The relationship between poverty and urbanization along with a battery of poverty determinants have been examined. For this purpose Autoregressive Distributed Lag (ARDL) bounds testing has been applied to investigate the cointegration. Our empirical analysis shows strong evidence of the fact that in Pakistan, poverty is mostly influenced by increasing macroeconomic shocks. Improvement in the inflow of international remittances indicates that it helps in reducing poverty. Urbanization is reducing poverty but its impact is quite negligible. In fact, this poverty reduction effect of urbanization appears more in the short span of time as compared to the long-run. The ever increasing inflationary pressure lowers the real value of nominal assets used for transactions in order to purchase basic necessities of life. Poverty trends are lowering through agriculture and trade-openness thereby showing a positive impact on the well-being of poor segments of population. But economic growth in Pakistan is creating higher poverty among lower classes and benefits of this growth accrue only to rich classes. Considering the tax structure, major revenue is generated through indirect taxes, therefore, increased tax imposes heavy burden. Moreover, increased poverty in Pakistan is also on account of big size of government administrative expenditures.

Cities, the engines of economic growth create innovation, provide employment opportunities, education and health services, while also serving as a market for industrial and agricultural products. Availability of various social and economic services with a network of infrastructure is an added incentive of these cities. Here, it is worth mentioning that authors like Pirenne (1969), Adam (1976), Malthus (1986), and Weber (1958) emphasized the involvement of factors like commerce, manufacturing and demographic shifts, necessary for the growth of cities and economic advancement. According to the United Nations Reports of 1996 and 2002, countries with comparatively lower degree of urbanization, which was around 40% as in Africa and Asia, will reach to an estimate of 54% by the year 2025. Besides this, in urban areas, economic opportunities for the people appear to be better as compared to rural areas. Therefore, urban areas have become attractive for people from less advantageous regions of the country.

Another important factor for the people to move towards urban centers is industrial modernization, which forces people to shift towards urban localities which have a comparative advantage in relation to agricultural sector of rural areas. This argument is easily supported in case of Pakistan by the current Pakistan's Federal Budget 2008-09, which clearly indicates incentives provided to industries, which is a phenomenon of urban locations. It is often observed and Fan et al. (2005) also pointed out that government policies regarding investment, taxation and provision of subsidies are tilted towards urban settlements. This creates an additional demand for resources for the growing population and increased level of economic activity in the urban areas. McGranahan et al. (2004), in their work related to the environmental issues, highlighted the fact that demand for land in order to build residence, transport, industries and disposal of urban waste have risen around the cities.

Infrastructure Journal, Urbanization, Poverty Reduction, Autoregressive Distributed Lag, Agricultural Products, Industrial Modernization, Government Policies, Social Sector Services, Urban Labor Market, Economic Modernization, Industrialization Process, Macroeconomic Shocks, Macroeconomic Stabilization Policies, Error Correction Model, Agriculture Sectors.