Shams, Khadija (2012) Income inequalities and well-being in rural Pakistan. PhD thesis http://theses.gla.ac.uk/3261/ Copyright and moral rights for this thesis are retained by the author A copy can be downloaded for personal non-commercial research or study, without prior permission or charge This thesis cannot be reproduced or quoted extensively from without first obtaining permission in writing from the Author The content must not be changed in any way or sold commercially in any format or medium without the formal permission of the Author When referring to this work, full bibliographic details including the author, title, awarding institution and date of the thesis must be given Glasgow Theses Service http://theses.gla.ac.uk/ [email protected] Income Inequalities and Well-being in Rural Pakistan Khadija Shams submitted in fulfilment of the requirements for the degree of Doctor of Philosophy College of Social Sciences Business School Economics University of Glasgow January 2012 Thesis Advisers: Dr. Luis Angeles Dr. Alexander Kovalenkov Examination Committee: Professor Richard Harris Dr. Sai Ding Dr. Philippe LeMay-Boucher In the honour and memory of my father Malik Shams-ul-Haq Khattak Abstract Income inequalities and subjective well-being have been increasingly identified in the literature as important measures of socio-economic cohe- sion. This is particularly relevant for developing economies that are typi- cally characterised by strong population growth and relatively low incomes per head. Although in those economies a considerable share of resources is derived from rural areas, data availability for these regions is often an issue which precludes important insights into the overall socio-economic tissue of the developing world. This dissertation seeks to advance our knowledge on various aspects of inequalities and well-being with particular emphasis on rural Pakistan. At the core of the present monograph lie three chapters that deal with income inequality, subjective well-being as well as physical well-being (i.e. health). The empirical analysis is based on a unique survey dataset that covers the four provinces of rural Pakistan. The dissertation seeks to contribute to the existing literature in several dimensions. We decompose overall income inequality by its different types to disentangle which sources of income are inequality-increasing and which ones reduce socio-economic divergence. The empirical measurement and assessment of both subjective and physical well-being in rural Pakistan is a rather novel aspect. We introduce and examine different well-being measures as indica- tors of (subjective) poverty and find that well-being in rural areas is largely driven by financial factors. When it comes to health, however, overall re- sults are less clear-cut. The thesis is therefore able to offer several policy recommendations for important socio-economic factors in rural Pakistan. On a more general note, some of the results discussed might also illuminate the policy debate in other geographic areas with similar characteristics. Contents Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . viii Declaration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . x List of Tables xi 1 Introduction and Motivation 13 2 Country context and research design 18 2.1 Country context . . . . . . . . . . . . . . . . . . . . . . . . . 18 2.1.1 Geographic and macroeconomic background . . . . . 18 2.1.2 Cultural and socio-economic background . . . . . . . 19 2.1.2.1 Religion . . . . . . . . . . . . . . . . . . . . 19 2.1.2.2 Family setup . . . . . . . . . . . . . . . . . 20 2.1.2.3 Social stratification . . . . . . . . . . . . . . 20 2.1.2.4 Typical lifestyle in a Pakistani village . . . . 20 2.1.2.5 Healthcare . . . . . . . . . . . . . . . . . . 21 2.1.2.6 Land Tenure and Property . . . . . . . . . . 22 2.1.3 Commercial activities and taxation . . . . . . . . . . 22 2.1.3.1 Trade and labour . . . . . . . . . . . . . . . 22 2.1.3.2 Types of taxes in Pakistan . . . . . . . . . . 22 2.1.3.3 Tax evasion in Pakistan . . . . . . . . . . . 24 2.1.3.4 Social transfers . . . . . . . . . . . . . . . . 24 2.2 Research design . . . . . . . . . . . . . . . . . . . . . . . . . 25 2.2.1 Data and sampling procedure . . . . . . . . . . . . . 25 3 Income inequality in rural Pakistan – sources and decom- positions 29 3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 3.2 Related literature . . . . . . . . . . . . . . . . . . . . . . . . 31 v CONTENTS vi 3.3 Income sources . . . . . . . . . . . . . . . . . . . . . . . . . 33 3.3.1 Overall income shares . . . . . . . . . . . . . . . . . 33 3.3.2 Distribution of sample households by income quintiles 34 3.3.3 Income shares by district . . . . . . . . . . . . . . . . 35 3.4 Inequality decomposition by income sources . . . . . . . . . 36 3.4.1 Decomposing overall income inequality . . . . . . . . 36 3.4.2 Decomposition of overall income inequality by province 39 3.4.3 Decomposition of overall income inequality by district 40 3.5 Inequality decomposition by regions . . . . . . . . . . . . . . 43 3.5.1 Decomposition of income inequality within and be- tween provinces . . . . . . . . . . . . . . . . . . . . . 43 3.5.2 Decomposition of income inequality within and be- tween districts . . . . . . . . . . . . . . . . . . . . . . 44 3.6 Partial correlation analysis . . . . . . . . . . . . . . . . . . . 45 3.7 Conclusion and Policy implications . . . . . . . . . . . . . . 47 4 Well-being and poverty in rural Pakistan: a subjective approach 49 4.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 4.2 Some stylised facts and basic concepts . . . . . . . . . . . . 52 4.3 Descriptive statistics . . . . . . . . . . . . . . . . . . . . . . 54 4.4 Determinants of overall satisfaction . . . . . . . . . . . . . . 57 4.4.1 The model . . . . . . . . . . . . . . . . . . . . . . . . 57 4.4.2 Baseline results . . . . . . . . . . . . . . . . . . . . . 61 4.4.3 Children and household’s specific characteristics . . . 71 4.5 Alternative measures . . . . . . . . . . . . . . . . . . . . . . 76 4.6 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 5 Socio-economic determinants of health in rural Pakistan: relative or absolute standards? 89 5.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 5.2 Inequalities in health and the healthcare system . . . . . . . 94 5.3 Data and methodology . . . . . . . . . . . . . . . . . . . . . 95 5.3.1 Descriptive statistics . . . . . . . . . . . . . . . . . . 96 5.3.2 Empirical specification . . . . . . . . . . . . . . . . . 99 5.4 Empirical results . . . . . . . . . . . . . . . . . . . . . . . . 100 5.4.1 OLS estimation . . . . . . . . . . . . . . . . . . . . . 100 5.4.1.1 Absolute and Relative Income Hypotheses: separate and joint tests . . . . . . . . . . . 100 CONTENTS vii 5.4.2 Robustness tests . . . . . . . . . . . . . . . . . . . . 107 5.4.2.1 Ordered probit modelling . . . . . . . . . . 108 5.4.2.2 Poisson regression modelling . . . . . . . . . 111 5.5 Concluding remarks . . . . . . . . . . . . . . . . . . . . . . . 113 6 General conclusions and directions for future research 115 A Appendix Chapter 2 120 B Sample Questionnaire 122 C Appendix Chapter 4 125 D Appendix Chapter 5 150 Bibliography 166 Acknowledgements A common joke in my home country suggests that PhD stands for Perma- nent head Damage. I am not sure I can agree entirely. It goes without saying that such a long-term endeavour brings many challenges and, yes, at times sufferings. But I feel very blessed and thankful to have met so many helpful people along the way. It would be impossible to mention all of them explicitly. With all their support, I truly feel my studies have not caused me any (mental) damage at all but have rather been a Pleasant and highly-rewarding Discovery. First and foremost, I am extremely thankful to my supervisors, Dr. Luis Angeles and Dr. Alexander Kovalenkov, for their valuable suggestions and continuous support in all aspects of my research. I am deeply indebted to Luis for his advice and guidance. I also would like to thank Alexander for his support in setting up the study and his excellent comments on the first draft of this dissertation. My work has moreover benefited from fruitful discussions with other colleagues as well as constructive comments made by several participants at various workshops and research seminars. A special word of thanks to my liebling and officemate Alexander for being, above all, a dear friend. Working on a research project of this nature is an iterative process that requires several stages of revision. I am therefore truly grateful for the suggestions and remarks made by my examiners. I believe their comments have improved my work. I am particularly pleased about the superb advice by Professor Richard Harris. Richard has introduced me to interesting techniques that allowed me to strengthen the analysis. I would like to express my gratitude to the Department of Economics for providing me with the necessary software and for offering a pleasant research environment. I highly appreciate the training courses and research eventsorganisedbytheScottishInstituteforResearchinEconomics(SIRE), the Scottish Graduate Programme in Economics (SGPE) and the Applied Quantitative Methods Network (AQMeN). I am particularly thankful for thepersonalinsightsofferedbyProfessorBillGreeneandProfessorElhanan Helpman on various econometric methods for the empirical data analysis. The biggest word of appreciation has to go to the members of the house- holds participating in the survey across the four districts of rural Pakistan. Without their assistance and cooperation, this study would not have been possible. I am pleased to acknowledge financial support by the Higher Education viii Commission (HEC) in Pakistan and am grateful to the Frontier Women University, Peshawar, for giving me the opportunity to study abroad. Last but not least, I would like to thank my mum and my family for their under- standing, patience and moral support, which has enabled me to complete my studies. ix