An Investigation into the Impact of Entrepreneurship, Human Capital, and Physical Capital on Poverty Reduction in Pakistan

Abstract

This study investigates the relationship between human capital, physical capital, and poverty in Pakistan for the period 1987–2018. Human capital is captured through indicators of education and health, whereas physical capital is represented by gross fixed capital formation. Poverty is measured using the headcount ratio (HCR). Data were sourced from the World Development Indicators and other reputable statistical repositories. The study employs analytical techniques such as Ordinary Least Squares (OLS), Johansen co-integration, Vector Error Correction Models (VECM), and Granger causality tests. The results reveal that poverty levels are significantly influenced by factors such as expenditure on education, levels of physical capital, life expectancy, and infant mortality rates. In contrast, government spending on healthcare had no substantial impact on poverty reduction. Causality analysis indicates that, apart from life expectancy and infant mortality—which display one-way causation towards poverty–there is no strong evidence of consistent bi-directional or uni-directional causal relationships between poverty and the other examined variables.