Pakistan: Growth Set Back by Structural Rigidities

This article has five parts. The first provides an overview of major structural weaknesses in the Pakistani economy—I call them faultlines. The following three parts describe the programme of stabilisation and structural reform introduced by the caretaker administration of Prime Minister Meraj Khalid. This government was in office for 104 days, from November 5, 1996 to February 17, 1997. On February 17, the government headed by Prime Minister Mian Nawaz Sharif took office. The fifth part provides a brief assessment of what lies in Pakistan’s future if the problems created by delayed structural reforms are not addressed adequately and on time.

Estimating Consumer Preferences for Food, Using Time Series Data of Pakistan

Consumer preferences for food and non-food items in Pakistan are frequently estimated by using data from the household surveys. However, structural change in consumer preferences, caused by changes in tastes, can be studied by using the annual time series data, a time series of cross sections, or the panel data. This paper uses Pakistan’s annual time series disappearance data for eight food commodities from 1972 to 1991 to study consumer behaviour. The existence and the nature of structural change is tested by using both the generalised axiom of revealed preference (GARP) and the first-difference LA/AIDS model. It turns out that GARP tests are low-powered as tests of structural change on our data-set. However, the results from the LA/AIDS model show a shift in consumer demand from gram (split) to chicken after 1982. The data set satisfies symmetry and homogeneity. The estimates of price and income elasticities are also consistent with economic theory. The implications of these results for policy are also discussed.

The Role of Digital Technology and Regulations in the Diffusion of Mobile Phones in Asia

More and more people are using mobile (cellular) phones and the world is increasingly becoming unwired due to diffusion of this technology. The cellular technology is present in most Asian countries since 1980s. However, its diffusion process in these countries has largely been affected by technological developments, i.e., transition from analogue to digital, and regulations. The nature of regulations relate to spectrum licensing and the number of competitors allowed by respective governments. These regulatory decisions may explain the current structure of mobile phone industry in most of these countries. The popularity of cellular communication lies in its appealing advantage as compared with the fixed networks. The most important feature of a cellular phone is its portability in that the call is made to a person and not to a place. In developed countries, the features available on mobile handsets (such as caller line identification, voice mail, call forwarding, call waiting and the facility of receiving and transmitting short text messages) are available free of charge. However, these cell phone facilities are very costly in developing countries as compared with their fixed networks. The regulatory licensing structure prevailing in these countries partly explains this price differential. In effect there has been wide diversity in the speed of introduction of mobile phones and their diffusion across developing countries, which has not been explored. Gruber and Verboven (1998) has recently examined diffusion of cell phones in the European Union. However, this is a neglected area of research in developing countries.

Impact of Financial Reforms on Efficiency of State-owned, Private and Foreign Banks in Pakistan

This paper uses a unique bank level data from 1991 to 2000 and evaluates how financial reforms affect banking efficiency of domestic and foreign banks in Pakistan. The results suggest that banking efficiency falls during initial reform period when banks adjust to enhanced competition, but increases in more advanced stages of reform. While in general foreign and private banks show superior efficiency and factor productivity than state-owned banks, the relative performance of foreign banks worsens after the consolidation stage of the financial reforms is over. We show the importance of link between bank size, asset quality and bank branches with efficiency indexes, and also note that every 10% increase in share of nonperforming to total loans decreases banking efficiency from 6% to 10%.Bank efficiency, Financial Reforms, frontier analysis

Households’ Non-leisure Time Allocation for Children and Determinants of Child Labour in Punjab, Pakistan

Pakistan is one of those countries in Asia where incidence of child labour is very high. Children should not have to work, but the estimates of the Child Labour Survey 1996 show that there are 3.3 million working children between the ages of 5–14 years in Pakistan. Due to political, social and economic pressures, developing countries like Pakistan tend to react by enacting legislation which bans child labour. Countries which are now developed did the same thing when they successfully completed their industrialisation. Child labour is often harmful for the children, but there are situations where the alternatives to child labour may offer only deeper poverty both for the children and their families. Therefore, mishandling of this issue can make matters from bad to worse, for example, if legislation pushes children into even worse situations. The Government of Pakistan has enacted the Employment of Children Act of 1991 which has banned employment of children below the age of 14 years and their employment is now a cognisable offence under the Act punishable by imprisonment and fine.1 Such interventions can lead to reductions in the already limited choices available to the child. For example, this legislation may mean that the child can neither work nor go to school. To put it differently, this ban does not address market failures, for example, in the education market. Hence, to tackle this complex problem different policy instruments are required which address not only the aspects of market failures, but also distributional and efficiency considerations of such services. In handling the issue of child labour, the supply side factors which motivate households to allocate non-leisure time of their children can provide useful insights to address this complex problem.

Milk Supply Chain and Efficiency of Smallholder Dairy Producers in Pakistan

Many developing countries are re-orienting their production and marketing systems by linking local agri-producers with organized supply chain networks and supermarkets to meet increasing consumer demands. However, the existing literature is silent on the effects of such integration on relative inefficiency of smallholder producers. This paper analyzes the effects of such supply chains using data from a natural experiment in the dairy sector of Pakistan. We study the impact of rural milk supply chain, known as milk district, on smallholder efficiency of commercial dairy producers by employing stochastic production frontier and technical inefficiency effects model using survey data of 800 dairy households. While location of dairy households in our sample is exogenously determined, building of milk supply chain indeed decreases technical inefficiency. We detect stronger power of milk district in further reducing technical inefficiency if the farms are located in remote areas, or if their size is relatively large. The advice to policy makers from these results conforms to the standard economic view that market competition leads to decreased levels of technical inefficiency of smallholder producers.supply chain, Production frontiers, Dairy efficiency, Food policy

Services Trade Negotiations in the Doha Round : Opportunities and Risks for Pakistan

This paper seeks to examine how locking-in of Pakistans unilateral liberalization at the WTO/GATS and further liberalization of services trade would affect Pakistans competitiveness. Focusing on the opportunities and risks of such liberalization the paper discusses possible options regarding the corollary regulatory reforms and other flanking measures that may be needed to achieve these goals. The sectors studied in this paper are (a) construction and related engineering services; (b) architecture, engineering and integrated engineering services; (c) energy services; and (d) environmental services.liberalization, Services, regulation, Pakistan