Determinants of Middle Class in Pakistan: A 11-Year Trend Analysis

Abstract

The role of middle class in economic development is well-documented in literature. It is argued that middle class stimulates economic growth, mitigates inequality and stabilizes the social structures. The objective of this study is to identify the determinants of middle class in Pakistan and to see the trend of middle class over past years. In this study I used 6 waves of PSLM data from 2004 to 2014 for years 2004-2005, 2006- 2007,2008-09,2011-12,2012-13 and 2014-15. To estimate the size of middle class in Pakistan absolute definition is applied and find middle class for province, rural/urban region, divisions and districts of Pakistan. The alternative ways such as relative and durable goods based definition are also used to estimate the size of middle class. To identify the determinants of middle class the Biprobit regression analysis is applied. To find the consumption of durable by middle class the Tobit analysis used. The results of income based absolute measure shows that from 2004-2014 the middle class in Pakistan is increased from 16.32 percent to 32.12 percent and the poverty has reduced from 27.49 percent to 10.27 percent. The result of Biprobit model shows that the probability of becoming middle class will increase with age, human capital, non-agricultural employment and waves. The residence status also affects the probability of becoming a middle class. In Tobit model the results shows that the middle class will consume 33 percent more than the poor and low class. Also the middle class on average owns 1.091 and 1.287 more items of ordinary durables and luxury durables than low and poor classes. An important policy implication of this study is that in some important geographical distributions the middle class growth is not satisfactory so government must adapt policies that will be beneficial for growth of middle class which as result will increase economic growth of Pakistan.