Developing Research and a Research Culture: Results from a Pilot Project in Pakistan

This paper argues that successful public policy requires engaged research developing ideas and evidence from diverse vantage points. Pakistan’s social science research remains fragmented, under-resourced and dependent on external agendas. We describe a five-year pilot programme to enhance Pakistan’s research culture. Seventy-two crowd-sourced and competitively-selected projects at 46 geographically dispersed institutions were supported. Provincial universities were empowered and networking with the better-placed metropolitan institutions proved mutually beneficial to scholarship. Substantial research outputs were completed in important areas of policy. We conclude that such multi-year commitments to review and network engagement are vital to strengthening policy capacity. Keywords: Pakistan; Research Community; Social Sciences; Networking; Competitive Grant

Gender Gaps in Child Nutritional Status in Punjab, Pakistan

Child nutritional status has improved over the period 2008 to 2014 in Punjab, Pakistan's largest province with a population of over 100 million, as rates of severe stunting have declined by 8.6 percentage points and average height-for-age (HFA) has increased by 0.19 standard deviations. However, the nutritional status of children in Punjab is still quite poor in comparison to many Sub-Saharan African countries. Recent research from India suggests eldest son preference and son-biased fertility stopping patterns negatively impacts the nutritional status of other children in the household, especially daughters. In order to test for latent gender discrimination in Punjab, Pakistan, a culturally similar neighbour, we apply a finite mixture model to a sample of couples with at least one child of each gender, though we do not find any. We do find, however, that when there is a larger share of children without an elder brother, that is, there is no son or a son is born after several daughters, that the incidence of stunting is higher and average HFA z-score of a couple’s children is lower, using an OLS analysis. This suggests that some families might be increasing their fertility beyond the number of children they can support in pursuit of sons. In this way, couples’ preferences regarding the gender composition of their children can have subsequent effects on the long- term nutritional status of their children. JEL Classification: I2, I14, I15 Keywords: Pakistan, Height-for-Age, Gender, Finite Mixture Mode

Understanding Business Cycle Fluctuations in Pakistan

Notwithstanding the level of improvement in understanding the complexities of an economy, it is now well accepted that the ultimate incidence of various policy interventions leads to varied outcomes in terms of magnitude and persistence depending upon the structure of the economy. The objective of the present study is to disentangle the relative contributions of various exogenous and domestic shocks that contribute to business cycle fluctuations in Pakistan. The study is based on the New-Keynesian Open economy model, which is an extended version of (Gali & Monacili 2005). Keating’s two-step approach (1990, 2000) is employed to capture the dynamic behaviour of the variables of interest. Impulse response functions, along with forecast error variance decomposition analyses, are used to gain useful insights into the understanding of the transmission mechanism of policy and non-policy shocks. It is observed that fiscal policy does matter, at least in the short-run. The interest rate shock leads to the exchange rate appreciation thereby confirming the exchange rate puzzle. In response to adverse supply shocks, the Monetary Authority responds with a monetary contraction that prolongs the recessionary periods. Furthermore, it has a limited power to control inflation as inflation in Pakistan stems from supply-side factors as well as fiscal dominance. JEL Classification: C32, E52, E62, F41 Keywords: Open Economy, New Keynesian Model, Rational Expectations, Exchange Rate Puzzl

Dictatorships, Patronage and Public Good Provision: Some Empirics

Dictatorship has been one of the most persistent regimes types in history. Different dictators have applied different strategies for maintaining political support across different societies. We discuss and empirically estimate the hypothesis that states that dictators rely more on patronage as compared to the general provision of public goods for political support. Our results, based on the data from cross-section of the countries from all continents, confirm this hypothesis. We use military spending as an indicator of the patronage to military and the secondary school enrolment as an indicator of the provision of public goods. In the separate sets of regressions, we conclude that dictatorship has a significant negative effect on the secondary school enrolment rate and a significant positive effect on military expenditure as percentage of GDP. These effects, in turn, might have caused the persistent of dictatorships in many societies. In order to generalise these findings, we also check robustness of the findings with respect to other variables like infant mortality rate, average life expectancy, Human Development Index (HDI), corruption, rule of law, ease of doing business and competitiveness. The robustness analysis confirms our findings. JEL Classification: P16, H11, H41, H42 Keywords: Dictatorship, Patronage, Public Goods Provision, Military Spending, Secondary School Enrolment Rate, Robustness Analysi

Impact of Micro Hydropower Projects on Household Income, Expenditure and Diversification of Livelihood Strategies in Azad Jammu and Kashmir

The study examines the impact of Micro Hydropower (MHP) projects on households’ income, consumption and diversification of livelihood strategies in District Hattian Bala, Azad Jammu and Kashmir. A multinomial logistic model is used to investigate the possible role of MHP and other control variables on households’ adoption of livelihood strategies. The Results show that MHP-micro hydropower has a positive significant effect on household’s adoption of non-farm and diversified livelihood strategies. These findings suggest that MHP projects in Northern areas of Pakistan could help in improving household’s income and consumption through adoption of high income livelihood strategies. Keywords: Micro Hydropower (MHP), Livelihood Strategies, Income and Expenditures, Poverty Alleviation, Multinomial Logistic Mode

Fareeha Zafar. Canals, Colonies and Class: British Policy in the Punjab 1880- 1940. Lahore, Pakistan: Lahore School of Economics. 2017. xxii + 317 pages. Price not given.

Fareeha Zafar’s book Canals, Colonies and Class: British Policy in the Punjab 1880-1940 is essentially an edited reproduction of her PhD thesis, The Impact of Canal Construction on the Rural Structures of the Punjab: The Canal Colony Districts, 1880 To 1940. The thesis was completed about 35 years ago at the School of Oriental and African Studies, the University of London (now SOAS, the University of London). She studies the British colonisation process in the Punjab and its effect on the local environment, the production patterns, and social relations, understanding that despite several similar studies on the region, no serious effort had been made to synthesise these issues the way she does in this book. However, in the form of a new book, the synthesis does not add much value as it reiterates the British colonisers’ well-known strategies, namely irrigation development as a tool to settle disarmed forces and nomads and, thereby, strengthening a class of local landed elite to maintain their power in the colonies, their revenue-seeking policies, indebtedness of the landed class and alike. Nevertheless, considering the timing of the original contribution, the book, if read together with the contributions such as Khuhro (1978/1999) and Cheesman (1997), provides a relatively rich description of geographers’ analyses of the British policies, their intentions, and their effects

Testing the Monthly Calendar Anomaly of Stock Returns in Pakistan: A Stochastic Dominance Approach

In this paper, we first examine the presence of monthly calendar anomaly in Pakistan Stock Exchange (PSX) using aggregate and firm-level monthly stock returns. Secondly, we classify the sample firms into low-beta, medium-beta, and high-beta firms to examine the monthly anomaly of stock returns for firms having different level of systematic risk. By considering the stochastic dominance approach (SDA), we employ the simulation based method of Barrett and Donald (2003) to identify the dominant month over the period from January 2000 to December 2017. We find significant evidence of the existence of the January effect in both firm and market stock returns. We also find that the January effect exists more prominently in both low-risk and high-risk firms categorised based on their systematic risk. On the other end of the continuum, for moderately risky firms, there is strong evidence of the presence of the December effect. One of possible explanations of the January effect is the yearend bonus received in the month of January. Such bonuses are generally used to purchase stocks, causing the bullish trend of stock prices in January. However, the evidence of the January anomaly in both low-beta and high-beta portfolios returns is puzzling, suggesting that investors may invest in both low- and high-risk stocks when enthusiastically investing in stock market. The findings of the paper suggest that investors may get abnormal returns by forecasting stock return patterns and designing their investment strategies by taking into account the January and December effects and the level of systematic risk associated with the firms. JEL Classification: G02, G12, G14 Keywords: Behavioural Finance, Stochastic Dominance Approach, Monthly Anomaly, January Effect, December Effect, TOY Anomaly, Abnormal Returns, KS Type Test, PS

Rashid Amjad (ed.) The Pakistani Diaspora: Corridors of Opportunity and Uncertainty. Lahore, Pakistan: Lahore School of Economics. 2017. 337 pages.

The book “The Pakistani Diaspora, Corridors of Opportunity and Uncertainty”, which is edited by Rashid Amjad, is a collection of 17 academic essays on Pakistani migrants and Pakistani diaspora in different countries. This book presents diverse viewpoints in the study of diaspora. This book does not just analyse the size of the diaspora in a chronological manner, but it also provides important understanding of the cost and benefits associated with migration and assimilation of the migrants’ families in new environments. In the first paper, the author tries to capture the salient features and dynamics of Pakistan’s “age of migration” across home and host countries. By 2017, the estimated diaspora was at 9.1 million – almost 5 per cent of Pakistan’s population. The labour class started to migrate to the UK in 1950s while highly skilled professionals started moving to the US and Canada in 1960s. The unskilled and semiskilled workers began to move to the Middle East in 1970s and due to easing off their visa policies in 1990s, migrants began moving to Europe, Singapore, Thailand, Malaysia and Australia from Pakistan. According to the author “A large number of people face losses in the struggle to migrate to foreign countries. A majority of illegal migrants are imprisoned in different countries while trying to reach Europe while dozens are killed on their way to Greece.

Oil Price Shocks, Systematic Monetary Policy and Economic Activity

This study quantifies the impact of oil price shocks and the subsequent monetary policy response on output for Pakistan. It employs a quarterly Structural Vector Auto-regression framework for the period 1993–2015. It first discovers that Hamilton’s (1996) Net Oil Price Increase indicator appropriately reveals most of the oil price shocks hitting Pakistan’s economy. We find that a contractionary monetary policy, resulting from the oil price shocks, contributes to significant output loss in Pakistan. After encountering the Lucas critique, the present study finds that around 42 percent of the output loss is due to the ensuing tight monetary policy. This suggests that the central bank of Pakistan can reduce the impact of oil price shocks by reducing its intervention in the market. JEL Classification: E1, E3, E5 Keywords: Oil Price Shocks, Monetary Policy, Structural Vector Autoregressio

Sources to Finance Fiscal Deficit and Their Impact on Inflation: A Case Study of Pakistan

Theoretically, fiscal deficit is inflationary but the sources of financing fiscal deficit may differ in terms of their impact on inflation. Question arises that what should be the least inflation cost source of financing? This study attempts to answer this question and explore the long run relationship among the sources to finance fiscal deficit and inflation. In so doing, the estimations have been done in four stages on the basis of categorisation of the deficit financing heads. In the first stage it has been tested that fiscal deficit along with money supply are inflationary. In the second stage fiscal deficit is bifurcated into two components, domestic borrowing and external borrowing for fiscal deficit. In the third stage, domestic borrowing is further divided into two heads, bank and non-bank borrowing. While in the fourth and last stage, bank borrowing is further categorised into two parts, borrowing from scheduled banks and central bank, and non-bank borrowing which comprises borrowing from National Saving Scheme for budgetary support. The Johansen Cointegration Technique is used for the first stage of estimation, while Auto Regressive Distributed Lag Model is employed for the rest of the three stages. The study finds that there is a long run relationship among sources of financing fiscal deficit and inflation. Inflation is positively affected by domestic borrowing, bank borrowing and borrowing from central bank, while central bank borrowing is more inflationary in nature. Consequently, fiscal deficit should be financed through external sources, non-bank and scheduled bank borrowings. JEL Classification: H62, H74, E31 Keywords: Deficit, State and Local Borrowing, Inflatio