ECONOMETRIC ASSESSMENT OF THE RELATIONSHIP BETWEEN THE DEVELOPMENT OF THE SERVICE SECTOR AND POVERTY LEVELS

Abstract

This study examines the econometric relationship between the development of the service sector and poverty levels in the Republic of Karakalpakstan. The service sector is considered a key driver of inclusive economic growth, contributing to employment expansion, income growth, and poverty reduction, particularly in developing regional economies. Using a multiple regression model, poverty rate (P) is specified as the dependent variable, while service sector employment (S), economic activity (E), and per capita income (I) are used as explanatory variables.

The empirical findings reveal a statistically significant negative relationship between service sector employment and poverty levels. Specifically, a 1% increase in employment in the service sector leads to an average reduction of 0.4–0.6 percentage points in the poverty rate. This confirms that the expansion of the service sector acts as an effective mechanism for poverty alleviation in the regional context.

The study further identifies key transmission channels, including job creation in low-capital industries, formalization of informal employment, increased youth and female participation in the labor market, and strengthened regional economic activity. The results suggest that the service sector should be considered not only as a growth engine but also as a structural policy instrument for reducing poverty.

The study provides policy recommendations for diversifying service activities, supporting small business development, improving digital and logistics infrastructure, and integrating poverty reduction strategies with service sector expansion. These findings contribute to the literature on inclusive growth and regional economic transformation in transition economies.