This paper studies the impact of changes in the external balance of Pakistan. We explain why the economic growth achieved during the past decade was highly dependent on improvements in the external balance. Between 2001 and 2007, Pakistan benefited from an increase in remittances, foreign assistance from bilateral and multilateral sources, and a relatively stable exchange rate. After 2007, this performance came under pressure from external price shocks. The rise in the import prices of petroleum, raw materials and other manufactured goods has the potential to reduce the country’s growth performance, impacting the competitiveness of the economy and threatening the gains achieved during past years. We integrate a computable general equilibrium (CGE) model with a microsimulation model to study the effects of changes in foreign savings and import prices faced by Pakistan. An increase in foreign savings leads to an increase in imports and a decrease in exports. The main sectors facing a decline in exports are textiles, leather, cement, and livestock. In this simulation food and oil prices decline and the factors of production that gain are agricultural wage labor and nonagricultural unskilled wage labor. The increase in import prices of petroleum or industrial raw material leads to a reduction in exports. In this simulation the crop sector is negatively impacted and returns to land and profits to farm owners increase, showing a change in favor of agricultural asset owners, while poverty and inequality increase.
KEYWORDS: Microsimulation, computable general equilibrium, poverty, inequality, balance of payments, Pakistan.
JEL: I32, C51, C81, D58, C82, H22.

A simultaneous-equations model was used to capture the supply and demand functions for Pakistan’s wheat sector at the national level. This model reflects the fact that Pakistan’s domestic wheat supply is priceresponsive and positively affected by the use of nutrient fertilizers. While price appears to be a statistically significant factor on the supply side, it is statistically insignificant on the demand side. Population size appears to be very significant in determining wheat demand. The wheat import supply seems to be influenced by the current world wheat price, current world wheat supplies, Pakistan’s domestic consumption in previous years, and domestic supply in previous years. We recommend that policymakers allow market forces to play a role in the wheat economy in a way that protects producers from adverse market conditions. The availability of various nutrient fertilizers should be central to policies on future inputs use. Work is also needed on wheat alternatives so that the country’s dependence on wheat is eased as much as possible.
KEYWORDS: Wheat, supply and demand, Pakistan.
JEL: Q11, C59.

This study tests the semi-strong form of market efficiency by investigating the reaction of stock prices to dividend announcements. It analyzes cash, stock, and simultaneous cash and stock dividend announcements of 79 companies listed on the Karachi Stock Exchange from July 2004 to June 2007. Abnormal returns from the market model are evaluated for statistical significance using the t-test and Wilcoxon Signed Rank Test. The findings suggest negligible abnormal returns for cash dividend announcements. However, the average abnormal and cumulative average abnormal returns for stock and simultaneous cash and stock dividend announcements are mostly positive and statistically significant.
KEYWORDS: Stock prices, market efficiency, dividend announcements, Pakistan.
JEL: G14.