Income inequality, remittances and economic wellbeing in rural Pakistan: linkages and empirical evidence

This paper uses data from a rural household survey in 2008 of 600 sample households to describe the sources of income and its contribution to inequality in Pakistan. Interestingly, transfer income from remittances from within and outside the country is the highest source of income for rural households. This is followed by other sources of income from agricultural, nonfarm, livestock and rental incomes. Income distributions by these sources are calculated by quintiles. Furthermore, decomposition of overall inequality (measured by Gini coefficient) is calculated by sources of income and by provinces and districts. Partial correlation coefficients between Gini coefficients and sources of income are calculated by districts. Finally, a regression model is estimated to determine the nature and magnitude of the effects of relative income levels (measured as economic wellbeing) of households on the shares of remittances in their total household income. The household economic wellbeing contributes significantly and positively to the shares of remittances in the total household income. In general, different sources of income contribute differently to inequality with strong distributional implications. In particular, the contribution of remittances, among others, can be singled out as a major source of income and reduction in income inequality. Our results show that there is a unidirectional causality running from economic wellbeing to remittances and from remittances to income inequality. One of the limitations of our study is the static perspective of the dataset that do not consider changes over time. Second, it is a micro-level study that does not consider changes at a broader perspective. We suggest that similar studies should also be conducted in other regions, for different time periods and at a broader scale or macro-level to develop the subject. Last, it would be nice to look at the consumption and wealth-stock side of economic wellbeing, an issue we do not tackle because of data reasons.