Estimating the Role of Prices towards Poverty in Pakistan

Abstract

This study investigates the effects of prices on poverty by applying the methodology of Son and Kakwani (2006) using the two data sets of Pakistan Living Standard Measurement Survey (PSLM) of 2007-08 and 2010-11 in Pakistan. The study calculates three poverty measures such as headcount ratio, poverty gap, and severity of poverty. The study also estimates the price elasticities of poverty for two commodities groups such as food and fuel. The study decomposes the price elasticity of poverty measures into two components; income component and distribution component. The study also estimates pro-poor price index (PPPI) for all the poverty measures. The results show that there in reduction in poverty from 16 % in 2007-08 to 12 % in 2010-11.  The results reveal that food price elasticity of poverty is greater than fuel price elasticity of poverty. The income as well as distribution components contribute to increase poverty, but income component contributes more than the redistribution one towards increase in poverty. The results also disclose that the increases in the prices of both commodities hurt the poor more than the non-poor. The increase in price of food commodities disturbs the poor more than the increase in prices of fuel commodities during 2007-08 and 2010-11. The government should compensate the poor and give some subsidies regarding food.