Effect of Institutional and Financial Development on Poverty and Income Inequality in Pakistan

Abstract

The present research investigates the impact of financial and institutional development on Pakistan's poverty and income inequality levels. The time series data from 1984 to 2019 was utilized for empirical analysis. The empirical estimations used the Autoregressive
Distributed Lag Model (ARDL) to analyze the short-term outcomes. The ARDL-Bound test approach was also employed to examine the long-term association between the variables. The findings of this study indicate that financial development plays a crucial role
in reducing poverty and income inequality in Pakistan, both in the short and long run. The empirical findings indicate a negative relationship between financial development and poverty and income inequality in the short and long run. The empirical findings suggest that the influence of intuitional quality on poverty exhibits a positive relationship in the short run, albeit statistically insignificant long-run impact on poverty levels. The impact of institutional development on income inequality in Pakistan, both in the short and long run, appears to be statistically insignificant. The study's findings indicate potential policy measures that may be employed to tackle poverty and enhance income distribution effectively.