of Tourist Spatial Attributes in Pakistan by Dr. Khalida Mahmood and Dr. Razaq Ahmed Challenges and Prospects of Tourism in Pakistan; A Case Study of Gilgit-Baltistan by Mr. Sajjad Ahmed

PREFACE It is a great pleasure to present the collection of the papers presented at the Applied Economics Research Centre's (AERC) Fourth Two-Day International Conference on Structural Reforms for Inclusive Development [ICSRID]. This Annual Conference will be a regular event of AERC in future. The two-day Conference was well attended by the researchers, policy-makers, students who are our future, and people from all walks of life. AERC has long been recognized as one of the leading research and teaching institution in Pakistan. Since three decades it has been engaged in the process of training young personnel from all parts of the country and providing them the opportunity to work in their respective fields. This Conference was arranged quite timely as there was a need to introduce structural reforms which could help in the process of inclusive development in the country. The point to ponder is that the inclusion will empower the people and will provide all its equal access to opportunities essential for sustainable economic development. The current era of globalization and new bench-marks in different fields of economics have set new challenges for our country, like food insecurity is a serious issue, energy and water crises, creates poverty. To name few social issues, like education and health. It is known that these challenges are now world-wide. However, the Millennium Development Goals [MDG] set were not achieved.



The objective of the Conference, other than investigating and highlighting the road map for the millennium and sustainable development, was to interact with research scholars coming from different parts of the world and learn from their country's experience. The Conference definitely provided the forum to scholars from Pakistan and abroad to discuss economic challenges being faced by the world today. The papers in this anthology are the creative research, resulted from their thinking point and hard work. They spoke on fiscal federalism, tax structure, education, trade appearances, energy, industry, banking and finance, climatic changes and environment, and most importantly on governance. These chapters in the book not only present the authors' thoughts an work but all papers included are revised and up-dated according to the comments of the discussants in the Conference, along with the feed-back given by the delegates and eminent economist present at the event. I hope this book will find its place on the front shelf of Reference Reading Material. We look forward to your comments as to how to make this an annual event and how this book of Conference anthropology, worth reading? Nighat Bilgrami-Jaffery. APPLIED ECONOMICS RESEARCH CENTRE (AERC) University of Karachi

INTRODUCTION The Applied Economics Research Centre was established in 1973, with funding from the Ford Foundation and the Provincial Government of Sindh. Later, AERC was recognized by the Higher Education Commission (HEC), Government of Pakistan as an “Institution of National Capability in Applied Economics”. The AERC has its own Board of Governors, with representation from federal and provincial governments, State Bank of Pakistan, FPCCI, Representatives of Syndicate, Academic Council of the University and members from other institutions. All appointments at the AERC are governed by its Service Rules. From its inception, the Centre has undertaken research on issues in applied economics, with special interest being focused in the areas of agriculture, human resources, urban and regional economics, and public finance. The major functions of the AERC are policy-oriented core/academic research, contract research for national and international clients, post-graduate teaching, and to provide advisory services to various government agencies. The AERC undertakes research on issues in applied economics, with focus on urban and regional economics, agriculture economics, human resource development, public finance, poverty, health and nutrition, industrial economics, international trade, environment and gender issues. The research is based on primary data collection carried out by the AERC itself through surveys and analyses of secondary data from published national and international sources. Advisory services are being provided to federal, provincial and local governments through participation of AERC staff in various Advisory Bodies, Working Groups and Tasks Forces. To vi 

name a few, like State Bank of Pakistan, and other banks; financial institutions like Asian Development Bank, The World Bank, USAID, United Nations Organization, International Food Policy Research Institute, and many other private organizations have been the clients of the AERC from time to time. Being a public sector institution, the AERC is exempted from Income Tax. The Centre is also undertaking thematic research on specific issues and current problems. The Centre’s research work is disseminated to policy-makers and interested audience through its publications, in the shape of Research Report and Discussion Papers Series. Moreover an internationally-refereed bi-annual journal, viz. “Pakistan Journal of Applied Economics”, is being published regularly. TEACHING With subsequent growth of the Centre, its activities have broadened to include the advance training of economists from all parts of Pakistan. A major development in this connection has been the introduction of its own post-graduate degree programme, the Master of Applied Science (Economics), which began in 1977. Since 1988, this has been upgraded to a M. Phil/Ph. D. programme. At present Centre has more than 30 full-time economists, holding Ph. D., M. A. S./M. Phil. Degrees from AERC and leading U. S., British and other foreign universities as well as from Pakistan. The research staff is being competently assisted by specialized administrative and IT Staff. LIBRARY FACILITIES The Centre maintains a rapidly expanding library in the field of economics, with particular emphasis in areas of economics related to its principal research interests as well as a wide range of materials used for the teaching programme. The library currently subscribes over 250 periodicals in economics and the social sciences. The collection of books number approximately 30,000. Included in the library is an extensive collection of Government of Pakistan publications, which are used by researchers as a valuable source of data. The library has a large collection of Working Papers of International Agencies like the World Bank, IMF, etc. and Discussion Papers series of universities abroad. The extensive collection of economics books and journals in the State Bank of Pakistan Library is also available for use by Centre staff. The library has inter-library loan connections with other libraries in the country. The Library has been awarded the status of a Full Depository of the World Bank since 1995. COMPUTER FACILITIES The AERC has a fully operational computer cell is equipped with a large number of latest computer models. The cell is intensively utilised for research and training purposes. A large number of software packages are available including STATA , MS OFFICE , MICROFIT, SQL SERVER, MS-EXCHANGE, WINRATS, LIMDEP, EVIEW, GAUSS, QUATTRO-PRO, LOTUS-123, FOX-PRO, DBASE, which enable sophisticated statistical and econometric analysis and handling of large data sets. The Centre has specialised computer programming and data base management staff who are an integral part of the research and training activities. A number of data

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sets on various aspects of the economy are available at the computer centre. E-mail and Internet facilities are also available to the staff and students of the Centre. Acknowledgments AERC’s two day international conference on structural reforms for inclusive development ICSRID was held on 17th -18th March 2015 with the major collaboration of honorable finance minister of Sindh Syed Murad Ali Shah and Higher Education Commission (HEC) of Pakistan. Other includes Habib Meteropolitan Bank. We are highly grateful for the generous support without which this would have not been possible. We hope they will continue their cooperation in future also.

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THE NEXUS BETWEEN ELITE DOMINATION AND ECONOMIC DEVELOPMENT IN PAKISTAN Naeem Akram10, Muhammad Irfan Akram11 Abstract It is now a well-established fact that politics plays decisive role in resource distribution and formation of development policy of a country. However, in most of the studies that used the political economy ‘lens’ in analyzing the causes of underdevelopment have ignored the allimportant role of elites. The present study has attempted to analyze the role of elites in distribution of resources and their impact on economic development in Pakistan at National, Provincial, District and Household levels. It has been found that while taking development decisions political elites keep their own interests in mind and uses public resources to develop their own sectors and constituencies. It results in distribution of resources in such a way that elite provinces and within provinces elite districts get large chunk of resources creating wide disparity in terms of development. Even at household level elite are better nourished, attain better health and education facilities therefore they are able to perform well in the professional life as compared to the other segments of the society.

I. Introduction It is an established fact that politics plays critical role in the decisions regarding resource distribution and thus affects economic development of a country. Most of the literature is focused on the impact of institutions on development without taken into account of the role of institutional change. One of the pivotal elements for the institutional change is the elite’s behavior. Elites are able to affect the economic development via resource ownership in two ways. Firstly, decisions regarding allocation of resource. The elites can allocate the resources in a way that creates employment; boost economic efficiency and results in reducing the income inequality. On the other hand elites can work as rentseekers, and allocate resources to the people and sectors that benefit them directly or indirectly. The control over resources enables them to decide the technology of production. In this regard they can act as entrepreneurs and innovators or they can ruin the existing resources. Secondly, elites can also affect development by their influence in the decision-making processes. It creates two additional channels. Foremost is the fact that elites have the capacity to design such institutions that protect their benefit. Secondly they are able to manipulate the perspective of various issues within a society. They do this by their influence in media and capacity to withhold or distribute information. The roots of elite formation in Pakistan are linked with the colonial period. The British rewarded titles and lands to their loyalists, it resulted in atmosphere of corruption and nepotism. Dr Mahbub ul Haq alleged that in Pakistan during 1960’s only 22 families have the control over 87% of banking and insurance sector and 66% of the industries. Gazdar (2000) is of the view that rural areas are subjugated by feudal landowners, who are classified as a high ‘caste’ and they are always in government corridors. Their power is influential to the extent that are been able keep the Agriculture income untaxed. Ishrat Husain while explaining the impact of elite dominance states: “The ruling elites found it convenient to perpetuate low literacy rates. The lower the proportion of literate people, the lower the probability that the ruling elite could be displaced”(Husain 1999, p. 359). The domination of the elite has led to an interesting paradox. The present study will try to analyze how the elite domination has affected the economic development of Pakistan as the underlying causes behind this need to be seriously examined and addressed, through sectoral analysis. The study attempts to demonstrate the hypothesis that the lack of progress in social indicators is mainly related to concentration of economic wealth and political power among very few elites. These groups have no interest to share the gains of growth. They have deliberately kept the masses impoverished (without assets and access to key social services). 10

Assistant Chief, Economic Affairs Division, Islamabad, Email [email protected] Tel: +92-51-5124074 Student, PMAS Arid Agriculture University, Rawalpindi Email: [email protected] Authors Note: These are the author’s personal views and do not reflect the views of their affiliated institutions in any respect. The authors are extremely grateful of the discussants and participants of the International Conference Structural Reforms for Inclusive Development organized by Applied Economics Research Centre (AERC), Karachi for the valuable feedback. 11

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The organization of paper as follows after introduction section two briefly review the literature, the section three gives a descriptive analysis of elite formation and development. The section four provides the data and methodology of the analysis. The section five comprehensively discusses the findings of the study and conclusions and policy recommendations emerging from the study are presented in the last section. II. Review of the Relevant Literature A brief overview of the existing literature on the subject is summarized as under: Easterly et al. (2006) hypothesized that the elite are reluctant to invest in education as a tactic to remain in power. In addition, most of the male elite are reluctant in allocation of public resources for women's education. The discrimination is the outcome of various ideological and religious factors. Hence gender gap is also causing the numerous social gaps. The study also found that due to lack of investment in women education mortality rates of children and the fertility rates remains high in the male elite dominant societies. Bourgignon and Verdier (2000) and Acemoglu (2003) argued that elites are against the spread education in masses because more educated peoples will demand their basic rights and political power in the shape of democracy. Even in democratic countries, more educated peoples are more politically active. Furthermore educated people may try to bring income inequality and break the hold of elites. Hence, the elites will try to restrict the spread of education even in democratic societies of developing countries. Galor and Moav (2000) are of the view that an early stage of development there is a very low return to investing in education. And the landowners have no incentive to pay for schooling in the shape of taxing themselves. However at the stage of start of development process industrialization results in an increase in the return to skills consequently industrial capitalists will be willing to invest in education. Galor and Weil (1996) concluded that if physical capital increases women's relative wages. Then it induces them to substitute labor force participation and education for lowering fertility. There is possibility that in a developing economy there are two equilibria. One with physical capital scarcity, low per capita GDP, low women's education and high fertility rates. And another with high per capita GDP and women's education and low fertility rate. According to Bourgignon and Verdier (1999) a male power elite could decide to keep women uneducated so that women do not have the skills necessary to petition for more equal treatment. Divisions based on l religion, linguistic or regional factions have also repressed public provision of social services. III.Scenario of Human development, Poverty and Elite formation in Pakistan In Pakistan roots of elite formation are date back to the colonial period. In this regard two crises stimulated the elite domination -- defense related procurements during and after the World War II and after the partition, allocation of evacuee property. It was followed by trade and industrial licensing and route permits and bonus voucher type of schemes during 1950s and 1960s.During 1970s nationalization policy has opened new venues for corruption and resulted in a new elite class of ‘corrupt government officers’ in Pakistan. Easterly (2001) is of the view that the overall social lag in Pakistan is due to the fact that influential landowners oppose the accumulation of human capital. Landowners use school premises as personal buildings, often as farm sheds, which has widened the literacy gap between the elite landowners and the poor tenants who are deprived of schools due to the domination of the elite whose children in turn are driven off in jeeps to private schools further away. As Gazdar (2000) found that quarter of the sample of 125 schools were non-functional and if the teacher was related to the landowner she/he wouldn’t show up for classes. Even though the provincial governments are responsible for social service delivery, the centre largely determines the resources available to each province. Furthermore in areas such as Sindh, where the landowners dominate, there are wider rural-urban and gender gaps in contrast with Punjab where elites have lesser role. The possible reason for this is reluctance of elites in making investment for women's education (Easterly; 2001). However, in addition to these political economy determinants, discriminations against women in education and health also have its roots in ideology and religion. Thus the gender gap may be generating other social gaps like health conditions.12 A brief overview of poverty and human development situation in four provinces is summarized as under:

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World Bank 2001

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Balochistah: Social Policy Development Centre (SPDC) estimated poverty incidence using HIES 2001-02. The proportion of population living below the poverty line was estimated as 48%, . There are significant differences in poverty incidence within Balochistan as well. Rural poverty was estimated at 51% , urban poverty in small cities was 44%, in complete contrast poverty in Quetta, was at only 14%. Extreme poverty has also impacted food security; 43 percent of children are underweighted.13 In 2003, DeraBugti had a staggering 73% of the population living below the poverty line. Income spent on food and rent combined was between 60-69%. Khyber-Pakhtunkhwa: Poverty in KPK was estimated at 29% in 2005-06 (2% higher than the national average). There is high variability in terms of urban and rural poverty just like in Balochistan. The Government of KPK’s estimate for poverty in 2009-10 was 39 percent. More than one third of the children are underweight. The 10+ literacy rate in KPK is 50%. Some districts like Abottabad have a relatively high literacy rate for females (61%) compared to Kohistan (3%).14The MDG report states that KPK is dependent on federal transfers for over 85% of its budgetary resources. These transfers include KPK’s share in the divisible pool of NFC resources, and straight transfers of constitutionally mandated hydro-electric profits from KPK’s generation of hydro-power. In the period prior to 2006-07, federal transfers were constrained due to a low allocation for KPK vis-à-vis the federal government, and the capping of hydro-electric profits because of a dispute with the federal government over the correct amount of profits. Sindh: Sindh is characterized by a dual economy where Karachi has the lowest poverty level compared to all four provinces (10%) whereas other small towns and cities have an estimated 40% poverty level. In terms of food security, more than a third of children in the province are underweight. Caloric poverty levels are highest in Tharparkar; around two-thirds of the population are food insecure. The 10+ literacy rate in Sindh of 59%. However there are significant variations in terms of urban/rural and male/female literacy rates.15 Punjab: Poverty incidence in Punjab has always been lower than the national average. It has been estimated that 34% of children under 5 are underweight. The WFP 2003 report assessed that 29% of Punjab’s districts were food insecure, as compared to a national average of about half. However, intra-provincial disparity exists; only 5 of the 34 districts in Punjab were intensely poor in terms of caloric poverty. 10+ literacy rate in Punjab is 59%. Literacy entails significant variation in literacy rates across districts, skewed in favor of urban areas and with significant gender gaps. IV. Data and Methodology To test the hypothesis that there is an elite biasedness in resource distribution and they have a critical role in backwardness of Pakistan in social development; analysis is divided into three tiers i.e. Tier I (National level) By analyzing the formulas of NFC over the years it has been established there exist biasedness in distribution of resources and Punjab is getting major chunk from the federal resources. It was also analyzed that after divisible poll how the left over resources at federal level are distributed in various sectors of the economy. Furthermore, to analyze how the resource biasedness is affecting the social development of various provinces a panel data analysis for the period 2001-10 has been conducted. Tier II(Provincial level) It has been analyzed that how resources are distributed at provincial level. In this regard PFC awards introduced after 2001 in the four provinces to distribute the resources from provinces to districts has been examined. To analyze the relationship between allocation of resources to districts and social development of the various districts graphical analysis has been conducted. Due to data limitations only Immunization, Literacy rate and Access to sanitation for the period 2007-08 have been selected as social development indicators and the average allocation of resources to various districts for the period 2006-10 has been used. Tier III(Household level) Purpose of the household level analysis is to gauge the poor household financial capacity to invest in education, health, water, sanitation, etc. thus making it a responsibility of the government to provide these services which is failing to do so because of an elite capture. Household level consumption patterns have been analyzed by using HIES 2010-11 and HIES 2005-06 data. 13

MICS 2003-04 Provincial MDG report 2011 (KPK) 15 Provincial MDG report 2011 (Sindh) 14

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V. Elite Resource Capture in Pakistan and its impacts on social development As mentioned in the preceding section, one of the many reasons for Pakistan’s inadequate performance in social development is the role of elites. The analysis is bifurcated into a three tier analysis;a) Federal level analysis b) Provincial level analysis c) Household level analysis. a) National Level Analysis Prior to the promulgation of 1973 constitution, revenue sharing arrangements in Pakistan were madein accordance with Niemeyer award, Raisman award, and 1961 & 1964 NFC awards. Resource distribution in these awards was for two units i.e. East Pakistan (now Bangladesh) and West Pakistan and majority of the resources were diverted to West Pakistan due to their heavy political and civil service representation in the government. Later, in the 1970s, an NFC committee was constituted and its recommendations regarding revenue sharing arrangements were followed. This was later made part of the constitution when the constitution was promulgated in 1973. After 1973, seven NFC awards were announced. Out of these, four awards were adopted in 1974, 1979, 1991 and 1997 but two NFC awards constituted in 1984 and 2000 failed to reach a consensus and ended in a deadlock. The seventh NFC award has been recently announced in 2010. During the 1979-1996 era, the share of central government remained fixed at twenty percent while the provincial governments’ share was at eighty percent. Over time, the central government started taking control of many provincial revenues which resulted in reduction of the provincial share. For example, in the 1997 NFC award, the inclusion of custom duties in divisible pool of the federal government increased the federal share -share of federal government in divisible pool increased from 20 percent to 62.7% while the provincial governments’ share reduced from 80% to 37.5% (Haider et.al 2011). This resulted in an elite capture at the federal level as most of the 62.7% of the federal government resources were used by federal parliamentarians to further their political agenda in their provincial constituencies. These monies for example were used by the last federal PML-N government for launching the highly politicized ‘yellow cab taxi scheme’ which only benefitted a few . The federal and inter-provincial revenue sharing arrangements, after promulgation of 1973 constitution, are summarized in table 1 below. Table 6 Inter-Provincial Revenue Distribution from the Federal Government Years Fed: Prov Punjab Sindh KPK Balochistan

Total

1974

20:80

60.25

22.5

13.39

3.86

100

1979

20:80

57.97

23.34

13.39

5.3

100

1984

Award not implemented

1991

20:80

57.87

23.29

13.54

5.3

100

1997

62.7:37.5

57.88

23.28

13.54

5.3

100

2000

Award not implemented

2010

44:56

24.55

14.62

9.09

100

51.74

Source: Ministry of Finance, Government of Pakistan The recent 2010 NFC award basis the resource distribution to the provinces on the following four indicators 1)Population 82.0%, 2)Poverty/Backwardness 10.3% 3)Revenue Collection/Generation 5.0% and 4) Inverse Population Density 2.7% (Urban-Rural). Within the provincial share, the highest share went to Punjab – have always remained above 50% during the past 4 decades followed by Sindh at 22-25%. Balochistan being the most backward of the provinces always received the lowest share of less than 5%. This was recently increased to 9% to address the on-going insurgency in the province. The reason being that the 7th NFC award gives the highest weightage to population (82%) rather than giving higher weightage to poverty, inverse population density, and/or provincial per capita income. It is important to note that throughout the world various factors like revenue generation, poverty, inverse population density, income distribution, backwardness, etc. are used to distribute resources at the sub-national level and population is not the sole criterion or the criteria with the weight as high as 82%. For example, in India, only 22.5% of the income tax collected and 25% of excise duties collected by the federal government are distributed on the population basis. In Nepal and Mexico the distribution of federal resource is done by taking 20% and 50% weight for population respectively and the rest is based on other indicators like backwardness, development needs, and income distribution.

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This methodology of resource distribution in Pakistan where population is given 82% weight, results in a skewed resource distribution which benefits the richest province (Punjab) at the cost of other poor provinces such as Balochistan. For example, if one takes resource distribution in the context of per capita income, one sees that Punjab gets the highest share even when its per capita income is the highest in Pakistan at $857.7 compared to Balochistan’s $400. This has failed to address the issues of poverty, housing, access to sanitation and other basic facilities like health and education. In the case of Balochistan the available data indicates that the net primary enrolment rate is just 44% compared to Punjab at 66%. There is also a strong evidence for regional disparity in enrolment patterns and disparities in literacy, primary net enrolment rate and primary completion rate across urban and rural Balochistan. The performance of both Punjab and Balochistan in terms of health indicators is worst but once again in relative terms, Punjab ‘s performance is better when compared with Balochistan. For example, under 5 mortality rate (deaths per 1000 live births) stands at 104 and 158 for Punjab and Balochistan respectively. Similarly in case of immunization coverage, the latest estimates suggest that 86 % of children from 12 to 23 months of age in Punjab have been fully immunized. However this ratio is only 43 % in the case of Balochistan. When compared in terms of access to water and sanitation, Balochistan fares poorly in these indicators as 61% of population has access to improved drinking water, while in case of Punjab, 94% of the population has access to safe drinking water. Figure 1 Expenditures at various sectors

Source: Ministry of Finance, Government of Pakistan Allocations to different sectors of the economy reflect the priorities of the government. As far as allocations to social sectors are concerned after the 2010 a paradigm shift has occurred as various functions related to the social sectors are transferred to the provinces. Therefore the pictures that emerge after 2010 may not reflect the exact situation of Pakistan over past many years. Distribution of resources among various sectors of the economy during FY 2008-09 are presented in figure 1. The figure 1 shows that more than 50% of public expenditures go to Defence, Interest payments and General Administration. Over the years spending on defence is the priority of the governments. However, in recent time the non traditional threats to human security in Pakistan i.e. health, food, energy and economic securities are the more critical than traditional threats (for details see Akram, 2014). However due to the hold of military elites in running the affairs of Pakistan every year more resources are allocated to the Defence purposes. As far as interest payments are concerned the effectiveness of the loans taken by various governments remains in question. In Pakistan most of the loans are taken without even considering the social priorities and major part of these loans are spent in coping with fiscal and current account deficits incurred by the luxurious spending of elites in Pakistan (Akram,2013). If we analyse the allocations to other sectors a very interesting picture emerges. Highways, bridges and other infrastructure is the backbone of the economy, without adequate infrastructure thinking of development is ambiguous; however, government of Pakistan is spending only 3% of total expenditures. Subsidies are 6% of public spending, but unfortunately these subsidies are not directed towards poor the major share of these subsidies belongs to the subsidy on electricity, fuel and fertilizer. There exist no mechanism that only eligible may get benefits from these subsidies fact is that more your consume more you will be benefited. As poor and middle class has very limited share in the utilization of electricity, fuel and fertilizers so they will be least benefited. Although allocations to health and education 2 and 8 percent of expenditures looks promising but

around 80% of these allocations are utilised for the payment of salaries etc and only 20 percent of the budget to health and education are for developmental purposes. In order to empirically test the relationship between elite resource capturing at federal level; due to political influence, population, holding the key position in military and civil baurucracy, Punjab is hypothesised as elite province. Keeping this assumption following model will be estimated to compare the situation of social indicators in elite and non-elite provinces:

is the elite dummy variable for theithprovince at t time, it gives value 1 to Punjab and value zero to Where all other provinces is a vector of control variables, is the vector of various social development is the classical error term.In order to estimate the model panel data of the four provinces indicators, and (Punjab, Sindh, Khyber Paktunkawa and Baluchistan) for the period 2001-2010 will be used. As the model is having limited cross sections so to estimate the model Fixed Effect model technique has been adopted. The results are summarized in table 2 below: Table 7 Elite resource capturing and its impact on social indicators Variable Coefficient Std. Error t-Statistic Primary enrollment 0.0168237 0.0134419 1.2515877 GPI 5.1918035 1.3204111 3.9319600 Literacy rate 0.0059504 0.0023954 2.4840456 Infant Mortality rate -0.0003925 0.0059528 -0.0659331 Sanitation facilities 0.0216729 0.0048524 4.4663747 Resource from Federal 0.1283723 0.0705534 1.8195062 Government Constant -5.5399731 0.8533537 -6.4920012 R-squared 0.942588 Durbin1.035140 Watson stat Adjusted R-squared 0.921550 F-statistic 20.12105 Log likelihood 31.9476 Prob(F0.000000 statistic) The results suggest that Punjab (elite province) is getting around 13% more resources than other provinces and it has considerable positive impact on the Punjab’s performance in various development indicators. The provincial performance in education indicators then we can see that Punjab is enjoying around 0.6% better literacy rate as compared to the other provinces. Similarly approximately 1.7% more children are enrolled at primary level as compared to other provinces. As far as health indicators are concerned infant mortality rate per 1000 is approximately 0.04% lower in Punjab as compared to other provinces. As far as gender parity index is concerned the results suggest that in GPI there is huge difference between elite and non-elite provinces as GPI in Punjab is 519% (5.2 times) better than other provinces. The possible reason for this extraordinary difference is that due to better access to media, economic opportunities both urban as well as rural population in Punjab do not create hurdles in the female education. Resultantly situation of gender equality is much better in Punjab in comparison to the other provinces. Access to sanitation facilities also portray a dismal picture as non-elite province are lagging behind by around 2% in access to sanitation facilities. The diagnostic tests of the model suggest the goodness of the fit. Although the value of Durban Watson t-statistic is relatively low but keeping in view the limited number of observations and panel data the low Durban Watson t-statistic is acceptable. b) Provincial Level Analysis Similar to National Finance Commission awards, the resources from the Provincial Divisible Pool (PDP) are distributed among various districts on the basis of Provincial Finance Commission Awards. The Provincial Finance Commissions were constituted in all four provinces of Pakistan in 2001. The PDP consists of provincial tax receipts and federal transfers (straight transfers, revenue assignment and subventions). After setting aside the priority expenditure, the remaining amount is distributed among districts. The priority expenditure components include debt servicing, subsidies, GP Fund, pension payment, Social Relief Fund and priority expenditure of Education etc. It is also noteworthy here that after meeting the expenditures on general administration, Payment of provincial loans, subsidies etc very limited resources remain available to the provincial governments for social sectors (Education, Health, Population welfare) and Provision of Community Services . Figure2 provide the breakup of consolidated expenditures of provincial governments on various sectors.

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Figure 2 Breakup of Consolidated Provincial Expenditures (Current & Development) Community  services 9%

General  Administration  & Misc 62%

Education 22%

Health and  other social  services 7% Source:

Ministry of Finance, Islamabad

Figure reveals that approximately 62% of Provincial expenditure consists of general administration, loan repayments, subsidies etc. Only mere part of expenditure (9%) incurred on provision of civic facilities including water and sanitation, development of roads and bridges. Despite the extended importance of social sectors for the provincial governments, after 18th amendment, the situation of expenditures on health, education and other social sectors portray a dismal picture as only 29% of resources are allocated to social sectors. Under the Provincial Local Government Ordinances (LGOs) of 2001; municipal functions, basic health care, schooling, drinking water facilities and sanitation were devolved to district level. Although after the Musharraf regime, the Local Government Ordinances were abolished but resources are still distributed among districts on the basis of the formulas of PFCs. Using population and a backwardness index, districts were ranked on the basis of education, health, employment, housing indicators in three provinces (Punjab, KPK and Balochistan) and by the tax effort in Sindh. The basis and weights on which the resources are distributed in various provinces are summarized in table 3. Table 8 Formula for distribution of Resource by Provinces to districts Weight Punjab Sindh KPK Balochistan 200220022008- 2002- 2006- 2002-2010 2010 2007 2010 2005 2010 Population 67 % 50% 40% 50% 60% 50% Backwardness 33% 17.5% ….. 25% 20% ….. Tax Efforts ….. 7.5% ….. ….. ….. ….. Performance ….. 0.5% 10% ….. ….. ….. Area ….. ….. 5% ….. ….. 50% Development ….. ….. 10% 25% 20% ….. Incentive/ Infrastructure Deficiency Transitional 20% ….. ….. ….. ….. Assistance Service ….. ….. 35% ….. ….. ….. Infrastructure Source: Provincal Finance Departments It is very important to analyze that how elite biasedness with in the province regarding allocations to various districts affect the social indicators. The present section will analyze the distribution of resources in individual province and its implication for various developmental indicators will be discussed in detail. In this regard data for the allocation to individual districts has been averaged for the period 2006-2010 and due to limitations of the

20

data only immunization, literacy rate and access to sanitation facilities has been used as indicators for social development16. The analysis of individual province as follows. i. Punjab Punjab is the largest province and more than half the population belongs to the province. Therefore, distribution of resources and success of policies to increases incomes and well-being in this province is of enormous importance to the country. Figure 3-A shows the pattern of the distribution of resources among various districts in Punjab. It shows that Lahore being the provincial capital gets the highest ratio of funds followed by Faisalabad, Rawalpindi and Sargodha. Around 25% of the funds are distributed among these four districts. Whereas, mega districts belonging to southern Punjab like Multan, Jhang, DG Khan and Bakhar only share mere 10% of the funds. This depicts that there exists biasedness in distribution of resources towards north Punjab where most of the influential politicians come from. It is also noteworthy that ten small districts Chiniot, Hafizabad, Lodhran, Nankana Sahib, Rajanpur, Pakpattan, Khushab, MandiBahauddin, Jhelum and Mianwali only get 15% from the divisible funds. Figure 3 Distribution of Funds in Provinces A-Punjab B -Sindh C- KPK D- Baluchistan

Source: Provincial Finance Departments This disparity in distribution of resources results in creating inequalities in various development indicators including indicators related to health, education and sanitation (see figure 4 below). It shows that top five districts in literacy ranking in 2008-09 were Lahore, Rawalpindi, Jehlum, Chakwal and Gujrat. Whereas the five bottom districts were Bahawalpur, R. Y. Khan, Bahawalnagar, DG Khan and Rajanpur respectively. As far as availability of sanitation facilities are concerned, top five districts in terms of sanitation facilities were Lahore, Gujranwala, Rawalpindi, Sheikhupura and Kasur, while the five bottom districts were Bahawalnagar, Jhang, Layyah, D. G. Khan and Rajanpur. Similar situation emerges in the case of immunization, where Sargodha, MuzafarGarh, R. Y. Khan, Rajanpur and DG Khan emerge with the lowest ratio of immunization. Figure 4 Situation of Development Indicators in Punjab

16

For detailed analysis see Hamid et al (2013)

0 Rural a)

Vehari T. T. Singh Sialkot Sheikhupura Sargodha Sahiwal Rawalpindi Rajanpur R. Y. Khan Pakpattan Okara Narowal Nankana Sahib Muzaffargarh Multan Mianwali M. Bahauddin Lodhran Layyah Lahore Khushab Khanewal Kasur Jhang Jehlum Hafizabad Gujrat Gujranwala Faisalabad D. G. Khan Chakwal Bhakhar Bahawalpur Bahawalnagar Attock

Vehari T. T. Singh Sialkot Sheikhupura Sargodha Sahiwal Rawalpindi Rajanpur R. Y. Khan Pakpattan Okara Narowal Nankana … Muzaffarg… Multan Mianwali M. … Lodhran Layyah Lahore Khushab Khanewal Kasur Jhang Jehlum Hafizabad Gujrat Gujranwala Faisalabad D. G. Khan Chakwal Bhakhar Bahawalpur Bahawaln… Attock

Vehari T. T. Singh Sialkot Sheikhupura Sargodha Sahiwal Rawalpindi Rajanpur R. Y. Khan Pakpattan Okara Narowal Nankana … Muzaffarg… Multan Mianwali M. … Lodhran Layyah Lahore Khushab Khanewal Kasur Jhang Jehlum Hafizabad Gujrat Gujranwala Faisalabad D. G. Khan Chakwal Bhakhar Bahawalpur Bahawaln… Attock

0

100 200 Urban

Immunization

Rural 

50

0

100

Rural 

Urban 

b) Literacy Rate

c)

50

100

150

Urban 

Sanitation

Source: PSLM 2008-09 This reveals the fact the districts belonging to the elite in Pakistan like Lahore, Rawalpindi, Faisalabad get major share in distribution of resources. Consequently economic development (reflected by three indicators of health, education and Sanitation) in these districts is much better than the rest of districts. Furthermore, districts in southern Punjab not only lag behind in development indicators but also get limited funds from the provincial government. ii. Sindh: As Karachi is the only seaport in Pakistan so it emerged as a magnet for import-based and export industries. At the time of Pakistan's gaining its independence, Sindh was estimated to have had a per capita income that was perhaps 40 percent higher than the Punjab and 55 percent higher than the rest of the country17. In Figure 3-B, distribution of resources among various districts in Sindh are portrayed which reveals a situation very similar to Punjab. It shows that about 31% of the resources go to three districts i.e. Karachi, Hyderabad and Khairpur.

17

World Bank (2007), Pakistan: Securing Sindh’s Future—The Prospects and the Challenges Ahead, Washington, DC: World Bank.

Figure 5 Situation of Development Indicators in Sindh

Thatta Tharparkar Tando M Khan Tando Allah Yar Sukkur Shikarpur Shahdadkot Sanghar Nowshero Nawabshah Mir Pur Khas Matiari Larkana Khairpur Kashmore Karachi Jamshoro Jacobabad Hyderabad Ghotki Dadu Badin

Thatta Tharparkar Tando M … Tando … Sukkur Shikarpur Shahdadkot Sanghar Nowshero Nawabshah Mir Pur … Matiari Larkana Khairpur Kashmore Karachi Jamshoro Jacobabad Hyderabad Ghotki Dadu Badin 0 Rural  a)

100 Urban

Immunization

200

Thatta Tharparkar Tando M … Tando … Sukkur Shikarpur Shahdadk… Sanghar Nowshero Nawabshah Mir Pur … Matiari Larkana Khairpur Kashmore Karachi Jamshoro Jacobabad Hyderabad Ghotki Dadu Badin 0

50

Rural 

Urban

b) Literacy Rate

100

0 Rural  c)

100 200 Urban

Sanitation

The situation of various development indicators is described in figure 5. It reveals that top three districts in literacy ranking in Sindh (Urban) are Karachi, Hyderabad and Mirpurkhas whereas Jamshoro, Shahdadkot and Tando M Khan falls at the bottom in the literacy indicator. As far Sindh (Rural) is concerned Khairpur, Hyderabad and Tando Allah Yar emerged on the top whereas Tharparkar, Tando M Khan and Sanghar were the districts having the lowest literacy rates. It suggest the situation in Karachi and Hyderabad is better than the rest of the province and there exists huge disparity between rural and urban population e.g. in Urban areas of MirpurKhas 71% of population is literate in complete contrast to rural areas of MirpurKhas where only 35% people are literate. Similar situations exists in other development indicators as in urban areas of Larkana and Karachi more than 95% of children are immunized and in rural areas of Tharparker, this ratio is only 31%. Similarly around 99% of urban population of Sukkur, Karachi, Hyderabad have Sanitation facilities; however, less than 25% of the rural population in ,Tando M Khan, Khairpurand Nowshero have access to sanitation facilities. This suggests that elite living mostly in urban areas have made very little attempts to uplift the living standards of rural population in Sindh. iii. Khyber Pakhtunkhwa Situation of distribution of resources and development in KPK is similar with Punjab and Sindh. Figure 3-C shows the distribution of funds in KPK. Although there exists less skewedness towards mega district but still the share of Peshawar and Mardan is higher in comparison to other districts. In development indicators (see figure 6), the inequality between well and worse districts and in rural and urban areas in KPK is much lower as compared to rest of the provinces. The analysis suggest that that top five districts in literacy ranking were Abbottabad, Haripur, Mansehra, Chitral and Malakand respectively. While the five bottom districts were D.I. Khan, Shangla, Tank, Bonair and Kohistan. However, top five districts in immunization of children aged 12-23 months in KPK are Malakand, Swat, Nowshera, Charsada and Chitral with 93.4%, 89.4%, 89%, 88.6% and 88.5% immunization rates, respectively. While the five bottom districts are Shangla, Karak, Battagram, Kohistan and LakkiMarwat, with immunization rates of 51.7%, 50.8%, 47.9%, 33.5% and 33.2%, respectively. As far as access to sanitation facilities are concerned top five districts in the sanitation facility in KPK are Peshawar, Chitral, Nowshera, D.I.

Khan and Haripur with 92.2%, 86.5%, 85.4%, 83.1%, and 81.7% population with sanitation facility, respectively. While the five bottom districts are Swat, Bonair, LakhiMarwat, Karak and Kohistan with sanitation availability rates of 55.6%, 49%, 46.2%, 41.7% and 40.6% respectively. Figure 6 Situation of Development Indicators in KPK Upper Dir Tank Swat Swabi Shangla Peshawar Nowshera Mardan Mansehra Malakand Lower Dir Lakki Marwat Kohistan Kohat Karak Haripur Hangu D. I. Khan Chitral Charsada Bonair Battagram Bannu Abbottabad

Upper Dir Tank Swat Swabi Shangla Peshawar Nowshera Mardan Mansehra Malakand Lower Dir Lakki … Kohistan Kohat Karak Haripur Hangu D. I. Khan Chitral Charsada Bonair Battagram Bannu Abbottabad 0

Rural a)

50

100 150

Urban

Immunization

0 Rural

Upper Dir Tank Swat Swabi Shangla Peshawar Nowshera Mardan Mansehra Malakand Lower Dir Lakki … Kohistan Kohat Karak Haripur Hangu D. I. Khan Chitral Charsada Bonair Battagram Bannu Abbottabad 50

100

0

Urban

b) Literacy Rate

Rural c)

100

200

Urban

Sanitation

iv. Baluchistan: Balochistan possesses the largest land area of any province of Pakistan; it is a major producer of natural gas and it possesses copper, lead, gold and other minerals as well; it accounts for 70 percent of the coastline of Pakistan; it is also well-situated to trade with Afghanistan, Iran and the Persian Gulf countries; but in spite of these natural resource and locational assets it remains the poorest province in the country. The province’s inadequate development during the past 50 years is a matter of serious concern18. Baluchistan reflects the extreme situation of elite resource capture in Pakistan. At national level over the years it has been portrayed that Baluchistan is getting far less share in NFC awards. At the provincial level, the resources are distributed by the provincial administration in such a way that only few districts get the mega share. This situation is reflected in figure3-D. Three districts i.e. Quetta, QillaSaifullah and Pishin get 30% of funds whereas Kohlu, Ziarat, Kharan, Awaran, Shirani, Harnai, DeraBugti, Chagai, Washuk, Nushki, Sibi and Barkhan combined get only 13% of the funds from provincial divisible pool. Consequently there exists widespread disparity among various districts as well as in rural and urban areas in development indicators. The situation is described in figure 7 below. Although situation in Baluchistan in development indicators is very disappointing as compared to other provinces in Pakistan, however comparative analysis of the situation in Balochistan shows further aggravated picture. Quetta, Panjgur, and Sibbi are the top three districts in literacy rate in urban areas.

18

World Bank (2007), Pakistan: Balochistan Economic Report. Washington, DC: World Bank.

Figure 7 Situation of Development Indicators in Balochistan Ziarat Zhob Washuk Sibbi Quetta Qilla Saifullah Qilla Abdullah Pishin Panjgur Naushki Nasirabad Musa Khel Mastung Loralai Lasbella Kohlu Khuzdar Kharan Ketch/Turbat Kalat Jhal Magsi Jaffarabad Gwadar Dera Bugti Chagai Bolan/Kachhi Barkhan Awaran

Ziarat Zhob Washuk Sibbi Quetta Qilla Saifullah Qilla Abdullah Pishin Panjgur Naushki Nasirabad Musa Khel Mastung Loralai Lasbella Kohlu Khuzdar Kharan Ketch/Turbat Kalat Jhal Magsi Jaffarabad Gwadar Dera Bugti Chagai Bolan/Kachhi Barkhan Awaran 0

Rural

a)

50

100

Urban

Immunization

150

Ziarat Zhob Washuk Sibbi Quetta Qilla Saifullah Qilla Abdullah Pishin Panjgur Naushki Nasirabad Musa Khel Mastung Loralai Lasbella Kohlu Khuzdar Kharan Ketch/Turbat Kalat Jhal Magsi Jaffarabad Gwadar Dera Bugti Chagai Bolan/Kachhi Barkhan Awaran 0

Rural

20

40

60

80

0

Urban

b) Literacy Rate

Rural

c)

50 100 150

Urban

Sanitation

However, Kohlu fall at the bottom in this ranking with literacy rate of only 16%. As far as rural areas are concerned, there are districts with extreme illiteracy; ZiaratZhob and Bolan are having literacy rate of 20%, 17% and 9% respectively. Similar situation exists in immunization as in the rural areas of the districts of Lasbella, Qilla Abdullah, JhalMagsi, Ziarat, Pishin, Loralai, Kharan and Musa Khel, less than 20% of the children are immunized. Situation of the access to the sanitation facilities emerges even worse as only 3% of the population in Turbat and Naushkihave the sanitation facilities. c)

Household Level Analysis The analysis of consumption patterns of households provides the details of the priorities of households in allocations of their resources. The analysis is based on the micro level data of the Household Income and Expenditure Survey (HIES) 2010-11. The list of the commodities covered in the survey is quite comprehensive, however for the purpose of this study they have been grouped into six categories i.e. Food items, House rent and Housing, Textile &Footwear, Education, Health and Miscellaneous (Religious Functions, Marriage, Birth, litigation etc.). Tables 4 describe the results of the overall Pakistan, It has been found that in the rural and urban areas the top quintile prefer to have small

25

Item wise Expenditure

Table 9 Consumption and Income Patterns (Pakistan) 2010-11 Description Quintiles Overall 1st 2nd Percentage of Households 100.00 15.86 17.63 Member per household 6.38 8.05 7.24 Male 3.23 3.99 3.66 Female 3.15 4.06 3.58 Average Monthly income 21,785.41 11,385.67 14,274.31 per household Average Monthly 15,223.59 9,432.96 11,581.19 Expenditure per household Food items 9,457.89 6,814.42 8,191.80 House rent and 2,693.71 978.86 1,315.57 Housing Textile Footwear 988.42 649.76 800.22 Education 281.70 45.24 117.81 Health 532.77 322.32 389.21 Miscellaneous 1,269.10 622.36 766.58 (Religious Functions, Marriage, Birth, litigation etc.) Food items 62.13 72.24 70.73

Item wise Expenditure (in percent)

3rd

4th

5th

19.07 6.70 3.39 3.30 16,841.17

21.52 5.93 3.05 2.88 20,784.21

25.92 4.92 2.50 2.43 37,727.75

13,362.81

15,072.58

22,715.03

9,140.53 1,741.08

9,889.77 2,262.68

11,812.01 5,714.77

915.63 180.98 462.16 922.43

1,015.73 338.79 540.66 1,024.95

1,354.59 776.32 805.07 2,252.28

68.40

65.61

52.00

House rent and 17.69 10.38 11.36 13.03 15.01 25.16 Housing Textile Footwear 6.49 6.89 6.91 6.85 6.74 5.96 Education 1.85 0.48 1.02 1.35 2.25 3.42 Health 3.50 3.42 3.36 3.46 3.59 3.54 Miscellaneous 8.34 6.60 6.62 6.90 6.80 9.92 family whereas the bottom quintile prefers to have larger families. However it is more visible in rural areas where the top quintile has the household size of 4.8 as compared to the bottom quintile of 7.98.

80.00 

Figure 9 Expenditure on Housing as percent of Total Expenditure expenditure in percent

expenditure in percent

Figure 8 Expenditure on Food items as percent of Total Expenditure

60.00  40.00  20.00  ‐ Pakistan Bottom 20%

Urban

Rural 

40 30 20 10 0 Pakistan Bottom 20%

Top 20%

Urban

Rural 

Top 20%

From Figure 8, it is clear that consumption patterns for urban and rural areas differ significantly. Food items accounts for 53 percent of the total expenditure in urban areas and for 68 percent in rural areas. As higher shares are devoted to food expenditure in rural areas than in urban areas, limited resources remain available to the rural population for spending on education and health. Furthermore, in Pakistan bottom quintile spend Rs. 6,841 on food items whereas the top quintile spends almost double amount i.e. Rs. 11,812. It suggest that household of top quintile are far better nourished than the lowest quintile. However as food items are the necessities therefore the share of food items in the total expenditure do not differ to a great extent with the level of income. The relative shares of total expenditures on housing depict an interesting picture as the income increases the expenditure on housing also gradually starts increasing. The gap between top quintile and lowest quintile in share of expenditure on housing is quite significant as in Pakistan top quintile spends around 25% on housing whereas lowest quintile spends only 10% on housing (see figure 9). The gap is more significant in urban areas

26

as compared to the rural areas. The bottom quintile of urban household spends only 16% on housing whereas the top quintile spends around 33%. In rural areas the gap is not as wide the top quintile spends 13% whereas bottom quintile spends only 9% on housing. It suggests that housing is a necessity good for rural areas as it do not change significantly as income changes. However spending in housing is a luxury for urban household as its spending increased significantly with the income. It also reveals the fact that urban households spend more income in attaining the better housing facilities including sanitation and drinking water as compared to rural population. Hence the government has to intervene in provision of sanitation and other facilities for the poor households particularly to the rural population. The spending on health and education are the major concern of our analysis. The results lead us towards some interesting findings. Although the well-off household spends more on attaining the health facilities but the health expenditure as share of total expenditure do not increase to great extent with the level of income (see figure 10). It has been found that an average Pakistani allocate approximately 3.5 percent of the expenditure to the health. The household belonging to the top quintile spend Rs 805 which is around 3.54 percent of his total expenditure. On the other hand a household belonging to the lowest quintile spends only Rs 322 (far less from the top quintile household) which is around 3.42 percent of his total expenditure. It suggests that relative share of household expenditure on health do not change to a great extent with income and household consider the health as necessity good. However as rich household spend more therefore they are able to get better quality of health services as compared to the low income household. It suggests that health is the necessity good and consumer are bound to allocate considerable portion of their income on attaining the health facilities.

6.00

Figure 11 Expenditure on Education as percent of Total Expenditure expenditure in percent

expenditure in percent

Figure 10 Expenditure on Health as percent of Total Expenditure 5.00 4.00 3.00 2.00 1.00 0.00 Pakistan Bottom 20%

Urban

Rural 

5 4 3 2 1 0 Pakistan Top 20%

Top 20%

Urban

Rural 

Bottom 20%

The comparison of the health expenditure of urban and rural household suggests that urban household spend fewer amounts on health as compared to the rural household. On average an urban household spend around Rs 522 on health whereas a rural household spends Rs 539. Although this difference is marginal but it can be inferred that there are better health treatment and diagnostic facilities available in urban areas, therefore urban household are able to get treatment at early stages. On the other hand due to lack of facilities in rural areas they have to spend more not only in being able to reach the healthcare centers but people also got sicker and has to spend extra amount in getting the treatment. Very surprisingly the relative share in health spending of people of the top quintile is less than that of the bottom quintile in urban areas. The bottom household spends Rs 319 on health which comprised of 3.24 percent of his total expenditure. On the other hand the top quintile household spends Rs 681 which is only 2.7 percent of their total expenditure. The bottom quintile household in rural areas spends Rs 323 which is 3.45 percent of their total expenditure. However the top quintile spends Rs 956 which is 4.9 percent of their total expenditure. The comparison of top quintile in urban and rural areas depicts that the due to availability of public health care facilities in urban areas the gap between top and bottom quintile is not significant and even the rich have to spend relatively less amount on health care facilities. However in the rural areas the gap is quite significant between spending of top and bottom quintile and well-off household spend far more amount in getting the health facilities than the poor. The possible reason is the lack of healthcare facilities in the rural areas. As the rich have extended sources so they are able to reach better healthcare facilities located in urban area however they have to spend extra amount for this. The expenditure on education portray very interesting situation and reveals the fact that education is less important for the poor due to lack of priority for education the poor fell in the vicious cycle of poverty. The figure11 reveals the fact that at national level a Pakistani household spend around Rs 282 on education which is

27

only 1.85 percent of the total expenditures. The urban household spends Rs 432 on education which is 2.34 percent of his total expenditures. As far as rural households are concerned they spend approximately Rs 217which is only 1.60 percent of their total expenditures. It reveal the fact that urban house hold give priority to the education and they are committed to allocated considerable portion of their income on education whereas the rural household spends far less amount on education. The expenditure on education of their children is not their priority. It is worth noting here that there exists huge disparity between expenditure of rich and poor household on education. Both in urban and rural areas the rich give preference to the education whereas the education is neglected by the poor. The top quintile of the urban household spends approximately Rs 996 on education whereas the bottom quintile spends only mere Rs 80 for education; which are 3.9 and 0.8 percent of their total expenditure respectively. This disparity suggest that elite household prefer to educate their children and provide them better facilities in terms of selection of schooling, arranging tutors, quality books, provision of computers etc. Whereas the low income households prefer to send their children to the public schools where education is provided free of cost and even books and uniforms are provided by the government. However, it is bitter fact that quality of education in these schools is below the standard. As far as rural households are concerned similar pattern emerged. The

Description

Table 10 Consumption and Income Patterns (Pakistan) 2005-06 Quintiles 4th Overall 1st 2nd 3rd

Item wise Expenditure

Percentage of Households Member per household Male Female Average Monthly income per household Average Monthly Expenditure per household Food items House rent and Housing Textile Footwear Education Health Miscellaneous (Religious Functions, Marriage, Birth, litigation etc.) Food items

Item wise Expenditure (in percent)

House rent and Housing Textile Footwear Education Health Miscellaneous

5th

100.00

15.65

17.34

19.27

21.47

26.24

6.83 3.41 3.42

8.74 4.38 4.35

7.89 3.90 3.99

7.10 3.55 3.55

6.35 3.14 3.20

5.19 2.62 2.56

12,326.00

6,725.00

8,393.00

9,788.00

11,493.00

20,811.00

10,583.00

5,954.00

7,501.00

8,564.00

10,161.00

17,624.00

4,555.98 1,607.56

3,311.02 489.42

3,947.78 729.10

4,359.93 879.52

4,703.53 1,287.40

5,840.59 3,750.39

606.41 388.40 119.24 3,305.42

415.59 75.62 28.79 1,633.56

501.07 134.27 49.93 2,138.86

541.24 210.67 73.15 2,499.48

617.79 311.94 103.19 3,137.15

847.71 962.27 252.50 5,970.53

43.05

55.61

52.63

50.91

46.29

33.14

15.19

8.22

9.72

10.27

12.67

21.28

5.73 3.67 1.13 31.23

6.98 1.27 0.48 27.44

6.68 1.79 0.67 28.51

6.32 2.46 0.85 29.19

6.08 3.07 1.02 30.87

4.81 5.46 1.43 33.88

top quintile spends Rs 750 on education whereas the bottom quintile spends mere Rs 41 which are 3.8 and 0.44 percent of their total expenditures respectively. These findings are similar to the findings of Burney and Khan (1991), wherein it was concluded that higher income population considers education as a necessity good while the low income group consider it a luxury. Although discussion is based on the HIES 2010-11 during this period economic growth is low and there is very high inflation. However the expenditure patterns do not differ considerable for the pattern of 2005-06 high growth period (see table 5). The table 5 shows the although during 2005-06 Pakistan was enjoying very high

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growth but the pattern of expenditure of lowest and quintiles on health and education remains the same. However it has been observed that during the 2005-06 people belonging to lowest quintiles are spending more on education but the behaviors of top quintiles remains the same. It further confirms that poor consider spending on education as luxury when they have resources available they like to educate their children. On the other hand the elite class considers education as a necessity even with low growth they prefer to educate their children. Hence role of government become very important that even in situations when growth is not happening in the country it should allocate extra resources for the education. Considering the top quintile as elite the results support the main hypothesis of the study that elite in Pakistan are better nourished, attain better health and education facilities therefore they are able to perform well in the professional life as compared to the other segments of the society. Due to better education the children of elite in Pakistan are able to keep the top political, civil and military burucratic positions and they formulate the national policies in a way that it safeguards their interests. VI. Conclusions and Policy Implications The present study had analyzed the presence of elite domination in distribution and usage of resources and impacts of elite domination on economic development of Pakistan. In this regard a three tier analysis has been conducted i.e. a) Federal level analysis b) Provincial level analysis c) Household level analysis. In conclusion, resource distribution at the federal level to the provinces based on population results in regional disparities across provinces and in rural and urban divide. As the political elite watches their own interest and uses resources to develop their own sectors and constituencies, what is needed is to introduce indicators that help achieve equity rather than following uni-variable criteria. Moreover, at the provincial level, the provinces have failed to address the needs of the people as these monies are not distributed efficiently to the districts where actual development takes places e.g. out of Rs. 782 billion budget for the province of Punjab for the year 2012, the share of highly under developed districts of Southern Punjab which comprise of nearly 33% of the total districts in the province,is only Rs. 85 billion i.e. 11%. This process of distant and vertical decision making creates fiscal and political distortions including increasing number of development schemes without proper budget allocations, faulty sectoral allocations, block allocations (allocations not defined and used for political projects in election years) result in regional disparity and disconnect with the recurrent budget. These in sum, in all four provinces and the federal government, encourage elite capture. At the house hold level elites are better nourished, attain better health and education facilities therefore they are able to perform well in the professional life as compared to the other segments of the society. Due to better education the children of elite in Pakistan are able to keep the top political, civil and military burucratic positions and they formulate the national policies in a way that it safeguards their interests. References: Acemoglu, D. (2003). “The form of property rights: Oligarchic versus democratic societies”. NBER Working Paper #10037 Akram, N. (2013), “External debt and income inequality in Pakistan”, Pakistan Business Review 15(3) pp 368385 Akram, N. and Hamid A. (2014)”Climate Change and Human security in South Asia”, Science International, 26(2) pp 801-808 Boeninger, E. (1992),“Governance and Development: Issues and Constraints”, Proceeding of the World Bank Annual Conference on Development Economics, Washington D. C.: The World Bank. Bourguignon, F.O and Verdier,T.(2000) “ Oligarchy, democracy, inequality and growth” Journal of Development Economics, Vol. 62 pp 285–313 Brautigam, D. (1991),“Governance and Economy: A Review”, World Bank Policy Research Working Paper, No. 815, Washington D. C.: The World Bank. Case A. (2001),“Health, Income and Economic Development”. Paper prepared for ABCDE Conference, World Bank, May 1-2, 2001 Crouzet F. and Brezis E. (2006), “The Role of Higher Education Institutions: Recruitment of Elites and Economic Growth” in T. Eicher, ed. Institutions and Economic Growth, MIT Press, pp. 191-213. Deaton A. (2001),“Health, Inequality, and Economic Development”, NBER Working paper 8318,http://www.nber.org/papers/w8318 Galor, Oded & Weil, David N, (1996) "The Gender Gap, Fertility, and Growth," American Economic Review, American Economic Association, vol. 86(3), pages 374-87, June.

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Haider, S., Padda, I., Akram, N. (2011) “An Appraisal of Fiscal Decentralization in Pakistan”, Journal of Economics and Economic Education Research, 12(2) pp 13-24 Hamid A, and Akram, N. and Shafiq M. (2013), “Inter and Intra Provincial Educational Disparities in Pakistan”, Pakistan Journal of Social Sciences , 33(2) pp 447-462 Hamid A, and Akram, N. (2014), “Multi-dimensional income inequality in Pakistan”, International Journal of Economics and Business Research 8(1) pp 21-35 Hossain N., Moore M., Kalati N., Manor J. and E. Reis, (1999),“Elites, Poverty and Development”, Background Paper for the World Development Report 2000/1 on Poverty Ijaiy, G. T. (2006), “Good Governance and Poverty Reduction in Nigeria: A Framework for Policy Analysis”, Journal of Social and Economic Policy, 3 (1): 47-58. Landell-Mills, P. and Serageldin, I. (1991), “Governance and the Development Process”, World Bank Finance and Development, 28 (3): 14-17 Oded Galor & Omer Moav, 2000. "From Physical to Human Capital Accumulation: Inequality in the Process of Development," Working Papers 99-27, Brown University, Department of Economics. Slottje, D. (1991), “Measuring the quality of life across countries”, The Review of Economics and Statistics, 684-693. Staveren, I.V. (2012). “To Measure is to Know? A Comparative Analysis of Gender Indices”, Review of Social Economy UNDP (2002), “National anti-corruption strategy---2002”, Retrieved on December 12, 2012 from http://www.undppc.org.fj/userfiles/file/Pakistan National Anti-CorruptionStrategy.pdf World Bank (1997),“The State and the Changing World”, World Development Report, New York, Oxford University Press.

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