Measuring the Differential Economic Impact of Education across Income Groups and Provinces in Pakistan: A Model-Consistent Approach

Engel’s Law states that the share of food in household expenditure declines with households’ total expenditure—a regularity that is clearly evident in Pakistani household income and expenditure data. This study uses an “Engel curve” to incorporate additional social effects—including the impact of education on welfare—to infer the differential impact of education on measures of household wellbeing across income groups and provinces. Our Engel curve specifications close the gap between economic theory and empirical applications critical to evaluating the effects of education on economic wellbeing. The results show that net primary and matriculation education enrolment ratios can bring about a significant improvement in people’s welfare. Accordingly, there is a need to specifically redirect resources to Balochistan where access to educational opportunities is rather low; and to increase access to such opportunities in Sindh and Khyber Pakhtunkhwa. Data for the period 2008–11 shows that households in the two lowest income groups are worst off in terms of access to educational opportunities. Efforts should thus be stepped up to enhance their access to educational opportunities at the primary and matriculation levels. The study’s predictions are intended to guide policymakers in terms of where to concentrate their efforts and reduce economic distortions, and move the economy onto a sustainable path in the long run.