One hears little about the Planning Commission’s Framework for Economic Growth launched a year ago. This is indicative of its inappropriateness and lack of consideration of Pakistan’s economy or its structures and political economy. The Framework avoids tackling the core issues of taxation, distribution, and equity. It privileges the market and free enterprise over the role of the state, and undermines and dismisses the significant role and contribution of the government and state in promoting growth, particularly at a time when market failure has made economists rethink the role of markets after 2008. By ignoring central issues related to politics and the articulation of power, and of issues that fall in the realm of political economy, the Planning Commission constructs a technicist script that has little value to the messy world of realpolitics.
KEYWORDS: Growth, political economy, Planning Commission, Pakistan.
JEL: O40, O1.

This article discusses the impact of the current stagflation in Pakistan on the labor market and poverty. The paper presents a preliminary explanation of why the labor market and poverty impact of the current stagflation may be far smaller than projected in recent studies, especially for the rural economy. The main conclusions that emerge are that (1) The overwhelming expected negative impact of low economic growth, high double-digit inflation, and crippling energy shortages on poverty and the labor market appear to have been cushioned by the large increase in remittances, rising wages in agriculture and services, and social safety nets; (2) there is, however, no reason for complacency since over 20 million people live in absolute poverty and that the economy remains in deep stagflation, (3) the PSLM (HIES) 2010/11 data should be made publicly available so that it can be subject to more critical analysis and (4) studies on poverty should be based on a close integration of macro-sectoral–micro-factors to fully capture the underlying “poverty dynamics.”
KEYWORDS: Macro-dynamics, economic growth, cycles, Pakistan.
JEL: F43, P46.

This article has a rather modest aim. In contrast to most analyses that abound, it submits that Pakistan’s energy crisis stems primarily from a suboptimal policy and only secondarily from governance issues. This does not mean that governance is not an important issue. With around 20 different organizations involved in the power sector—e.g., WAPDA, PEPCO, PPIB, AEDB, GENCOs, and IPPs—there is much scope for governance failures. In addition, there is much malfeasance perpetrated by political and other interests. Still, since governance mechanisms are significantly shaped by incentive systems and operating policy regimes, we will argue that the problem lies primarily in policy choices made earlier, and focus in particular on two elements of the policy that need to be revisited.
KEYWORDS: Power crisis, policy, governance, Pakistan.
JEL: G30.

Since the 1950s, Pakistan has been trying to industrialize by investing in industries that have low value-added, notably cotton textiles. Here, low value-added means that the export value of the cotton textiles less the value of the raw cotton used to make them was low relative to the cost of the investment needed to make the textiles, i.e., contrary to the usual assumption, cotton textile manufacture was capital-intensive. The cause was the protection of the importing countries. But goods with high value-added in this sense required advanced technical knowledge, which is mostly the proprietary knowledge of the firms whose research and development (R&D) has generated it. Over time, all the production of goods that do not require such technical knowledge has passed to low-wage countries whose mutual competition keeps the value-added low. Since Pakistan cannot compete in high-value-added goods, it must emulate the East Asian economies by collaborating with firms in high-wage countries—i.e., subcontracting them to make simple components—and progress through such collaboration to receiving the knowledge and training to making components with higher value-added.
KEYWORDS: Pakistan, textiles, protection, value-added, subcontracting.
JEL: O14.

This study attempts to evaluate exporters’ perceptions of the problems they face in exploiting their full competitive potential in the international market. Using firm-level survey data, we find that a shortage of skilled labor, the energy crisis, institutional rigidities, market imperfections, and weaknesses in physical infrastructure are the key impediments to achieving export competitiveness. Policies geared toward improving the quality of skilled labor, resolving the energy crisis, and reducing transaction costs by improving the institutional and physical infrastructure are key to expanding Pakistan’s exports on a sustained basis.
KEYWORDS: Pakistan, export competitiveness, exporting procedures, certifications.
JEL: F13.

This paper identifies the main impediments to investment and industrial productivity in Punjab, which have led to a decline in growth. This is done by analyzing the impediments and constraints to productivity and investment using the World Bank’s 2007 Investment Climate Assessment (ICA) data at the level of Punjab’s seven main industrial zones. This is followed by an analysis of a pilot survey of 100 firms conducted in the Lahore district. Almost 71 percent of the firms surveyed declared electricity to be the most important constraint and macroeconomic stability was ranked as the second-most important constraint. An inadequate workforce, access to raw materials, and corruption were ranked third, fourth, and fifth, respectively.
KEYWORDS: Industry, constraint, Pakistan.
JEL: O10.

In this paper we analyze which factors affect new firm entry and the scale of new firms in the export clusters of Punjab. Our analysis looks at local conditions (such as the degree of concentration in an industry, the employment of firms of that industry already located in a region, the employment of firms of all industries located in that region) and international conditions (such as the real exchange rates of Pakistan’s major trading partners and tariff rates). The results show that more export sector firms will enter highly concentrated industries and that firm entry increases significantly as a result of a depreciation in the trade-weighted real exchange rate, while the impact of changes in trade partner tariffs is not significant.
KEYWORDS: Firm, export clusters, entry, Pakistan.
JEL: F14, D22.

Competitiveness has become a mantra and organizing framework for much government policymaking in Pakistan and beyond. Rarely does anyone question the concept and use of the competitiveness paradigm itself. Krugman (1994) argues that this ”obsession with competitiveness is both wrong and dangerous.” This article draws from Krugman’s work and examines the use (or abuse) of the concept of competitiveness in the context of contemporary Pakistan. We focus on three recent and influential reports on competitiveness in Pakistan by the Asian Development Bank, World Bank, and Competitiveness Support Fund, and agree with Krugman’s negative view.
KEYWORDS: Competitiveness, policy, Pakistan.
JEL: E60.

This article argues that a new growth vent in Pakistan requires tapping into external lucrative markets in a manner that will create multiple entre-ports for growth. Such a growth vent will enable the country to achieve a sustained growth path that is not as susceptible to the political vicissitudes of one mega-growth node. This will be good for regional equity within the country and will also bring new energy to the Indus Basin market. Sustained welfare improvements in this type of regional hub can occur when it transitions from being a transportation hub for goods and energy into a manufacturing hub that creates high-productivity, high-wage jobs in multiple regional growth nodes.
KEYWORDS: Regional hub, trade, GDP, Pakistan.
JEL: F43.

While Pakistani trade with India could give a boost to Pakistan’s economy, there are other neighbors with whom trade could be equally important. We look at this aspect of regional trade and show that promoting trade with the rest of Pakistan’s neighbors could have a significant positive impact on the country’s growth. We show that Pakistan’s trade with these neighbors has grown rapidly over the last 10 years and at present they constitute the largest market for Pakistani exports. We also explain how these exports are not only important in terms of absolute value, they have also contributed to the development of new export products. The overall impact on Pakistan’s economy could well be to raise the trend growth rate for the next decade or so by 2 to 3 percentage points above the historical trend growth rate of 5 percent per annum.
KEYWORDS: Exports, regional trade, Pakistan, China, UAE, Central Asia, Afghanistan.
JEL: F13.