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Microinsurance in Pakistan: Progress, Problems, and Prospects
Theresa Thompson Chaudhry and Fazilda Nabeel
Published:Sept 2013
Microinsurance in Pakistan is still in its nascent stages. More than half of
the current microinsurance policies in effect in Pakistan are offered through the
Benazir Income Support Program (BISP), with the remainder provided in
conjunction with microcredit services offered by various microfinance institutions
(MFIs), microfinance banks, nongovernment organizations, and rural support
programs (RSPs). The policies offered by the microcredit sector are mainly creditlife
policies, which cover loan balances in the event of the borrower’s death. In
addition, some lenders—principally the RSPs—offer small health insurance
policies covering the hospitalization of the borrower and (sometimes) their spouse.
As catastrophic health expenses and deaths in the family are among the most
important economic stressors that households face, it makes sense that
microinsurance should first make inroads in these areas.
It is difficult to say what impact microinsurance has had in Pakistan, since
few rigorous evaluations have been undertaken to date. What we do know is that
utilization has been low, explained by providers as limited client awareness of the
benefits and coverage. In the short to medium term, microinsurance outreach can
be expanded by offering health microinsurance (HMI) coverage to microcredit
borrowers’ entire households, and by offering HMI to all community members
within an RSP, rather than only microloan borrowers and their spouses.
Partnering with mobile phone operators for automated, digital payments can also
significantly expand potential customer volume while reducing transaction costs.
HMIs might also be combined with health savings accounts that households can
use to pay for medications and outpatient services not covered by HMI plans.
Provinces could also leverage the existing database of poverty scorecards
implemented by BISP to channel partially government-subsidized microinsurance
policies toward poor households just above the BISP threshold.
KEYWORDS:
Microinsurance,
social insurance,
poor,
Pakistan.
JEL:
G21.
One-Step-Ahead Forecastability of GARCH (1,1): A Comparative Analysis of USD- and PKR-Based Exchange Rate Volatilities
Abdul Jalil Khan and Parvez Azim
Published:Jan - June 2013
This study aims to capture volatility patterns using GARCH (1,1) models.
It evaluates these models to obtain one-step-ahead forecastabilities by employing
four major forecasting evaluation criteria, and compares two different currencies—
the Pakistan rupee and the US dollar—as domestic and foreign currency-valued
exchange rates, respectively. The results show that using an international vehicle
currency is favorable in Pakistan’s context. However, the Kuwaiti dinar, Canadian
dollar, US dollar, Singapore dollar, Hong Kong dollar, and Malaysian ringgit are
found to be preferable when performing direct international transactions. Using
the root mean square errors and mean absolute errors techniques, the study also
assess the robustness of measuring one-step-ahead forecasts.
KEYWORDS:
Time series analysis,
GARCH models,
foreign exchange markets,
forecasting,
exchange rate volatility,
Pakistan.
JEL:
C53,
F31,
C22,
F37,
F44.
Interest Rate Pass-Through: Empirical Evidence from Pakistan
Sheikh Khurram Fazal and Muhammad Abdus Salam
Published:Jan - June 2013
This article empirically examines the interest rate pass‐through
mechanism for Pakistan, using six‐month treasury bills as a proxy for the policy
rate (the exogenous variable) and the weighted average lending rate and weighted
average deposit rate as endogenous variables representing the lending and deposit
channels, respectively. We use data for a six‐year period from June 2005 to May
2011, published by the central monetary authority in Pakistan. The widely
accepted error correction mechanism is used to examine the short‐run and longrun
pass‐through; a vector error correction mechanism impulse response function
helps measure the short‐run speed of the pass‐through. We find that there is an
incomplete pass‐through in Pakistan for both the lending and deposit channels. The
impact is greater on the lending channel than on the deposit channel in both the
short and long run, while the adjustment speed is higher for the lending channel.
KEYWORDS:
Interest rate pass‐through,
interest rate channel,
transmission mechanism,
monetary policy,
Pakistan.
JEL:
E58,
E43.
Does Equity Derivatives Trading Affect the Systematic Risk of the Underlying Stocks in an Emerging Market: Evidence from Pakistan’s Futures Market
Safi Ullah Khan and Zaheer Abbas
Published:Jan - June 2013
This paper examines the behavior of beta coefficients (systematic risk) for
underlying stocks around the introduction of single-stock futures (SSFs) contracts
in the Pakistani market, by employing models that account for nonsynchronous
and thin trading and varying market conditions as “bull” and “bear” markets.
Unlike the results of earlier studies on US markets, the empirical evidence tends to
support a decline in systematic risk for the majority of underlying stocks in the
post-futures listings period. Nevertheless, similar to SSFs stocks, we also find
empirical evidence of a decrease in systematic risk for many of the control group
stocks. This indicates that changes in beta estimates for SSFs-listed stocks might
not be induced by the introduction of SSFs contract trading, but could be
attributed to other market-wide or industry changes that have affected the overall
market. Several plausible reasons, such as lack of program trading activities
normally associated with index futures, market microstructure differences between
developed markets and a developing market such as Pakistan, and the capturing of
the “bear” and “bull” market effects on stock betas in our estimation procedure
could explain these different results for Pakistan’s market.
KEYWORDS:
Systematic risk,
beta,
stock index futures,
single-stock futures,
stock price volatility,
GARCH model,
bear and bull markets,
thin trading,
Pakistan.
JEL:
G10,
G13.
The Co-determinants of Capital Structure and Stock Returns: Evidence from the Karachi Stock Exchange
Hamid Ahmad, Bashir A. Fida and Muhammad Zakaria
Published:Jan - June 2013
This study uses a structural model to analyze the co-determinants of
capital structure and stock returns. Applying a generalized method of moments
(GMM) model to a panel dataset for 100 nonfinancial firms for the period 2006–
10, our results indicate that both leverage and stock returns affect each other but
that the former has a dominant effect on the latter. The results illustrate that
profitability, growth, and liquidity are significant determinants of leverage and
stock returns. Profitability negatively affects leverage and positively affects stock
returns. Growth has a positive effect, while liquidity has a negative effect on
leverage and stock returns. Firm size does not have any significant effect on either
capital structure or stock returns.
KEYWORDS:
Capital structure,
stock returns,
GMM,
Pakistan.
JEL:
C33,
C36,
G30.
The Export Supply Response of Mangoes: A Cointegration and Causality Analysis
Abdul Ghafoor, Khalid Mushtaq and Abedullah
Published:Jan - June 2013
This paper analyzes the impact of major factors on the export of mangoes
from Pakistan. We use a cointegration approach and error correction mechanism
applied to data for the period 1970–2005. Mango exports are regressed against the
index of relative prices of mango exports (2000 = 100), the quantity of domestic
mango production, real agricultural gross domestic product (GDP), the length of
all-weather roads, and international standardization, i.e., the impact of the World
Trade Organization agreement. The results of the augmented Dickey-Fuller test
reveal that all the data series are I(1). Applying Johansen’s test shows that the
highest elasticity coefficients are found for mango production in the short and long
run, followed by real agricultural GDP. The Granger causality test points to the
bi-directional causality of mango exports with the relative price index and allweather
roads, and unidirectional causality with real agricultural GDP and mango
production. The study recommends promoting proper orchard management,
developing the appropriate infrastructure, and stabilizing export prices to increase
mango exports from Pakistan.
KEYWORDS:
Mango,
unit root,
cointegration,
Granger causality,
Pakistan.
JEL:
Q11.
The Impact of Health Information Provision on Breast Cancer-Related Knowledge and Protective Behaviors: An Experiment in Health Education
Sarah Shahed
Published:Jan - June 2013
This study examines the impact of health information provision on healthrelated
knowledge and corresponding behaviors. Our main assumption is that
women’s health can be improved by adopting health protective and healthenhancing
behaviors. The study employs a before–after, no-control-group design,
aimed at examining whether exposure to health knowledge concerning breast
cancer can change participants’ behavior in relation to breast self-examination.
Our sample consists of 50 young females whose knowledge and behavior related to
breast cancer was assessed in a pre-exposure phase, followed by an exposure session
during which they were shown a video film, participated in a discussion, and were
given health education literature about breast cancer to take home. Two weeks
later, the participants were reassessed, using the same measures. Their health
knowledge and behavior were found to have improved significantly. We
recommend that formal education should incorporate health education as part of
the curricula at all academic levels, especially for women. The mass media can also
play an important role in improving public health protective behavior.
KEYWORDS:
Health,
breast cancer,
behavior,
Pakistan.
JEL:
I10.