Essays on Spatial Inequalities in Income and Education: Econometric Evidence from Pakistan

From the industrial revolution to the emergence of the so-called knowledge economy, history has shown that economic development has taken place unevenly across regions. National economies are a complex mix of varying types of geographical configurations which in turn involve varying economic systems, infrastructure, and human capital. In this context recent literature in regional growth and development has highlighted how crucial it is to analyse socio-economic phenomena through the lens of spatial concepts such as density, distance, neighbourhood, and agglomeration. This dissertation emphasizes this fact in three interrelated studies that have analyzed the spatial aspects of income and human capital inequalities in Pakistan. The first study investigates the evolution and trend of earnings income distribution in Pakistan between 1993 and 2006—a period characterised by macroeconomic reforms and a decent average GDP growth rate. Specifically, it shows the extent to which changes in the returns to human capital have contributed towards changes in earnings inequality across Pakistan. The second study utilizes exploratory spatial data techniques to analyze the extent of spatial clustering of economic inequalities, growth and development across Pakistani districts between 1998 and 2006. The final study then investigates for the first time income convergence across Pakistani districts between 1998 and 2005 using spatial and non spatial econometric techniques. The main empirical findings from the first study reveal that the returns to low levels of education have declined while the returns to higher education levels have increased. Moreover these returns are much higher for females as compared to males. It has also been shown that earnings inequality has consistently remained higher within provinces as compared to inequality between them. Finally this study demonstrates that females in general and rural females in particular are most sensitive to policies that can affect earnings inequality and labour market outcomes in Pakistan. The findings from the second study demonstrate how neighbouring districts share each other’s development levels, confirming that economic geography does matter for regional inequalities, growth, and development across Pakistan. Finally, the convergence analysis carried out in the third study, demonstrates that conditional convergence may be observed across Pakistan once spatial effects have been taken into account. In summary, this dissertation contributes to the literature and policy debate on economic inequalities and convergence in developing economies and in particular to district level research in Pakistan, by applying counter factual regression analysis and spatial econometric techniques for the first time to Pakistani data.