Determinants of Income Diversification among Rural Households of Pakistan

Abstract

This study is designed to determine the poverty status and determinants of income diversification in rural areas of Pakistan using cross sectional data of Pakistan Social and Living Standards Measurement (PSLM) for 2010-2011. The variables used for measuring income diversification are demographic indicators, poverty status, and income of households. Foster-Greer-Thorbecke (FGT) poverty measures show that 43.1% poor and 56.9% non-poor resided in rural areas of Pakistan. A Tobit model was employed to examine the determinants of livelihood diversification among households. The results show that non-poor and female headed household with higher family size diversify more as compared to poor, male headed household with small size of family members. The place of residence (province used as proxy) also plays important role for income diversification. It is recommended to improve the ways of income diversification among rural household to reduce poverty.

Keywords: Poverty, Income diversification, Rural Pakistan, Tobit Regression Model, FGT Poverty index