Transitions Out of Poverty: Drivers of Real Income Growth for the Poor in Rural Pakistan

In spite of rapid overall economic growth in the 1990s, rural poverty in Pakistan did not decline. Panel data covering rural households in four districts in Pakistan suggest that real incomes of many households declined between the early 1990s and 2002, in spite of modest gains in agricultural output at the provincial and national levels. Net crop income increased by 38 percent for the total sample and by 81 percent growth for poor farmers, whose total incomes rose by 23 percent. Nevertheless, rural non-agricultural incomes fell by 30 percent overall and by 16 percent for poor households, indicating that the income and employment multipliers of agricultural growth were insufficient to lead to substantial gains in rural non-farm incomes. A decline in remittances was also a major factor in reducing real incomes in three of the four districts. Controlling for other factors, electrification of the village and paved roads raise household real expenditures by about 75 and 100 percent, respectively, suggesting that accelerated public investments in village electrification could have a significant impact on rural poverty.