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This paper quantifies the contributions
to distributional changes observed in Pakistan over the last
decade. In contrast to methods that focus on aggregate
summary statistics, the method adopted in this paper
generates entire counterfactual distributions to account for
the contributions of demographics, labor and non-labor
incomes in explaining poverty reduction. The results show
that the most important contributor was the growth in
income. Moreover, this growth in income seems to be driven
by returns to individual and household endowments, pointing
to productivity increases as the driving force behind
poverty reduction. Lower dependency ratios, transfers and
remittances also contributed to poverty reduction, albeit to
a smaller extent. Growth in productivity, particularly
between 2001-02 and 2005-06 is consistent with estimates
from aggregate accounts, which points to productivity growth
led by movements of labor force away from agriculture and
into industry and services. If the objective is to reach
similar or accelerated poverty reduction and productivity
growth going forward, increased investment in rural areas
will be needed.
