An Integrated Test of the Unitary Household Model: Evidence from Pakistan*

The conventional unitary model of household behaviour has been tested in several recent studies using, mostly, data from developed countries. These are generally based on a test of the underlying hypothesis that household members pool their income between themselves so that the household acts as a single individual. There is another hypothesis, underlying the unitary model, that each individual pools her/his income from different sources. This paper proposes a test of both these pooling assumptions in an integrated framework and applies it to Pakistani data. We use a simultaneous equation estimation framework which, besides treating the resource variables and household expenditure as jointly endogenous, also allows for correlation between the errors in the different equations. The results show that the outcome of the test of pooling varies between the poor and non poor households. Moreover, contrary to much of the existing evidence on other countries, there is not much support for the “crowding out” of private remittance by other income (earned or unearned). The paper has both methodological and policy interest that extends beyond the immediate context of Pakistan. JEL Classification: I32, I38, D12, C32