Linkages between Services Sector’s Growth and Poverty in Pakistan

Abstract

Despite of the fact that poverty is one of the major issues concerning policy makers, it has received less attention with respect to its linkages with services sector growth. In this research study, an attempt was made to quantitatively explore the nexus between growth in services sector of Pakistan and its poverty reducing impact. A time series data ranging from 1951 to 2010 were used in this study. The services sector was disaggregated into six sub-sectors. An Augmented Dickey–Fuller test was applied to check the stationarity of the data. An Auto-Regressive Distributed Lag approach to co-integration and error correction model was applied to estimate long- and short-run coefficients, respectively. The results of the study indicate that growth in wholesale and retail trade and the ownership of dwelling reduce poverty only in the short run. Growth in finance and insurance worsen poverty. The greatest impacts on poverty reduction occur as result of growth in community services (CS) and transportation, storage and communication (TSC). Among all variables, community services were found highly significant with the coefficients 0.62 and 0.308 in the long run and short run respectively. Therefore, it was concluded that relatively more stress should be given on community services such as education, and health, etc., in order to reduce poverty in Pakistan.