Exploring Pakistan’s Regional Economic Cooperation Potential

Free trade benefits are not well-harnessed despite the WTO because of the regional groupings. Such groupings have, in fact, resulted in a chaos. Pakistan has been a member of the SAARC and the ECO. In both the groups, intra-regional trade accounts for only four percent of total trade. The present study briefly reviews and identifies constraints to intra-regional trade and other modes of economic cooperation in the region. The SAFTA agreement and the possibilities of greater economic cooperation are also examined. Comparative advantage and low trade complementarity are found to be the main impediments to trade. Other obstacles such as limited capacity to generate exportable surpluses, restrictive trade policies, and political problems have also inhibited the growth of intra-regional trade. Higher trade levels can be achieved through intra-industry trade, vertical specialisation, joint export marketing of competing regional export products, deepening trade liberalisation, promoting monetary cooperation, and encouraging joint industrial ventures. It is imperative for the success of SAFTA that the negative list is kept quite small and the countries are prepared for closure of a few industries. Thus the SAFTA has great potential and South Asian countries should accept short-term costs for long-run benefits. Expansion of trade as well as efficiency and improved quality of exports would benefit the countries participating in the regional co-operation effort.Pakistan, Regional Economic

Pakistan’s Industrial Experience and Future Directions

This paper examines the growth and patterns of industrial production and investment activities in Pakistan during the last fifty years, 1947–1997. The industrial strategies pursued so far and the levels of efficiency and protection in the manufacturing industries are also examined. It shows that the growth rate of the manufacturing sector exceeded 8 percent up to the 1980s, but in the recent years, it has slipped to around 3 percent. Keeping in view the current sluggish output growth and inadequate investments in the industrial sector, it is recommended that Pakistan must pursue the efficient industrialisation strategy. For this purpose, the country has to pursue the sole objective of accelerating the pace of industrial investment activities and the tariff structure has to be changed in such a way that the activities chosen accord with her dynamic comparative advantage. In addition, the government will need to influence the structure of incentives, which are largely governed in Pakistan by the protection structure. The government must provide the necessary physical and social infrastructure for efficient industrialisation. Augmenting the science and technology apparatus of the private sector, bringing research institutions up to the international standards, and streamlining of technology creation, absorption and diffusion systems are essential to diversify production towards new technology-based industries. Cluster approach (i.e., an agglomeration of key industries, supporting sectors, infrastructures, and institutions that are interlinked and interdependent) can be quite useful in the development of vendors. The regulatory framework needs to be streamlined. There is also a need to improve outdated and overlapping laws regarding the industrial sector. Human resource development (through cluster approach) would improve industrial efficiency through innovations. Consistent and stable policies and improved law and order situation are pre-requisites for efficient industrial development in Pakistan.

Remittances, trade liberalisation, and poverty in Pakistan: The role of excluded variables in poverty change analysis

This paper explores the impact of two shocks, trade liberalisation policies and decline in remittances, on welfare and poverty in Pakistan. It begins by reviewing the economy, which reveals that during the Nineties although import tariffs were reduced by 55 percent, poverty however remained higher in this period than in the Eighties. At the same time, Pakistan has experienced a slow down in the inflow of remittances, which reduces the incomes of households and puts pressure on the exchange rate resulting in reduction in the inflow of imports despite a reduction in import duties. Thus, in the absence of the effects of decline in remittances, the analysis of the impact of trade liberalisation policies may render biased results. This study overcomes this constriction and analyses the impact of trade liberalisation policies in the absence and presence of decline in remittances in a CGE framework with all the features necessary for trade policy analysis with poverty and remittances linkages. The simulation results show that a decline in remittances reduces the gains from trade liberalisation. The negative impact of remittance decline dominates the positive impact of trade liberalisation in urban areas. But, the positive impact of trade liberalisation dominates the negative impact of a decline in remittances in the case of rural areas. Poverty rises in Pakistan as a whole. It shows that the decline in remittance inflows is a major contributory factor in explaining the increase in poverty in Pakistan during the Nineties.Pakistan; Remittances; Trade Policy; CGE; Poverty

National Income Accounting and Environment: A Case Study of Waterlogging and Salinity in Pakistan

Irrigation plays a crucial role in improving agricultural productivity, it has resulted in waterlogging and salinity problems in Pakistan due to both water seepage from canals and overdoses of water encouraged by inappropriate water pricing practices. As many as 2.2 million hectares of land forming 13 percent of the cultivated area in Pakistan suffer from an acute problem of waterlogging and salinity, i.e., water table is less than 5 feet from the normal surface level. [See Government of Pakistan (1993)]. Despite the government’s effort to resolve the problem through an expansive network of public tubewells under the salinity control and reclamation project (SCARP), the problem seems to have worsened over time. The higher water doses may increase the growth of output in the short run, but by degrading the agricultural lands and increasing impurities of potable water, etc., they adversely affect the long-run growth. These adverse effects of the inappropriate irrigation practices on agricultural productivity are generally not accounted for in the national income accounting system. Accordingly, there is a need to account for the forgone economic, social, and environmental benefits. In this regard, the environmental resource accounting provides a valuable information base for integrated development planning and policy. The approach allows for segregation and elaboration of all environment-related flows and stocks of traditional accounts, linkage of physical accounts with monetary environmental accounts and balance sheets, assessment of environmental costs and benefits, accounting for the maintenance of tangible wealth, and elaboration and measurement of the indicators of environmentally-adjusted production and income.

Financial Development and Economic Growth: Evidence from a Heterogeneous Panel of High Income Countries

This paper examines the empirical relationship between financial development and economic growth for high income countries. The study focuses on both indirect finance and direct finance, separately as well as jointly. Applying the methodology of Nair-Reichert and Weinhold (2001) for causality analysis in heterogeneous panel data, two sets of results are reported. First, the evidence regarding the relationship between financial development and economic growth from a contemporaneous non-dynamic fixed effects panel estimation is mixed. Negative and statistically significant estimates of the coefficient of the inflation and financial development interaction variable indicate that financial sector development may even be harmful to economic growth when inflation is rising. Second, in contrast with the recent evidence of Beck and Levine (2003), heterogeneous panel causality analysis applied on a refined model indicates that there is no definite evidence that finance spurs economic growth or growth spurs finance. Most of our findings are in line with the Lucas (1988) view that the importance of financial matters is over-stressed. The only exception is the case of activity in stock markets where our result supports the Robinson (1952) view that finance follows enterprise.

Poverty-reducing or Poverty-inducing? A CGE-based Analysis of Foreign Capital Inflows in Pakistan

Foreign capital inflows (FKI) help an economy by financing the imbalance between income and expenditure. However, their impact on poverty in the recipient economy is a controversial issue. In this study, a static computable general equilibrium (CGE) model for Pakistan has been used to assess the impact of foreign capital on poverty. Several interesting results emerged from the study. FKI increase demand for goods for investment purposes that lead to the expansion of import-competing- sector machinery to fulfil domestic demand. However, the contraction of the majority of trading sectors combined with expansion of non-trading sectors of the economy have generated ‘Dutch disease effect’. The results show that FKIs have a positive impact on poverty in Pakistan. Trade liberalization of import of machinery reduces the negative effect of the decline in FKI. Rise in poverty in Pakistan may be attributed to the decline in foreign capital

Electronic Commerce and International Trade of Pakistan

The international trade theories assume complete information on demand, supply, prices, product specification and technologies but such assumptions generally do not hold. In particular information is inadequate for both the importers and exporters to make optimal choices. Obviously countries with elaborate information mechanism move closer to their export and import potential than those who lack such mechanism. It is therefore, no wonder that the governments help producers in organising exhibitions, fairs etc for introducing their products. The advent of information technology, e.g. e-mail, Internet and Web sites, provides easy access to information. It provides an opportunity to introduce products and assess the demand for the products and at the same time allows importers to reach the minimum cost source. This also allows the producers to acquire technologies and explore the possibilities of subcontracting. Needless to add that the expanded net work affects disproportionately different producers and different countries; it depends on the intensity of use of electronic commerce.

Remittances, trade liberalisation, and poverty in Pakistan: The role of excluded variables in poverty change analysis

This paper explores the impact of two shocks, trade liberalisation policies and decline in remittances, on welfare and poverty in Pakistan. It begins by reviewing the economy, which reveals that during the Nineties although import tariffs were reduced by 55 percent, poverty however remained higher in this period than in the Eighties. At the same time, Pakistan has experienced a slow down in the inflow of remittances, which reduces the incomes of households and puts pressure on the exchange rate resulting in reduction in the inflow of imports despite a reduction in import duties. Thus, in the absence of the effects of decline in remittances, the analysis of the impact of trade liberalisation policies may render biased results. This study overcomes this constriction and analyses the impact of trade liberalisation policies in the absence and presence of decline in remittances in a CGE framework with all the features necessary for trade policy analysis with poverty and remittances linkages. The simulation results show that a decline in remittances reduces the gains from trade liberalisation. The negative impact of remittance decline dominates the positive impact of trade liberalisation in urban areas. But, the positive impact of trade liberalisation dominates the negative impact of a decline in remittances in the case of rural areas. Poverty rises in Pakistan as a whole. It shows that the decline in remittance inflows is a major contributory factor in explaining the increase in poverty in Pakistan during the Nineties

Remittances, trade liberalisation, and poverty in Pakistan: The role of excluded variables in poverty change analysis

This paper explores the impact of two shocks, trade liberalisation policies and decline in remittances, on welfare and poverty in Pakistan. It begins by reviewing the economy, which reveals that during the Nineties although import tariffs were reduced by 55 percent, poverty however remained higher in this period than in the Eighties. At the same time, Pakistan has experienced a slow down in the inflow of remittances, which reduces the incomes of households and puts pressure on the exchange rate resulting in reduction in the inflow of imports despite a reduction in import duties. Thus, in the absence of the effects of decline in remittances, the analysis of the impact of trade liberalisation policies may render biased results. This study overcomes this constriction and analyses the impact of trade liberalisation policies in the absence and presence of decline in remittances in a CGE framework with all the features necessary for trade policy analysis with poverty and remittances linkages. The simulation results show that a decline in remittances reduces the gains from trade liberalisation. The negative impact of remittance decline dominates the positive impact of trade liberalisation in urban areas. But, the positive impact of trade liberalisation dominates the negative impact of a decline in remittances in the case of rural areas. Poverty rises in Pakistan as a whole. It shows that the decline in remittance inflows is a major contributory factor in explaining the increase in poverty in Pakistan during the Nineties