Advertisement

Social Indicators Research

, Volume 147, Issue 2, pp 439–463 | Cite as

Education of the Head and Financial Vulnerability of Households: Evidence from a Household’s Survey Data in Pakistan

  • Liaqat AliEmail author
  • Muhammad Kamran Naqi Khan
  • Habib Ahmad
Original Research
  • 62 Downloads

Abstract

This paper is aimed at to ascertain the relationship between education of head of the households and their financial vulnerability using data comprising of 17,031 households obtained from Household Integrated Economic Survey 2015–2016 in Pakistan. We have compiled three measures of financial vulnerability at household level i.e. financial margins excluding and including the rental payments and Financial Vulnerability Index (FVI). According to the results, proportion of financially vulnerable households in both measures of financial margin declines along with increase in level of education of the head of households and stands at 66% and 77% for no formal education of the head, 56% and 70% for primary, 42% and 61% for secondary, 27% and 44% for higher secondary, 14% and 32% for graduate and 13% and 24% for post graduate levels of education. FVI results indicate that out of 2504 highly vulnerable households i.e. falling in the bottom 10% of the distribution, 63.8% were those with no formal education of their heads followed by 19.3% with primary, 14.3% with secondary and 1.9% with higher secondary level of education. Further, various levels of education and individual characteristics such as marital status, gender, region, province and employment status of the heads, have been emerged as significant determinants of financial vulnerability in all three estimated measures along with household’s income, consumption, savings and rental payments. Findings of the study calls for greater human capital investment both by households and the government of Pakistan in order to stabilize the financial conditions of the households at micro level, which in turn can promote stability and resilience at macro level.

Keywords

Education Households Financial vulnerability Financial vulnerability index Pakistan 

Notes

References

  1. Afzal, M., Malik, M. E., Begum, I., Sarwar, K., & Fatima, H. (2011). Relationship among education, poverty and economic growth in Pakistan: An econometric analysis. Journal of Elementary Education,22(1), 23–45.Google Scholar
  2. Albacete, N., Eidenberger, J., Krenn, G., Lindner, P., & Sigmund, M. (2014). Risk-bearing capacity of households: Linking micro-level data to the macroprudential toolkit. Oesterreichische National Bank, Financial Stability Report,27, 95–110.Google Scholar
  3. Albacete, N., & Fessler, P. (2010). Stress testing Austrian households. In Financial stability report 19June 2010 (pp. 72–91). https://www.oenb.at/dam/jcr:b8160286…/fsr_19_report_01_tcm16-197939.pdf Accessed 17 Nov. 2017.
  4. Ampudia, M., Vlokhoven, H. V., & Zochowski, D. (2016). Financial fragility of euro area households. Journal of Financial Stability,27, 250–262.  https://doi.org/10.1016/j.jfs.2016.02.003.CrossRefGoogle Scholar
  5. Anderloni, L., Bacchiocchi, E., & Vandone, D. (2012). Household financial vulnerability: An empirical analysis. Research in Economics,66, 284–296.  https://doi.org/10.1016/j.rie.2012.03.001.CrossRefGoogle Scholar
  6. Angeon, V. R., & Bates, S. (2015). Reviewing composite vulnerability and resilience indexes: A sustainable approach and application. World Development,72, 140–162.  https://doi.org/10.1016/j.worlddev.2015.02.011.CrossRefGoogle Scholar
  7. Ashraf, J., & Ashraf, B. (1993). An analysis of the male–female earnings differentials in Pakistan. The Pakistan Development Review,32(4), 895–904.CrossRefGoogle Scholar
  8. Aslam, M. (2005). Rates of return to education by gender in Pakistan. In: Global poverty research group, GPRG-WPS-064.Google Scholar
  9. Azeem, M. M., Mugera, A. W., & Schilizzi, S. (2016). Poverty and vulnerability in the Punjab, Pakistan: A multilevel analysis. Journal of Asian Economics,44, 57–72.  https://doi.org/10.1016/j.asieco.2016.04.001.CrossRefGoogle Scholar
  10. Barro, R. J., & Lee, J.-W. (2013). Educational attainment dataset, volume 1.3, 04, 2013. In: Educational attainment for total population, 19502010. http://www.barrolee.com/. Accessed 16 Oct. 2013.
  11. Bernard, G. S. (2004). Toward the construction of a social vulnerability index: Theoretical and methodological considerations. Social and Economic Studies,53(2), 1–29.Google Scholar
  12. Bettocchi, A., Giarda, E., Moriconi, C., Orsini, F., & Romeo, R. (2017). Assessing and predicting financial vulnerability of Italian households: a micro-macro approach. Empirica,45, 587–605.  https://doi.org/10.1007/s10663-017-9378-2.CrossRefGoogle Scholar
  13. Bialowolski, P., & Weziak-Bialowolska, D. (2014). The index of household financial condition, combining subjective and objective indicators: An appraisal of Italian households. Social Indicators Research,118, 365–385.  https://doi.org/10.1007/s11205-013-0401-0.CrossRefGoogle Scholar
  14. Bilston, T., Johnson, R., & Read, M. (2015). Stress testing the Australian household sector using the HILDA survey. In: Reserve Bank of Australia, research discussion paper, RDP 2015-01.Google Scholar
  15. Blöndal, S., Field, S., & Girouard, N. (2002). Investment in human capital through post-compulsory education and training: Selected efficiency and equity aspects. In: OECD economics department working papers, no. 333. OECD Publishing,  https://doi.org/10.1787/778845424272.
  16. Branson, N., Ardington, C., Lam, D., & Leibbrandt, M. (2013). Changes in education, employment and earnings in South Africa: A cohort analysis. In: A Southern Africa labour and development research unit working paper number 105. Cape Town: SALDRU, University of Cape Town.Google Scholar
  17. Brown, S., & Taylor, K. (2008). Household debt and financial assets: Evidence from Germany, Great Britain and the USA. Journal of the Royal Statistical Society A,171(3), 615–643.CrossRefGoogle Scholar
  18. Brunetti, M., Giarda, E., & Torricelli, C. (2016). Is financial fragility a matter of illiquidity? An appraisal for Italian households. Review of Income and Wealth,62(4), 628–649.  https://doi.org/10.1111/roiw.12189Series.CrossRefGoogle Scholar
  19. Campbell, J. Y. (2006). Household finance. The. Journal of Finance,61(4), 1553–1604.CrossRefGoogle Scholar
  20. Cao, M., Xu, D., Xie, F., Liu, E., & Liu, S. (2016). The influence factors analysis of households’ poverty vulnerability in southwest ethnic areas of China based on the hierarchical linear model: A case study of Liangshan Yi autonomous prefecture. Applied Geography,66, 144–152.  https://doi.org/10.1016/j.apgeog.2015.11.016.CrossRefGoogle Scholar
  21. Cateau, G., Roberts, T., & Zhou, J. (2015). Indebted households and potential vulnerabilities for the Canadian financial system: A microdata analysis. In: Financial system review, Bank of Canada, December 2015. Google Scholar
  22. Clercq, B. D., Tonder, J. A. V., & Aardt, C. J. V. (2015). Consumer financial vulnerability: Identifying transmission linkages that could give rise to higher levels of consumer financial vulnerability. Southern African Business Review,19(1), 112–136.CrossRefGoogle Scholar
  23. Dey, S., Djoudad, R., & Terajima, Y. (2008). A tool for assessing financial vulnerabilities in the household sector. Bank of Canada Review, 2008, 47–56.Google Scholar
  24. Dougherty, S., & Herd, R. (2008). Improving human capital formation in India. In: OECD economics department working papers, no. 625. OECD Publishing.  https://doi.org/10.1787/241005853765.
  25. Fafchamps, M., & Quisumbing, A. R. (1998). Human capital, productivity, and labor allocation in rural Pakistan. In: Food consumption and nutrition division, FCND discussion paper no. 48. International Food Policy Research Institute, Washington.Google Scholar
  26. Fagereng, A., Gottlieb, C., & Guiso, L. (2017). Asset market participation and portfolio choice over the life-cycle. The Journal of Finance,72(2), 705–750.  https://doi.org/10.1111/jofi.12484.CrossRefGoogle Scholar
  27. Fang, Y.-P., Zhao, C., Rasul, G., & Wahid, S. M. (2016). Rural household vulnerability and strategies for improvement: An empirical analysis based on time series. Habitat International,53, 254–264.  https://doi.org/10.1016/j.habitatint.2015.11.035.CrossRefGoogle Scholar
  28. Faridi, M. Z., Malik, S., & Ahmad, R. I. (2010). Impact of education and health on employment in Pakistan: A case study. European Journal of Economics, Finance, and Administrative Sciences,18, 58–68.Google Scholar
  29. Gang, I. N., Gatskova, K., Landon-Lane, J., & Yun, M.-S. (2017). Vulnerability to poverty: Tajikistan during and after the global financial crisis. Social Indicators Research,138, 925–951.  https://doi.org/10.1007/s11205-017-1689-y.CrossRefGoogle Scholar
  30. Giarda, E. (2013). Persistency of financial distress amongst Italian households: Evidence from dynamic models for binary panel data. Journal of Banking & Finance,37, 3425–3434.  https://doi.org/10.1016/j.jbankfin.2013.05.005.CrossRefGoogle Scholar
  31. Goodhart, C. A. E., Sunirand, P., & Tsomocos, D. P. (2006). A model to analyse financial fragility. Economic Theory,27(1), 107–142.  https://doi.org/10.1007/SO0199-004-O572-7.CrossRefGoogle Scholar
  32. Guichard, S., & Larre, B. (2006). Enhancing Portugal’s human capital. In: OECD economics department working papers, no. 505. OECD Publishing.  https://doi.org/10.1787/871641300584.
  33. Guiso, L., & Sodini, P. (2013). Household finance: An emerging field. In G. M. Constantinides, M. Harris, & R. E. M. Stulz (Eds.), Handbook of the economics of finance (pp. 1397–1532). Amsterdam: Elsevier Science.Google Scholar
  34. Haq, R. (2014). Quantifying household vulnerability to poverty in a developing economy. In: Pakistan Institute of Development Economics (PIDE), working paper.Google Scholar
  35. Herceg, I., & Nestić, D. (2014). A new cluster-based financial vulnerability indicator and its application to household stress testing in Croatia. Emerging Markets Finance and Trade,50(5), 60–77.  https://doi.org/10.2753/REE1540-496X500504.CrossRefGoogle Scholar
  36. Jamal, H. (2017). Poverty and vulnerability estimates: Pakistan, 2016. In: Social Policy and Development Centre (SPDC), Karachi, Pakistan, research report no. 99, May 2017.Google Scholar
  37. Jappelli, T., Pagano, M., & Maggio, M. D. (2013). Households’ indebtedness and financial fragility. Journal of Financial Management Markets and Institutions,1(1), 23–46.  https://doi.org/10.12831/73631.CrossRefGoogle Scholar
  38. Jehan, Q. (2000). Role of women in economic development of Pakistan. Dissertation, University of Balochistan, Quetta, Pakistan.Google Scholar
  39. Johansson, M. W., & Persson, M. (2006). Swedish households’ indebtedness and ability to pay: A household level study. Penning Ochvalutapolitik,3, 24–41.Google Scholar
  40. Johnson, K., & Li, G. (2010). The Debt-Payment-to-Income ratio as an indicator of borrowing constraints: Evidence from two household surveys. Journal of Money, Credit and Banking,42(7), 1373–1390.CrossRefGoogle Scholar
  41. Kang, W. (2015). An investigation of the determinants of household vulnerability and poverty in Korea. Korea and the World Economy,16(2), 223–251.Google Scholar
  42. Khan, F. A., & Salman, A. (2012). A simple human vulnerability index to climate change hazards for Pakistan. International Journal of Disaster Risk Science,3(3), 163–176.  https://doi.org/10.1007/s13753-012-0017-z.CrossRefGoogle Scholar
  43. Kim, K. T., & Lee, J. M. (2015). Assessing financial security of low income households in the United States. Journal of Poverty,20, 296–315.  https://doi.org/10.1080/10875549.2015.1094773.CrossRefGoogle Scholar
  44. Klasen, S., Lechtenfeld, T., & Povel, F. (2015). A feminization of vulnerability? Female headship, poverty, and vulnerability in Thailand and Vietnam. World Development,71, 36–53.  https://doi.org/10.1016/j.worlddev.2013.11.003.CrossRefGoogle Scholar
  45. Kurosaki, T. (2013). Vulnerability of household consumption to floods and droughts in developing countries: Evidence from Pakistan. In: Hitotsubashi University Repository, Technical Report, 2013-03.Google Scholar
  46. Lee, J. M., & Kim, K. T. (2016). Assessing financial security of low-income households in the United States. Journal of Poverty,20(3), 296–315.  https://doi.org/10.1080/10875549.2015.1094773.CrossRefGoogle Scholar
  47. Michelangeli, V. (2014). A microsimulation model to evaluate Italian households’ financial vulnerability. International Journal of Microsimulation,7(3), 53–79.Google Scholar
  48. MOF. (2018). Pakistan economic survey. In Ministry of Finance (MOF), Government of Pakistan, Islamabad. http://www.finance.gov.pk/survey_1718.html. Accesed 20 June 2018.
  49. Montenegro, C. E., & Patrinos, H. A. (2014). Comparable estimates of returns to schooling around the world. In: World bank education global practice group, policy research working paper 7020, September 2014.Google Scholar
  50. Moret, W. (2014). Vulnerability assessment methodologies: A review of the literature. In: The science of improving lives, FHI 360, report, March 2014.Google Scholar
  51. Murphy, E., & Scott, M. (2014). Household vulnerability in rural areas: Results of an index applied during a housing crash, economic crisis and under austerity conditions. Geoforum,51, 75–86.  https://doi.org/10.1016/j.geoforum.2013.10.001.CrossRefGoogle Scholar
  52. Nasir, Z. M. (1998). Determinants of personal earnings in Pakistan: Findings from the labour force survey 1993–1994. The Pakistan Development Review,37(3), 251–274.CrossRefGoogle Scholar
  53. Nasir, Z. M. (2011). Economic and social impact of financial crisis on households: A case study of Pakistan. In: South Asia Network of Economic Research Institutes (SANEI) working paper series, no. 11March 2011.Google Scholar
  54. Naudé, W., Santos-Paulino, A. U., & McGillivray, M. (2009). Measuring vulnerability: An overview and introduction. Oxford Development Studies,37(3), 183–191.  https://doi.org/10.1080/13600810903085792.CrossRefGoogle Scholar
  55. Nhuan, M. T., Tue, N. T., Hue, N. T. H., Quy, T. D. A., & Lieu, T. M. (2016). An indicator-based approach to quantifying the adaptive capacity of urban households: The case of Da Nang city, Central Vietnam. Urban Climate,15, 60–69.  https://doi.org/10.1016/j.uclim.2016.01.002.CrossRefGoogle Scholar
  56. Notenbaert, A., Karanja, S. N., Herrero, M., Felisberto, M., & Moyo, S. (2013). Derivation of a household-level vulnerability index for empirically testing measures of adaptive capacity and vulnerability. Regional Environmental Change,13, 459–470.  https://doi.org/10.1007/s10113-012-0368-4.CrossRefGoogle Scholar
  57. PBS. (2015). Labor force survey 2014–2015: Thirty third issue. In Pakistan Bureau of Statistics, Ministry of Statistics, Government of Pakistan, Islamabad. http://www.pbs.gov.pk/content/labour-force-survey-2014-15-annual-report. Accessed 10 Jan 2018.
  58. PBS. (2017). The Household Integrated Economic Survey—HIES 2015–2016. In: Pakistan Bureau of Statistics (PBS), Statistics Division, Government of Pakistan, Islamabad. http://www.pbs.gov.pk/content/household-integrated-economic-survey-hies-2015-16. Accessed 26 Dec. 2017.
  59. PBS. (2018). Labor force survey 2017–2018: Thirty fourth issue. In: Pakistan Bureau of Statistics, Ministry of Statistics. Government of Pakistan, Islamabad.Google Scholar
  60. Persson, M. (2009). Household indebtedness in Sweden and implications for financial stability: The use of household-level data. In: Bank for international settlement, papers no 46 (pp. 124–135).Google Scholar
  61. Poh, L. M., & Sabri, M. F. (2017). Review of financial vulnerability studies. Archives of Business Research,5, 127–133.  https://doi.org/10.14738/abr.52.2784.CrossRefGoogle Scholar
  62. Povel, F. (2015). Measuring exposure to downside risk with an application to Thailand and Vietnam. World Development,71, 4–24.  https://doi.org/10.1016/j.worlddev.2013.11.006.CrossRefGoogle Scholar
  63. Qureshi, M. G. (2012). The gender differences in school enrolment and returns to education in Pakistan. In: Pakistan institute of development economics, Islamabad, PIDE working papers 2012:84.Google Scholar
  64. Rajesh, S., Jain, S., & Sharma, P. (2018). Inherent vulnerability assessment of rural households based on socio-economic indicators using categorical principal component analysis: A case study of Kimsar region, Uttarakhand. Ecological Indicators,85, 93–104.  https://doi.org/10.1016/j.ecolind.2017.10.014.CrossRefGoogle Scholar
  65. Sarwar, F., Fakher, A., Ali, S., & Mudassar, K. (2013). Human capital, population and economic growth: A cointegration approach. Universal Journal of Management and Social Sciences, 3(10), 20–32.Google Scholar
  66. Shahbaz, B. (2008). Risk, vulnerability and sustainable livelihoods: Insights from Northwest Pakistan. In: Sustainable development policy institute (SDPI), project report series # 13, May 2008.Google Scholar
  67. Su, B., & Heshmati, A. (2013). Analysis of the determinants of income and income gap between Urban and Rural China. In: IZA discussion paper series, discussion paper no. 7162 January 2013.Google Scholar
  68. Vatne, B. H. (2006). How large are the financial margins of Norwegian households? An analysis of micro data for the period 1987–2004. Economic Bulletin,77(4/06), 173–180.Google Scholar
  69. Ward, P. S. (2016). Transient poverty, poverty dynamics, and vulnerability to poverty: An empirical analysis using a balanced panel from rural China. World Development,78, 541–553.  https://doi.org/10.1016/j.worlddev.2015.10.022.CrossRefGoogle Scholar
  70. Wirehn, L., Danielsson, Å., & Neset, T.-S. S. (2015). Assessment of composite index methods for agricultural vulnerability to climate change. Journal of Environmental Management,156, 70–80.  https://doi.org/10.1016/j.jenvman.2015.03.020.CrossRefGoogle Scholar
  71. Yamauchi, F. (2010). Human capital formation: History, expectations, and challenges in South Africa. Washington, DC: International Food Policy Research Institute.  https://doi.org/10.2499/9780896291805.CrossRefGoogle Scholar
  72. Yusof, S. A., Rokis, R. A., & Jusoh, W. J. W. (2015). Financial fragility of urban households in Malaysia. Jurnal Ekonomi Malaysia,49(1), 15–24.  https://doi.org/10.17576/JEM-2015-4901-02.CrossRefGoogle Scholar
  73. Zanin, L. (2016). On Italian households’ economic inadequacy using quali-quantitative measures. Social Indicators Research,128, 59–88.  https://doi.org/10.1007/s11205-015-1019-1.CrossRefGoogle Scholar
  74. Zhang, Y., & Wan, G. (2006). An empirical analysis of household vulnerability in rural China. Journal of the Asia Pacific Economy,11(2), 196–212.  https://doi.org/10.1080/13547860600591192.CrossRefGoogle Scholar

Copyright information

© Springer Nature B.V. 2019

Authors and Affiliations

  1. 1.Hamdard Institute of Management SciencesHamdard UniversityIslamabadPakistan

Personalised recommendations