Institutional Fault Lines and the Poverty Paradox: Gender Parity, Ecological Depletion, and the Limits of Growth Led Poverty Reduction in South Asia

Abstract

In the standard development models, continued economic growth, increasing credit availability, and better governance ought to lead to declining poverty rates. This study views the persistent high poverty headcount ratios in several member countries of the South Asian Association for Regional Cooperation (SAARC) in the face of the macroeconomic development over the last twenty years as a policy relevant puzzle, not a measurement artifact. We contend that these paradoxes are masked by the operations of channel specific frictions, politically directed credit, perception-based governance gains that do not translate into service delivery, and ecological depletion that can undermine the asset base of the rural poor. We use a hybrid framework of Autoregressive Distributed Lag (ARDL) bounds testing and machine learning algorithms (Random Forest, Gradient Boosting, Support Vector Machines) on a balanced panel of six SAARC economies (Bangladesh, Bhutan, India, Maldives, Pakistan, and Sri Lanka, 2000-2024) to estimate long and short run determinants of poverty headcount ratio in the context of institutional, financial, environmental, and gender labor channels. The most dominant and strongest poverty reducing channel is gender parity in the labor force, which has a long run elasticity about three times as high as all other important channels and is the most important according to both machine learning algorithms. Across both econometric estimators, biodiversity loss is known to be a poverty raising mechanism; domestic credit and access to clean fuel show sign reversing effects in both, suggesting that these have information to offer about the structure of SAARC poverty dynamics; and income inequality reveals only one sign reversing effect, in both cases a poverty decreasing one, which is informative about the structure of SAARC poverty dynamics. The findings suggest that rather than governance reform alone, gender inclusive labor reform is the highest return policy lever for SAARC policymakers, and climate/biodiversity policy should also be considered as an anti-poverty policy instrument, in addition to its environmental goals.