How Inclusive Has Development Been In Pakistan? Farrukh Iqbal, Director, Institute of Business Administration September 8, 2016

Definition of inclusive development Outcome A is a situation where, on average, incomes and health and education indicators have all improved. Outcome B is a situation where incomes, health and education indicators have improved among the poor (our focus of interest) Outcome C is a situation where the distribution (or inequality) of income, health and education indicators has improved; one way of putting this is to say that the rate of improvement among the poor has been greater than the pace of improvement on average or among the rich Some consider Outcome C to be the appropriate definition of inclusive development Some would accept Outcome B as a case of inclusive development; this is a lower bar and can be thought as a weaker test

Empirical measure of inequality in income, health and education we will pick a ratio that’s simple to understand and simple to implement; this is the parity ratio between the top 20% and the bottom 20%; simple to understand of course and simple to implement because health and education indicators by wealth quintile are now available in global databases if the value of the indicator for the top 20% is equal to that of the value for the bottom 20% then the parity ratio is 1; the level of the ratio can be interpreted as the level of inequality changes in the value of the parity ratio provide an indication of the direction of movement of inequality

Consumption share of bottom 20%

Parity ratio for consumption shares among top and bottom quintiles

Child mortality rates for bottom quintile

Parity ratios in child mortality levels

Pakistan’s experience is not unique among Asian countries

Years of schooling for the bottom quintile

Parity ratios for years of schooling

Pakistan’s experience is not shared by other Asian countries for which we have data

Summary of results Consumption indicator shows falling inequality Health indicator shows rising inequality Education indicator shows rising/stable inequality Implications Don’t base views on just one indicator Check out longer run trends as well

Longer run trends in consumption inequality

Concluding observations Is it easy to change inequality in the long run? Can democracies change inequalities substantially? Strong tests and weak tests for development performance Importance of having DHS style household data to carry out these tests