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VOLUME5,2012

THE IMPACT OF TRADE LIBERALIZATION, POPULATION


GROWTH AND INCOME INEQUALITY ON POVERTY:
A CASE STUDY OF PAKISTAN
NajidAhmadI,MuhammadLuqmanI,MuhammadFarhatHayatI,ArslanAhmadII
BahauddinZakariyaUniversity,Multan;IUniversityofthePunjab,Lahore;IIPakistan

political, social, geographical constraint becomes less


valuable.Itcreatesthechancesforeconomicgrowthand
This paper is an attempt to check the impact of income
progressofthecountry.Inthiswayglobalizationreduces
inequality, population growth and trade liberalization on
poverty.Therefore,policymakersshouldmakesuchtype
poverty in Pakistan. Human Development Index (HDI) is
ofpoliciesthatencourageglobalizationsothatpositivefruits
usedasdependentvariableandGinicoefficient,population
canbegainedfromglobalizationandpovertyreductionmay
growth rate, political stability (dummy variable) trade
possible.
liberalizationandlaggedHDIasindependentvariables.The
resultssuggestthatincomeinequalityandpopulationgrowth Our findings are parallel to Deolalikar (2002) who says
haspositiverelationwithpovertywhiletradeliberalization economic growth has positive effect on poverty reduction
has negative relation with poverty. If Pakistan wants to and income inequality has negative effect on economic
reduce poverty then there is a need to control population growthinThailand.Althoughincomeinequalityhasnegative
growthandincomeinequalitygap.Ontheotherhandthere effectoneconomicgrowthyetitworkstoreducetherateof
isadireneedforglobalizationandtradeliberalization. poverty. Lower income students should be given
opportunitiesforeducationsothattheycanreduceincome
gap after getting education. There is also need for
<O40 <M89 <POVERTY <HDI <INCOMEINEQUALITY < investment in historical and disadvantages area of the
TRADELIBERALIZATION <POPULATIONGROWTH Thailandsothatincomeinequalitygapcanbereduced.On
theotherhand,Dhongde(2002)isinaviewthateconomic
growth reduces poverty. According to him this poverty
Thebasicpurposeofthispaperistoexaminethecauses reductionisnotonlyonthebasisofheadcountratiobutalso
that decrease poverty. Poverty reduction, trade reduction in poverty gap and society enjoys all luxuries
liberalization,controlatpopulationanddistributionofincome equally.Forreductioninpovertythereisnotonlyasingle
equally are the major economic goals of every country. variable i.e. economic growth but distribution of income
Everycountrywantstogetridofpovertybecausepoverty equally plays very important role in poverty reduction.
means low income, low education, low health and However,mostimportantfactoriseconomicgrowththatis
powerlessness.Tradeliberalizationmeanstheremovalor the source of poverty reduction in India. Thrilwall (2008)
reductionofrestrictionsandbarriersonexchangeofgoods considers trade liberalization as the key for economic
amongdifferentnations.Itincludestheremovalorreduction growth. But the impact of trade liberalization on poor
ofbothtariffandnontariffobstacleswhileincomeinequality developing countries with different aspects like poverty
describeshowincomeisdistributedamongresidentofan reduction,incomedistributionandeconomicgrowtharenot
area.Highlevelofinequalityindicatesthatasmallnumber gainedastheyareexpected.Tradeliberalizationincreases
ofpeoplereceivemostofthetotalincomeandthemostof theexportperformancebutitisnecessaryforapoorcountry
people receive only a small portion of total income. toprotectitsownindustrysothatitcanmakeprogressas
Inequality can be measured as follows: (1) Coefficient of poorcountriesexportprimarycommoditiesandtheircostin
variation(2)Decileratio(3)Ginicoefficient. theinternationalmarktislesswhiletheirimportsarefinal
There are many economists who favor globalization and goodsandinthiswaytheybearlossfromtrade.
tradeliberalization.Theyfavoreconomicgrowth,distribution OurpaperiscloselyrelatedtoAlvan(2009)whoviewsthat
ofincomeequallyandglobalizationastheythinkthatthese income inequality is effected with different variables like
variables can reduce poverty and country can make globalization, inflation, economic growth, human
progressbyreducingpoverty.Therearenumberofexisting development etc. Human Development and income
studies that support our point of view about poverty inequality has negative relation with one another. High
reduction i.e. globalization, trade openness, controlled human development means there is equal distribution of
populationgrowthandincomeequalityreducepovertylike income and vice versa. Alvan took the sample of nintey
Winters (2000) points out that trade liberalization and countriestochecktherelationbetweenhumandevelopment
openness plays vital role in poverty reduction and and income distribution. He suggested that human
development.Openeconomiesalwaysgivebetterresults developmentshouldbegivenfirstperiorityindevelopment
inpovertyreductionthancloseones.Tradeliberalizationis programme in developing countries as it is necessary for
beneficialfordifferentclassesofthesocietylikeconsumers, the progress of a country. The paper is also related to
producers and it raises the earning of workers. However, Shahzad Hussain (2009) literature who says that
thepoorcannottakemuchadvantagefromtheopportunities globilization and trade liberalization has positive effect on
thattradeliberalizationcreatesbecausetheyhavelackof the distribution of income in developing countries like
skillsandcapitalwhileLow(2001)viewsthatglobalization Pakistan.Incomeinequalitycanbelessenedthroughforeign
istheprocessinwhichcommunicationbetweenpeopleof investment. However, foreign capital (Investment,
different nations increases. It is also globalization that remittances) effects the distribution of income negatively
Inajid_2iqbal@yahoo.com within the country. Foreign direct investment has also
positive impact on the income distribution of Pakistan. If
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