UNIVERSITY OF MANAGEMENT AND TECHNOLOGY

DETERMINANTS OF POVERTY IN PAKISTAN

NAME: HASSAN MEHMOOD

ID: F2016029004

PROGRAME: B.S ECONOMICS

SUBJECT: RESEARCH METHODOLOGY

DATE: 2/9/2019

FINAL PROJECT

SUBMITTED TO NOMAN ARSHAD

Abstract:
This study shows the relationship between poverty and its variables, services value added,
agriculture value added, industrial value added, exports and imports. In this study services value
added agriculture value added industrial value added exports has a negative relationship with
poverty by applying Johansen method shows that increase in these sectors leads to decrease
poverty. The data used in this paper is time series data collected form the world development
indicator from the year 1987 to 2017. And other diagnostics test apply in this paper descriptive
test which shows the normality of the variable unit root test which shows the variable is stationary
or non-stationary VIF test which shows the multicollinearity between variables.
Keywords: Poverty; Poverty determinants; Johansen Approach; Pakistan
JEL Classification: O14, L51, O13, F13, F16.

Introduction
What is poverty? Poverty is lack of basic needs of life, such as food, shelter, clothes, some people
consider themselves poor because they do not have a big car a big house and good clothes but
some people who do not have money to buy a bottle of milk and don’t have clothes. According to
the World Bank poor people are afraid of getting sick because they do not have money to buy
medicines, they lost their children’s because they do not have money to operate their children
disease. In other words poverty is when a person does not have money to full his basic need food
shelter, medical, (World Bank 2018).

The determinants of poverty are multileveled such as regional level characteristics, community-
level characteristics, and house hold & individual characteristic

In regional level, many natural characteristics are linked with poverty. Poverty in countries due to
weather problems like floods, low rainfall and lack of natural resources in the base leads to high
poverty. For example, floods in Bangladesh in 2004 leads to 30 million people were homeless and
rural areas also suffered; the rice crop was destroyed as were cash crops sugar and jute. (Cool
Geography.co.uk, 2012). Other countries faces issue like Bangladesh such as Pakistan province
of Baluchistan facing severe water storage and in Sindh (in Thar) and Punjab (in Cholistan).
Environmental changes like floods, droughts, water contamination and fires in forests (Shah,
2014).

Other important regional characteristics that affect poverty is justice, good governance market
stability and fair judiciary. Recent studies shows the importance of gender, ethnic and racial
inequality as a dimension and cause of poverty. Social, economic and ethnic divisions in regions
are often sources of weak or failed development. In the extreme, vicious cycles of social division
and failed development erupt into internal conflict (within or across regions), as in Bosnia, Sierra
Leone, Iraq and Palestine with devastating consequences for people. (Khalid Mahmood Khan,
2005).

Community level characteristics also play an important role which can cause a high level of
poverty. Community level characteristics include access to infrastructure, roads, water, electricity
and other services like education, sanitation and health. Here lack of education reduces changes to
get jobs people get less jobs so unemployment increase which leads to poverty (Khalid Mahmood
Khan, 2005).
Most of the people suffering extreme poverty because of low level of education. Moreover why is
that? Many families cannot afford education and there are many barriers between girls and
education some people do not have education institutions near them. Education can play an
important role in reducing poverty (Kevin Sylwester, 2000), with education people will get more
jobs and other more skills a family just need not survive only but to thrive. UNESCO estimates
that 171 million people could be lifted out of extreme poverty if they left school with basic reading
skills. And, with even more education, world poverty could be cut in half. (Kristin Myers, 2018)
Lack of infrastructure can leads to poverty. Imagine a person wants to go shopping, to sell his
products that he harvested from his fields but there is no roads to go heavy rains flooded routes
and destroyed ways. There is no light; there is no signal for mobile phones children cannot go to
school transportation is more expensive than education. So this will leads to poverty infrastructure
plays and important role in poverty. Inadequate Access to clean water and Nutritious food cause
poverty with lack of food people cannot get enough energy to work so they will get less pay, and
with dirty water, they felt in a disease like diarrhea so they spend little money they earned on their
illness this will cause poverty. Currently, more than 2 billion people do not have access to clean
water at home, while over 800 million suffer from hunger .(Concern USA.org)
 In United States if any natural disasters come there, government reach there for help for
healthcare and food assistance help. But not every government can provide this type of help to
citizens. If something went wrong so the government cannot help everyone so this can cause to
poverty. If we see another country as compare to United States when Bangladesh was hit by floods
in 2004 their government reach there for help but they cannot help each and every one and this
results in 600 deaths and 30 million were homeless 100.00,0 people alone in Dhaka suffered from
diarrhea because of floods water. Rural areas was also destroyed which led them to poverty.

In individual level characteristics the most important factors are in this, age structure, dependency
ratio, employment, status, hours worked, property owned, gender of the household head.
Dependency ratio it is important to know how many persons in one house are working and how
many are in labor force. It may include young and old. But if one person is earning and seven or
eight person are in labor force searching for job there current status is jobless so this leads to
poverty. Because it is difficult for a single person to feed eight persons in family. Gender of the
house hold head significantly influences household poverty,
And more specifically that households headed by women are poorer than those headed by men
(Khalid Mehmood Khan, year).

Poverty is a big challenge in the case Pakistan. When people do not have food or money to full
their needs they will approach the criminal ways. As poverty is the mother of crimes there are
different crimes in Pakistan because of poverty in society. Because of bad governance in Pakistan
it is difficult to eliminate poverty from the society. The proportion of people living in poverty in
Pakistan is so high that it is difficult for a poor person to full his basic needs. Many different crimes
are happening because of poverty like robbery suicide, and kidnapping for ransom. Innocent’s
people are committing crimes because of poverty. Poverty is the big reason for the lower economic
growth in Pakistan (Noman Arshad, 2016).
Population is increasing day by day. Due to rapid increase in population, GDP per capita income
of a person is decreasing and this led to poverty. Moreover, law and order situation is bad in
Pakistan due to this private and public investment is low in Pakistan. Out flow of capital is also a
result of worsening law and order situation. Thus poverty is becoming severe in Pakistan (Noman
Arshad, 2016).
Inflation is another major determinant of poverty because of inflation purchasing power of the
people decreases and they are unable to meet their daily need. Hence they commit crimes. There
for the Government of every country should try their best level to stop inflation. If inflation start
decreasing people will be able to full their basic needs which led to decrease in poverty.

Background of the Study:

Poverty is a big issue in the world. From the past history the main reason of the war is poverty the
ruler at that time attacks on other countries to capture their resources so they can trade those
resources and earn good amount. But now through time poverty and the structure of war change
now countries don’t fight with guns but they do political war. Poverty can reduce in the case of
Pakistan. Education can reduce poverty. There are many factors that can reduce poverty. The main
factor is Government can reduce poverty by ending corruption and making good policy.
Motivation of the study:
Some countries consider that poverty cannot ended. Poverty is a big problem but every problem
has a solution the role of government is important from which poverty can reduce. If government
focuses on the agriculture sector, services sector, exports, industrial sector, these are the key factors
through which poverty can be reduce.
Significance of the Study:
Knowing about poverty is Essential because from poverty we know the social and economic
development of State. By learning about poverty state can make steps to be taken to enhance the
Human resources. As poverty is still a big problem for a lot of people even in this day and age it
still occurs.
Objective of Study:
The main objective of this paper is to find out the reasons and causes of poverty and why these
causes are important to overcome the poverty. There are a lot of causes which leads to poverty
different people have different problems that lead them to poverty different countries have
different issues. According to the (Focus economics) the world poorest country Democratic
Republic of Congo, this country has abundant natural resources with a projected 2018 GDP per
capita of USD 468, the country is in the unenviably position of being the poorest country in the
world. And other poorest country in the world Uganda have poverty because of different factors
like weather, private sector credit constraints. Pakistan is in the fourteen no according to focus
Economics Province Baluchistan have natural gas but because of lack of resources government
can't utilizing that resource.
Research Question:
The research question of the study is what are the determinants of poverty in Pakistan? And what
is the relationship between dependent variable poverty and independent variables education,
unemployment, agriculture, inflation, trade openness.
Hypothesis:
Services Value Added:
Services value added is an important factor which can reduce poverty, when services value added
increases it can decrease poverty.
Industrial Value Added:
Industrial value added is also a big factor from which poverty can reduce, if a nation want to
decrease poverty than country should focus on this increase in industrial value added leads to
decrease in poverty.
Agriculture Value Added:
Agriculture value added is also a key factor utilizing agriculture sector in proper way can reduce
poverty of a country.
Exports:
Export is also a big factor which affect poverty and poverty can reduce from exports when exports
increases production of Goods increases, level of employment increases and this leads to decrease
in poverty.
Imports:
Imports can reduce poverty increase in imports can decreases poverty, but when government have
Good policy.
Organization scheme of the study:
The first of this paper discuss the introduction of this study motivation, objective, research
question, significance of the study, hypothesis of the study, and the second part of this study shows
the literature review and other studies people did on this topic poverty. The third part of this study
shows the data source and the model I have applied on this topic. Last part of this paper shows
conclusion of this topic.
Literature Review
Poverty is an international issue. Recent research estimates that people who base on per dollar
income per day those are 1.2 million are in poverty and some suggest that around 850 million
people not have 1dollar income per day does not have enough access to sufficient food and a
healthy life style. The total global population who live on less than a dollar a day, 1.089 billion
live in developing countries and 0.431 billion live in South Asia, the region to which Pakistan is a
part of; while of the total undernourished people, 815 million and 301 million people reside in
developing countries and South Asian Countries respectively (FAO 2005, p.80).

Services Value Added:

Services value added has big share in the GDP of Pakistan service value added is important for
Pakistan because in contributes 58% in the GDP of Pakistan. (Malik, 1996) Concluded a study
applied ARLD model and conclude that increases in the services leads to decrease the poverty.
(Vikas, 2012) Also conclude a study and applied Johansen cointegration test and with his result he
concluded that increase in the services value added leads to decrease the poverty.

Agriculture Value Added:

Agriculture sector has a share in GDP is almost 24.8 percent it play an important role in reducing
poverty. (Hassan & Malik, 2011) Concluded a study and use variable agriculture value added as
an independent variable there results shows that increase in agriculture sector leads to reduce
poverty. Agriculture sector observing 45 percent of labor force when production of agriculture
sector decreases it leads to increase the poverty (Sarfraz & G, January 2001).

Industrial Value Added:

Pakistan has industrial sector contributes 25 percent in GDP. It has a vital role in poverty. Increase
in the industrial sector people get employment which leads to decrease in poverty (Sherazi, 1985).
From the past years unemployment increases in Pakistan because most of the textile industries is
shut down because shortage of electricity and it leads to increase in unemployment which leads to
increase in poverty (amir, 2017 ). When rural population migrated to urban areas production of
agriculture sector decreases this will leads to poverty (shane, 2015).

Exports:
Export has a positive impact on poverty increases in imports leads to decrease in poverty. From
past years imports of Pakistan is decreases in 2012 imports of Pakistan was 20.41 percent and in
2015 imports decreases and 17.05 which increases unemployment and this cause to increase in
poverty (yasir, ali, & ahmad, 2015). Exports and poverty has a negative relationship because it
increases the employment and it increase the production of goods and services which leads to
decrease the poverty (Geneva, 2013). Trade increase the economy growth of an economy which
leads to decrease in poverty (bhagwati & srinivasan, 2002).

Imports:
Imports has both positive and negative relation with poverty Pakistan import increases in 2016
Pakistan import was 16.16 and in 2017 Pakistan import increases to 17.55 this leads to increase
in production of goods and services which leads to decrease in poverty (amir, 2017 ). Imports has
a positive relation with poverty it decreases the value of local produce goods so sale of those goods
decreases which leads to poverty many textile industries is closed because people get on cheaper
price those products (yasir, ali, & ahmad, 2015).

Methodology:
Theoretical Framework:
As the study is supposed to measure the relationship between the multiple variable which effect
the poverty. So different studies explain that there is a negative relationship between services value
added agriculture value added and poverty (Masood , Nouman, Haroon , & Muhammad, 2011 ).

Agriculture has a negative relation with poverty as agriculture level increases this will increase the
number of employment and this leads to decrease in poverty (c, L, & j, 2003).

Trade openness is also a big factor to reduce poverty with trade openness domestic technology will
increase and goods start producing with more efficiently, so productivity will increase, increase in
productivity will increase in growth and this leads to decrease in poverty. This shows that there is
a negative relationship between trade openness and poverty (Khan & Sattar, 2010).

There is another variable Unemployment. There is a direct and positive relationship between
unemployment and poverty. Unemployment leads to poverty and poverty in turn leads to
unemployment (Vikas, 2012).

Inflation is also a big factor to increase poverty. When inflation increase this will decrease the
purchasing power and aggregate demand will decreases with the passage of time living standard
of people start decreasing and this leads to increase in poverty (Hassan & Malik, 2011).
Inflation is a major determinant of poverty and poverty is the determinant of crime. (Fleisher,
1966) Conducted a study and find the relationship between poverty and crime. He said people are
committing crime because of low income and the less fear of being caught and be punished.

Data Description:
The data I used is secondary data collected from world development indicator and Pakistan
economic survey from the period of 1987 to the period of 2017.
Variables Proxy Data Source
Dependent variable: Poverty headcount ratio at Pakistan Economic Survey
Poverty $1.90 a day (2011 PPP) (% of
population)
Independent variable
Service Value Added ------- World Development Indicator
Industrial Value Added ------- World Development Indicator
Agriculture Value Added ------- World Development Indicator
Exports ------- World Development Indicator

Imports ------- World Development Indicator

Functional Form:

Poverty=ß0 + ß1SVA+ ß2INVA + ß3AgVA + ß4Expt + ß5Impts+…..€t

Descriptive Statistics:
Descriptive statistics tell about structures of the data and give summary about selected sample.
Mean is the most common measure of central tendency. It can be used for both types of data,
continuous and discrete. The merit of mean is that it contains every value of selected data. Median
defines the central position of the data.

Jarque-Bera:
If the probability value of jarque bera test is greater than 0.1, then we will accept the null hypothesis
and conclude that all the variables are normally distributed with skewness approximately near to
0 and kurtosis approximately near to 3.

If the Probability value of jarque bera test is less than 0.1 so we reject null hypothesis and conclude
that they are not normally distributed with skewness not approximately near to 0 and kurtosis not
approximately near to 3.
In this model probability value of all variables are same this shows that this variable is not normally
distributed because its value is less than 0.1 so we reject null hypothesis and conclude that they
are not normally distributed with skewness not approximately near to 0 and kurtosis not
approximately near to 3.When the variables are not normally distributed, if the time series is
greater than 30 years we assume that variables are normally distributed.

PHCR SVA INVA AGVA EXPC IMP

Mean 2.87961 3.875317 3.057594 3.138581 27.37241 27.82723
Median 2.978077 3.878568 3.076907 3.143971 27.36019 27.75905
Maximum 4.130355 3.972374 3.239788 3.230928 27.88408 28.398
Minimum 1.266948 3.766998 2.88716 3.006656 26.56664 27.33818
Std. Dev. 0.832924 0.075359 0.077753 0.052352 0.417816 0.291722
Skewness -0.20306 0.005656 -0.06245 -0.48791 -0.39391 0.047972
Kurtosis 2.109117 1.430002 3.451631 3.282175 1.864973 1.898078
Jarque-Bera 1.238207 3.183985 0.283612 1.332783 2.465721 1.580275
Probability 0.538427 0.20352 0.86779 0.513558 0.291458 0.453782
Sum 89.26792 120.1348 94.78542 97.29601 848.5446 862.6441
Sum Sq.
Dev. 20.81285 0.170367 0.181366 0.082223 5.237096 2.55305

Observations 31 31 31 31 31 31
Coefficient of correlation Matrix:
Coefficient of correlation calculates the strength of correlation between two variables. If it’s zero
then there is no correlation. If it’s 1 then there is perfect correlation. If it’s -1 then there is perfect
weak correlation. If it’s -0.5 then there is weak correlation. If it’s 0.5 then there strong correlation.

PHCR SVA INVA AGVA EXPC IMP

-
PHCR 1 -0.87314 0.612957 0.04457 -0.88057 -0.90437
-
SVA -0.87314 1 -0.61072 0.17893 0.911301 0.91409
-
INVA 0.612957 -0.61072 1 0.34132 -0.41936 -0.59585
AGVA -0.04457 -0.17893 -0.34132 1 -0.27024 -0.14383
-
EXPC -0.88057 0.911301 -0.41936 0.27024 1 0.905698
-
IMP -0.90437 0.91409 -0.59585 0.14383 0.905698 1
This table shows co-efficient of correlation, according to the table there is positive and negative
correlation between dependent and independent variables. Correlation between poverty and
services value added is negative and correlation value is -0.87314 so there is weak correlation.
Correlation between Poverty and Industry value added is positive, and correlation value is
0.612957 this shows there is strong correlation. Correlation between Poverty and agriculture value
added is negative, and correlation value is -0.04457 there is weak correlation. Correlation between
Poverty and exports is negative, and correlation value is -0.88057 there is weak correlation.
Correlation between Poverty and Imports is negative, and correlation value is -0.90437 there is
weak correlation.

Variance Inflation Factor (VIF):

If the value of VIF is less than 10. This shows that, the correlation b/w the two variables is
insignificant, therefore there is no evidence found of multicollinearity b/w the two variables.

SVA INVA AGVA EXPC IMP

SVA -
INVA 1.594833 -
AGVA 1.033074 1.131858 -
EXPC 5.898652 1.213389 1.078783 -
IMP 6.081236 1.55047 1.021124 5.564508 -
If the two variables are independent then it will confirm evidence of multicollinearity. The main
reason behind calculating VIF is to know correlation between independent variables. The value of
VIF between Services value added and Industrial value added is 1.594833 this value is less than
10, this shows that the correlation between two variable is insignificant and there is no
multicollinearity in these variables. The value of Services value added and Agriculture value added
is 1.033074 this value is less than 10 this shows there is no multicollinearity between these two
variables. The value of VIF between services value added and exports is 5.898652 this shows that
there is no multicollinearity between two independent variable because value is less than 10. The
value of VIF between Services value added and import is 6.081236 this shows that there is no
multicollinearity between these two independent variables.
Unit root test:
We apply unit root test in order to check stationary in the model and in the variable. Most probably
unit root test is used in time series data and it tells the variable is stationary or non-stationary. Ng-
Perron test suggests that if the calculated value is less than the critical value than we accept null
hypothesis and conclude that variable is found to be non-stationary, if the calculated value is
greater than the critical value than we reject null hypothesis and accept alternative hypothesis and
conclude that the variable is found to be stationary. All variables including PHCR, SVA INVA,
AGVA, EXPC, and IMPT are found to be non-stationary at level in this test and stationary at first
difference.
Table - 4: Ng Perron Unit Root Test
Unit Root Test at Level Unit Root Test at First Difference
Variables MZa MZt MSB MPT Variables MZa MZt MPT
- - - -
0.3379 7.03668 3.6512
PHCR 3.4459 1.16429 PHCR 7.48359 1.82664
- - - -
0.598 23.282 1.7767
SVA 0.2094 0.12523 SVA 13.8995 2.63253
- - -
0.2161 3.66609 -4.8093 0.5313
INVA 8.5303 1.84318 INVA 46.2721
- - - -
0.2831 3.97667 1.7114
AGVA 6.1939 1.75319 AGVA 14.3631 2.67833
- - -
-1.067 0.5164 15.9871 3.7297
Expc 0.55103 expc 6.58149 1.81191
- - -
-1.067 0.402 13.9717 1.287
Imp 0.13228 imp 23.9538 3.38023

Significance Level Asymptotic critical values*:

1% -13.8 -2.58 0.174 1.78
5% -8.1 -1.98 0.233 3.17
10% -5.7 -1.62 0.275 4.45
VAR Lag Order Selection Criteria:
Lag LogL LR FPE AIC SC HQ

6.41E-
0 166.2046 NA 13 -11.0486 -10.7657 -10.96
1.68e- - - -
1 289.2721 186.7231* 15* 17.05325* 15.07302* 16.43307*
3.66E-
2 319.0658 32.87587 15 -16.6252 -12.9477 -15.4735

* indicates lag order selected by the criterion

LR: sequential modified LR test statistic (each test at 5%
level)
FPE: Final prediction error
AIC: Akaike information criterion
SC: Schwarz information criterion
HQ: Hannan-Quinn information criterion
This table shows estimate of lag length criteria, according to final prediction error, Akaike
information criterion, Schwarz information criterion, Hannan-Quinn information criterion,
maximum lag should be 1.
Johansen Multivariate Cointegration Test:
In order to analyze time series with classical methods OLS is used, in OLS all variables should be
stationary at level if any of the variables becomes non-stationary than OLS cannot be applied. And
when we calculate OLS result will become suporious therefore in order to break the suporiousness
the expert of econometrics purposed cointegration as an alternate approach.

Johansen Multivariate Cointegration Test

7:Trace Statistic
5 Percent 1 Percent
NULL ALT Trace Critical Critical
HYPOTHESIS HYPOTHESIS Statistic Value Value
r=0** r≥0 124.2223 102.14 111.01
r≤1** r≥1 89.10918 76.07 84.45
r≤2* r≥2 57.63911 53.12 60.16
r≤3 r≥3 31.10152 34.91 41.07
r≤4 r=4 15.75473 19.96 24.6
Trace test indicates 6 cointegration equation(s) at both 5% and
1% levels
*(**) denotes rejection of the hypothesis at the 5%(1%)
level
This table present the estimate of Johansen Multivariate Co-integration Test. This table shows the
long run co-integrating equations, trace test indicate 6 co-integrating equations at both 5% and 1%
levels. We reject null hypothesis in all equation at both 5% and 1%, for the first equation trace test
value is 124.2223 which is greater than both critical values.

Normalized cointegration coefficients:

Normalized cointegration coefficients (standard error in
parentheses)
Dependent Dependent
variable=PHCR variable=PHCR
Independent Co- Independent Co-
variable efficient Results variable efficient Results
-6.08941 0.01103
SVA (3.54029) Insignificant SVA (0.0095) Insignificant
-1.72003 1.161053
-5.51571 0.020653
INVA (2.01632) Significant INVA (0.02584) Insignificant
-2.73553 0.799265
-0.87519 -0.01252
AGVA (1.8135) Insignificant AGVA (0.01672) Insignificant
-0.4826 -0.7485
-3.90307 0.056374
EXPC (0.8336) Significant EXPC (0.03807) Insignificant
-4.68219 1.480799
-2.55672 0.097083
IMP (1.73388) Insignificant (0.0461) Significant
IMP
-1.47457 2.105922
5.067804
C
-31.0734 -0.32839
-0.16309 ectt-1 (0.08058) Significant
(3.04514)
This table shows normalized long run coefficient which is based on Johansen approach, the results
shows that there is a negative relation between Poverty and services value added, Industrial value
added, agriculture value added, exports and imports. Coefficient of Services value added is 6.089
which shows that increase in 1% in services value added leads to decrease poverty by 6.089% in
long run in Pakistan. Coefficient of Industrial value added is 5.515 this shows that increase in 1%
in INVA leads to decrease poverty by 5.515% according to this model. Coefficient of exports is
3.90307 which shows that increase in 1% in EXP leads to decrease poverty by 3.90307%.
Coefficient of imports is 2.55672 which shows that increase in imports by 1% in case of Pakistan
leads to decrease poverty by 2.55672% according to this model in long run. After discussing the
long run normalized coefficient, now I would like to highlight adjusted short run coefficient based
on Johansen multivariate co-integration method. Above table shows short run coefficients based
on Johansen approach, the results shows that import is only factor which is significant in short run
and all other variables is SVA, INVA, AGVA, and export is insignificant.
The coefficient of first period lagged term of error term value is found to be -0.32839 and t test
value is 3.04514, this shows that the error term has found to be negative and significant which
confirms the existence of convergence hypothesis for the model. Furthermore, this shows that
disequilibrium is caused by macroeconomic shocks which will be removed by 32% each year, and
the country will reach in equilibrium in three years and four months.

Diagnostic Test:
TABLE-DIAGONESTIC TEST

VEC RESIDUAL NORMALITY TEST: JOINT JARQUE

BERA TEST
jarque bera Prob
13.04756 0.3656
VEC RESIDUAL SERIAL CORRELATION LM TESTS
Lm stat Prob

FOR LAG 1 32.91135 0.6163

STABILITY TEST AR GRAPH

After discussing regarding long run and short run relationship between dependent and independent
variables, I have applied diagnostic test in order to check whether estimated results are reliable or
not? Above table shows the estimated results of normality test, correlation LM test and stability
test AR root graph. Value of Jarque-bera value is found to be 13.04756 and it probability value is
0.3656 which is greater than 0.10. This shows that the test have found to be insignificant and accept
null hypothesis of the test and conclude that error term of model is normally distributed.
Furthermore, estimation of LM stat value for lag-1 is 32.91135 and the probability value is 0.6163
which is greater than 0.10. Moreover, AR root test shows that estimated co-efficient have stability
over the time. This study can summed up by saying that the study is reliable.
Conclusion:
This study shows the relationship between poverty and its variables, services value added,
agriculture value added, industrial value added, exports and imports. In this study services value
added agriculture value added industrial value added exports has a negative relationship with
poverty by applying Johansen method shows that increase in these sectors leads to decrease
poverty. The data used in this paper is time series data collected form the world development
indicator and other diagnostics test apply in this paper descriptive test which shows the normality
of the variable unit root test which shows the variable is stationary or non-stationary VIF test which
shows the multicollinearity between variables.
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