Poverty and inequality in Nepal: an analysis of deprivation index 2003-04

Poverty in Nepal is widespread, complex and multi-dimensional phenomenon. Both the incidence of poverty (31%) and income inequality (0.37%) is high. This is the result of rapid urbanization process coupled with extended internal conflict and political instability. And, this has serious consequences especially in urban areas where the gaps between ‘haves’ and ‘haves not’ is highly elevated. On the contrary, rural inequality is declining gradually. The key macro economic indicators for the country show generally poor economic conditions. A huge amount of resources is being injected in the form of nation wide poverty alleviation programmes. However, the achievement level has been very limited. The main objective of the thesis is to study poverty and income inequality in Nepal during post reform period. This is undertaken by exploring the factors explaining the deprivation index from a recent household survey. For this purpose, the study employs factor analysis technique to formulate the deprivation index and run regression to analyse key determinants of deprivation. The result shows that the age and gender of households head, place of residence, educational levels basically primary and secondary schooling, occupational status mainly in the service sectors, status of financial burden in a household and access to basic services are important indicators of deprivation and poverty in the context of Nepal. Poverty levels are highly concentrated in rural areas. A rural resident is more likely to be vulnerable to deprivation than her/his urban counterpart. Deprivation is negatively associated with livestock and positively associated with the degree of indebtedness. The educational attainment of the household head is the most important factor determining the likelihood of a person being in poverty or suffering deprivation. Similarly, households which spends more time to access basic facilities i.e. schools, hospital, markets and road networks etc. are mostly deprived. Empirical evidences suggest that these key findings are also conventional to a developing country. Overall the study finds that the poverty level is still comparatively higher with its absolute and chronic in nature. On the whole deprivation in Nepal in general is high and profound (48%).