GC University Lahore

Gender & Economic Development

in the Third World
Term Paper
SUBMITTED TO;
(Ma’am Saima Sarwar)

SUBMITTED BY;
Muzamil Qamar
ROLL NO #
1005-BH-ECON-19

Session 2019-2023
ECON-(4212)
 DEPARTMENT OF ECONOMICS

Table of Contents
GENDER INEQUALITIES AND THEIR IMPACT ON ECONOMIC GROWTH:
EVIDENCE FROM PAKISTAN"...............................................................................2
INTRODUCTION......................................................................................................................2
LITERATURE REVIEW...........................................................................................................2
DATA AND RESEARCH METHODOLOGY.........................................................................4
EMPIRICAL ANALYSIS.........................................................................................................4
Long- Run Analysis of Economic Growth Function.................................................................5
Short- Run Analysis of Economic Growth Function.................................................................7

CONCLUSION:.......................................................................................................................8

RECOMMENDATIONS:........................................................................................................8

REFERENCES:........................................................................................................................9

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Gender Inequalities and their Impact on Economic Growth: Evidence from

Pakistan"

INTRODUCTION
The issue of gender inequality has garnered significant attention in recent decades,
particularly when the United Nations (UN) included it in their mandates as part of the
Millennium Development Goals (MDGs). However, despite global recognition, it remains a
harsh reality that only a few countries have made partial progress in addressing gender
inequality, and no country has fully achieved it yet (Saadia and Augusto, 2005).
Nevertheless, it is important to acknowledge that this is a gradual process influenced by
societal attitudes.
Gender equality is a crucial factor for socioeconomic empowerment, and it is an essential
element of morality and ethics. It is a fundamental right for women, bestowed upon them by a
higher power. In the modern era of digitalization, societies have agreed to uphold these rights
for women (Organization for Economic Cooperation and Development, 2011). Ensuring the
fair distribution of rights to both men and women can contribute to increased happiness levels
among individuals.
Efforts have been made worldwide to address gender inequality and promote women's
empowerment, as reflected in the inclusion of these concepts in the MDGs. However, despite
these endeavors, gender inequality persists not only in developing countries but also in
developed nations. Consequently, the deprivation of women's right to education remains a
significant cause of higher fertility rates and infant mortality. It also contributes to low
workforce participation and limited access to quality education and healthcare for children in
the long run (Mitra et al., 2015). Gender inequality negatively impacts economic growth
through various avenues, such as reduced levels of health and education, lower workforce
participation, and high population growth due to limited awareness or adoption of modern
fertility control methods.

LITERATURE REVIEW
The role of women in economic development has been a prominent topic in academic
and policy discussions. Over the past few decades, women's participation in developed and
developing economies has significantly increased. In many countries, the labor force
participation rate of women has approached that of men, and the wage gap has narrowed
(Duflo, 2010). The global female labor force participation rate rose from 50.2 percent in 1980
to 51.8 percent in 2009, while the male labor force participation rate decreased from 82
percent to 77.7 percent. As a result, the gender difference decreased from 32 percent to 26
percent (World Bank, 2012). However, there are still challenges related to the
underutilization and misallocation of women's skills and talents. Gender disparities in
accessing quality education have hindered girls' ability to develop human and social capital.
Consequently, many developing countries face limited job opportunities and wage equality
for women, as significant barriers to women's participation in the labor market persist
(Elborgh-Woytek et al., 2013). A weaker demand in the economy further restricts women's
equal access to employment, skill development, and fair income distribution.

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Gender inequality in education, employment, and health is prevalent in many developing

countries. For instance, there are high mortality rates among girls and women in China and
South Asia, a phenomenon referred to as "missing women" (Sen, 1989; Klasen, 1994).
Substantial gender disparities in education have been observed in South Asia and Sub-Saharan
Africa. Additionally, gender inequality in employment is prevalent in most developing regions
(UNDP, 1995). In the context of Pakistan, studies have found a negative relationship between
economic growth and gender inequality (Ali, 2015). Similar conclusions were drawn by Chaudhary
and Rahman (2009) based on survey data from Muzaffar Garh and Punjab in Pakistan, which
contradicted the findings of Seguino (2000). Moreover, it has been observed that there is a negative
association between education and economic growth, indicating that the exclusion of intelligent
women from education leads to lower skill levels and human resources (Pervaiz et al., 2011).
Khayaria and Fekihis (2015) assessed the impact of gender inequality and investment on economic
growth and found a positive effect of investment and a negative effect of gender inequality on
economic growth. Rakhis (2015) examined the effects of gender inequality in education and the labor
force on the economic growth of Middle Eastern countries but found no significant relationship
between them. Yumusak et al. (2013) analyzed the relationship between economic growth and gender
inequality in Turkey and concluded that a low level of gender equality is negatively associated with
economic growth. Kim et al. (2016) investigated the same hypothesis in Korea and empirically found
that the labor force participation rate of women and economic growth increase when gender
disparities are completely eliminated in both household and labor markets. In Pakistan, approximately
51% of the population comprises women, indicating that slightly over half of the population is female.
This places Pakistan at a low rank of 144 out of 145 countries in the world in terms of gender equality
(Global Gender Gap Report, 2015). Over the course of just a decade, Pakistan's ranking has
significantly declined, resulting in women being deprived of access to essential social opportunities
that contribute to the gender gap. Gender inequality persists in areas such as education, employment,
and health. To address this issue, the Government of Pakistan introduced a law in 2006 aimed at
reducing the gender gap, but its full implementation did not occur until 2012 through legislation. The
aim of this research is to investigate the correlation between gender inequality in education,
employment, and health, and its impact on economic growth in Pakistan, considering both the short-
term and long-term effects. As far as we know, no previous study has examined the relationship
between economic growth and gender inequality while controlling for other economic variables.
Additionally, the application of the ARDL econometric approach to Pakistan's data for exploring the
association between gender inequality and economic growth has not been done before. Therefore, this
study aims to bridge this gap in the existing knowledge and contribute to its improvement. The paper
is structured as follows: Section 1 provides an introduction, Section 2 reviews relevant literature,
Section 3 presents the data and research methodology, Section 4 presents the empirical analysis, and
Section 5 concludes the study and offers recommendations.

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DATA AND RESEARCH METHODOLOGY

3.1 Data
In order to examine the relationship between gender inequality and economic growth, this
research has collected time series data spanning from 1985 to 2014. The data was sourced
from various publications, including the Pakistan Economic Survey, World Development
Indicators, and the United Nations Development Program. The main variables of interest in
this study are gender inequality and economic growth, while several control variables have
also been considered, namely inflation, investment as a percentage of GDP, Real Effective
Exchange Rate, Trade Openness, External Debt, and Political Instability. The variable of
political instability is represented as a dummy variable, taking the value of 0 for dictatorship
and 1 for democracy. To test for co-integration, the study has applied a logarithmic
transformation to all the variables.

Testing for Unit Root

In this study, time series data was utilized to examine the degree of co-integration between gender
inequality and economic growth. To accomplish this, it was important to test for the presence of a unit
root in the time series data. The Augmented Dickey-Fuller (ADF) test was employed for this purpose.
The null hypothesis of the ADF test posits the existence of a unit root. If the probability value is lower
than the conventional statistical significance level, it indicates that the series is stationary, leading to
the rejection of the null hypothesis of a unit root.

EMPIRICAL ANALYSIS
To ensure reliable results in the time series analysis, it is crucial that the data is free from non-
stationarity. In order to assess this, unit root tests are conducted on individual variable time series
data. The Augmented Dickey-Fuller (ADF) test is employed for this purpose. The findings of the
ADF test are presented in Table 1.
The table reveals that some variables exhibit stationarity at the level, while others demonstrate
stationarity at the first difference. As the integrated order of the variables in the model is mixed, the
Auto-Regressive Distributed Lag (ARDL) method is deemed most suitable for examining co-
integration. The study also applies bound testing to establish the long-run equation and test the null
hypothesis of no co-integration. Empirically, the F-Statistical value is found to be 38.39 at a 1%
significance level, indicating the presence of co-integration.

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Long- Run Analysis of Economic Growth Function

The co-integration analysis provides insights into the long-term relationship among
the variables under investigation. Using the ARDL model, the study establishes the long-run
relationship among GDP growth, inflation, investment, trade openness, real effective
exchange rate, external debt, gender inequality index, and political instability. The results are
depicted in table 2.

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 DEPARTMENT OF ECONOMICS

The aforementioned table indicates that, in the long run, all variables, except gender
inequality and trade openness, have a negative impact on economic growth. The results
demonstrate that there is a negative long-run elasticity between economic growth and
external debt, suggesting that as external debt increases, economic growth decreases. An
increase of 1 percent in external debt is associated with a decline in Pakistan's economic
growth by 6.432 percent. This is because a significant portion of the national income is
allocated to debt repayment and interest, which negatively impacts economic growth.
Similarly, the long-run elasticity of economic growth in relation to inflation, as indicated by
the Consumer Price Index (CPI), is negative. This implies that a 1 percent increase in
inflation results in a 1.616 percent decrease in economic growth. Higher inflation diminishes
the positive effects of economic growth. On the other hand, the long-run elasticity of
economic growth with respect to gender inequality is positive, indicating that a 1 percent
increase in gender inequality leads to a 28.613 percent increase in economic growth. This
may be attributed to factors such as a male-dominant society, limited empowerment of
women, and challenges faced by married women in maintaining employment due to
maternity and household responsibilities. Furthermore, the analysis reveals an inverse
relationship between economic growth and the real effective exchange rate in the long run.
An increase of 1 percent in the real effective exchange rate results in an 8.779 percent
decrease in economic growth, primarily due to the negative impact on trade balance and
increased debt burden. Conversely, trade openness positively and significantly influences
economic growth, with a 1 percent increase in trade openness leading to a 2.925 percent rise
in economic growth. Additionally, the study finds that democratic governance in Pakistan has
a slowing effect on long-term economic growth, likely due to inconsistent completion of
previous projects and policy implementation. Lastly, investment has a significant and inverse
relationship with long-run economic growth, with a 1 percent increase in investment
associated with a 6.15 percent decrease in economic growth. Despite Pakistan's abundant
natural resources, limited financing and insufficient government attention have hindered their
exploration and utilization. This lack of investment in various sectors of the economy,
including domestic and foreign direct investment, negatively affects economic growth and
contributes to a negative balance of payments.

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 DEPARTMENT OF ECONOMICS

Short- Run Analysis of Economic Growth Function

The short-run analysis of the economic growth function examined the relationship
among GDP growth, inflation, investment, trade openness, real effective exchange rate,
external debt, gender inequality index, and political instability. The ARDL model was
utilized to estimate the short-run relationships, including the dynamics captured by the error
correction term. The error correction term reflects the speed at which adjustments occur from
short-run disequilibrium towards long-run equilibrium. The results of the short-run analysis
are presented in Table 3.

Table 3: Short-run Coefficients of Economic Growth

The presented table indicates a negative and highly statistically significant error correction
term, suggesting that approximately 2.039 percent of disequilibrium from the previous year
will be adjusted towards long-run equilibrium within a year. Additionally, the short-run
causality was examined using the Wald test, which involved restricting the coefficients of
relevant variables and their lags to zero. The results of the Wald test demonstrate that all the
variables considered in the model, including inflation, investment, trade openness, real
effective exchange rate, external debt, gender inequality index, and political instability, are
highly statistically significant, indicating their influence on economic growth in the short run.

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 DEPARTMENT OF ECONOMICS

To ensure the absence of econometric issues in the economic growth function, several
diagnostic tests were conducted on the ARDL regression. The LM test results indicate no
serial correlation in the model. The normality test confirms the normal distribution of
residuals, while the Breusch-Pagan-Godfrey test verifies the absence of heteroscedasticity in
the residuals. To assess the structural stability of the ARDL model over the considered time
period, the CUSUM and CUSUM SQUARE tests were applied to the estimated parameters.

CONCLUSION:
This study aimed to analyze the economic growth function in Pakistan and assess the
impact of various factors, including gender inequality, inflation, investment, trade openness,
real effective exchange rate, external debt, and political instability. Yearly data from 1985 to
2014 were utilized for this analysis. The results of the Augmented Dickey-Fuller (ADF) test
indicated that some variables exhibited stationarity at the level, while others required first
differencing, making the Autoregressive Distributed Lag Model (ARDL) method more
appropriate. The findings from the ARDL co-integration analysis revealed that economic
growth in Pakistan is co-integrated with inflation, investment, trade openness, real effective
exchange rate, external debt, gender inequality index, and political instability.
Specifically, inflation, external debt, investment, political stability, and real effective
exchange rate were found to have a negative impact on economic growth. This suggests that
an increase in these factors may lead to a decrease in long-run economic growth. On the other
hand, trade openness and gender inequality were found to have a significant positive impact
on economic growth, indicating that trade liberalization and addressing gender inequality can
play a crucial role in promoting economic growth in Pakistan.
Furthermore, this study also examined the short-run dynamics of economic growth in
Pakistan. The results demonstrated that approximately 2.04 percent of the variation in
economic growth is adjusted within a year. The analysis of short-run causality between
economic growth and its determinants, such as inflation, investment, trade openness, real
effective exchange rate, external debt, gender inequality index, and political instability,
revealed their significant impact on short-run economic growth in Pakistan.

Recommendations:
Pakistan should prioritize the implementation of sound policies that promote exports
and strive to diversify its international market presence for exported goods. Additionally, it is
crucial to ensure sustainable participation of women across all sectors, as this is essential for
an accurate representation of their contribution to Pakistan's economic growth. Moreover,
maintaining consistency and timely completion of development projects is vital, as it is
necessary to maximize the utilization of limited resources. Competent authorities should also
ensure that the benefits of macro-level growth reach the general population, improving the
overall standard of living for the people of Pakistan and fostering a better and prosperous
future.

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References:

Ahmed, N., & Hyder, K. (2006). Gender inequality and trade liberalization: A case study of Pakistan.

Ali, M. (2015). Effect of gender inequality on economic growth (Case of Pakistan). Issues, 6(9).

Augusto, L. C., & Saadia, Z. (2005). World Economic Forum. Global Competitiveness Report, 2006.

Bahmani-Oskooee, M. M., & Goswami, G. G. (2003). A disaggregated approach to test the J-curve
phenomenon: Japan versus her major trading partners. Journal of Economics and Finance, 27(1),
102-113.

Bahmani-Oskooee, M., & Nasir, A. B. M. (2004). ARDL approach to test the productivity bias
hypothesis. Review of Development Economics, 8(3), 483-488.

Chaudhry, I. S., & Rahman, S. (2009). The impact of gender inequality in education on rural poverty
in Pakistan: An empirical analysis. European Journal of Economics, Finance and Administrative
Sciences, 15(1), 174-188.

Duflo, E. (2010). Gender inequality and development. In ADE Conference, Stockholm, May.

Elborgh-Woytek, M. K., Newiak, M. M., Kochhar, M. K., Fabrizio, M. S., Kpodar, M. K., Wingender, M.
P., & Schwartz, M. G. (2013). Women, work, and the economy: Macroeconomic gains from gender
equity. International Monetary Fund.

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