This study contributes to the literature that highlights the penalties of education-occupation mismatch in terms of earnings across different employment statuses. Most existing literature analyzing the education-occupation mismatch has focused on paid employees, overlooking self-employed individuals, and has not controlled for sample selection bias and unobserved heterogeneity bias simultaneously. Therefore, the objective of this study is to analyze the impact of education mismatch on earnings across different employment statuses after correcting for both sample selection bias and unobserved heterogeneity bias. To achieve this objective, we applied the methodology of Duncan and Hoffman (1981) to the Pakistan Social and Living Standards Measurement (PSLM), 2019-20. Our results show that after controlling for unobserved heterogeneity bias and sample selection bias, overeducation has no positive value for both paid employees and the self-employed. The returns from overeducation based on the OLS model might be overestimated if overeducated workers possess lower average ability levels, whereas the returns of adequately educated individuals increase after correcting for the bias and are significantly higher for self-employed individuals compared to paid employees.
KEYWORDS: Education mismatch, earnings, labor market, sample selection bias, unobserved heterogeneity bias..
JEL: E20, I20.

This study evaluates the effectiveness of monetary policy in controlling inflation in Pakistan. Using quarterly data from 1980 to 2022, the study finds that the policy rate is either an ineffective or counterproductive instrument, while the monetary base serves as an effective tool for controlling inflation. Significant evidence is found against the view that monetary policy is ineffective in controlling inflation in the presence of inflationary cost-push shocks. The study also finds that the effectiveness of monetary policy is asymmetric in combating inflation during inflationary and anti-inflationary oil price shocks. Despite these observations, the study recommends a cautious approach based on additional research involving diverse tools and experimentation with a gradual mixing of instruments.
KEYWORDS: Monetary policy, effectiveness.
JEL: E52, E58.

The study examines the impact of foreign direct investment (FDI) inflows on Pakistan's macroeconomic framework, emphasizing improved capital efficiency and technological advancements. Utilizing a Computable General Equilibrium (CGE) model within the GTAP framework, it evaluates the effects of technology-driven FDI on key sectors, including manufacturing, exports, and demandoriented industries. Key findings indicate that priority sectors such as food and beverages, light manufacturing, and heavy manufacturing experience the highest GDP growth from FDI-induced technological upgrades. Sectors like light manufacturing, metals, textiles, and heavy manufacturing demonstrate significant export increases and reduced reliance on imports. Conversely, demand-oriented sectors such as communication and retail trade drive higher imports. Manufacturing and exportoriented sectors help reduce the trade deficit, while retail trade, communication, and financial services contribute to its increase. The study concludes that attracting FDI to manufacturing and export-driven sectors is crucial. However, foreign investors tend to focus on market-seeking sectors. To encourage efficiency-seeking FDI in productive sectors, the government should enhance the business environment, lower costs, deregulate, and ensure a level playing field.
KEYWORDS: Efficiency-seeking FDI, general equilibrium, market-seeking FDI..
JEL: C32, E31, E43, Q31, Q43.

Productivity growth has remained slow in Asian countries. The study examines the impact of digitalization and innovation on output productivity in four Asian countries: China, India, Bangladesh, and Pakistan, using data from 1990 to 2022. The panel autoregressive distributed lag (ARDL) model was employed to investigate the long-run relationship between the variables. The study implements the Fully Modified OLS (FMOLS) method for robustness checks. The long-run results show that digitalization and innovation have a positive and significant impact on productivity in each country. Human capital, foreign direct investment (FDI), and trade openness also have a significant impact on productivity. The panel ARDL result shows that digitalization, innovation, human capital, trade openness, and FDI significantly affect productivity in the long run. The study recommends encouraging investments in digital infrastructure, inventions, and innovations across various economic sectors, including R&D activities, fostering industry-academia collaborations, and technological advancements. These countries should also invest in education, technical, and vocational training to improve labor productivity and efficiency.
KEYWORDS: Productivity, innovation, digitalization, human capital, FDI, panel ARDL..
JEL: 03, 04, C23, O53.

This study investigates the impact of oil price fluctuations on inflation in Pakistan, focusing specifically on asymmetric effects. Employing the Nonlinear Autoregressive Distributed Lag (NARDL) model, it examines how oil price increases and decreases influence inflation differently. Using secondary annual data from the Pakistan Bureau of Statistics and the State Bank of Pakistan, the study considers the Consumer Price Index (CPI) as the dependent variable, while independent variables include domestic oil prices (LOP), exchange rate (LEXH), interest rate (LINTR), and unemployment rate (LUNEMP). The Augmented Dickey-Fuller (ADF) test assesses stationarity, revealing mixed integration orders (I(0) and I(1)), which justifies the application of the Autoregressive Distributed Lag (ARDL) model to explore both long-run and short-run relationships. The ARDL bounds test confirms the presence of a long-run relationship among the variables. Results indicate that oil prices significantly affect inflation, with past oil prices exhibiting a persistent impact. The NARDL model highlights asymmetry, showing that oil price increases (LOP_POS) exert a stronger positive effect on inflation than decreases (LOP_NEG). Exchange rate fluctuations display mixed effects, with lagged depreciation negatively influencing inflation, while interest rates and unemployment rates do not demonstrate statistically significant longrun effects. Diagnostic tests, including normality, serial correlation (Breusch-Godfrey LM test), and heteroskedasticity (Harvey, White, and Glejser tests), confirm the model's validity. These findings offer key insights for policymakers, underscoring the necessity of targeted interventions in response to oil price shocks. Given the asymmetric effects, monetary authorities should implement differentiated strategies for oil price increases and decreases to manage inflation effectively. Additionally, exchange rate stability plays a crucial role in mitigating inflationary pressures. Future research may expand on this study by incorporating additional macroeconomic variables or employing alternative econometric approaches to enhance inflation modeling in developing economies like Pakistan.
KEYWORDS: Oil prices, Inflation, ARDL model Asymmetric effects, NARDL model, Exchange rate, Interest rate, Unemployment, Pakistan economy, monetary policy..
JEL: 03, 04, C23, O53.

This study utilizes interim multipliers analysis based on a VAR-X model to investigate the impacts of changes in the world’s crude oil prices on output growth rates, inflation rates, real exchange rates, and real interest rates in Pakistan. The study finds that following oil price inflation, the output growth rate initially increases but then declines in the medium to long run. The effects of oil price deflation on output growth are the opposite, though smaller in magnitude. Oil price inflation is also found to cause a moderate increase in the overall inflation rate, while oil price deflation reduces the inflation rate by a smaller margin. The resilience of the economy to oil price changes is attributed to the low share of oil in production costs, subsidized oil prices by Middle Eastern countries, remittance inflows from workers in the Gulf States, and the managed exchange rate regime. The study recommends the continuation of a conservative monetary policy, the development of inter-provincial political consensus on major hydro projects, and the ensuring of the credibility of fiscal measures aimed at the solarization of the economy, focusing more on long-term considerations rather than short-term budgetary compulsions.
KEYWORDS: Oil Price, Output, Inflation, Standard-VAR, Interim-Multiplier.
JEL: C32, E31, E43, Q31, Q43.

The purpose of this paper is to determine whether the information content in the consumer confidence index explains demand in Pakistan, beyond economic fundamentals. We use a wide range of models, starting from ordinary least squares to linear regression models that incorporate common factors driven by principal components, as well as advanced machine learning techniques, including penalized regression methods and neural networks. We apply both fixed and expanding window rolling forecasts to test this phenomenon and present our results using three forecast accuracy measures. Overall, our findings demonstrate that, for each technique considered, the model that includes the consumer confidence information set outperforms the model based solely on economic fundamentals. This indicates that the information content of consumer confidence enhances the explanation of demand-side indicators in Pakistan. This paper directly informs policymakers in developing countries generally, and in Pakistan specifically, that the consumer confidence index offers insights into the expectations of economic agents and should be integrated into analyses for improved policy decisions.
KEYWORDS: Consumer Confidence; Forecast, Machine Learning, OLS; Pakistan.
JEL: C22, C80, E00.

The exchange rate is an important tool for enhancing exports in emerging economies. To quantify the role of the exchange rate in determining trade in Pakistan, this paper presents estimates of the elasticities of relative prices, demand, and exchange rates across various categories of export and import demand for Pakistan’s economy. Our results indicate that the exports of manufactured and intermediate inputs are more responsive to changes in relative prices and exchange rates than the exports of primary goods. Furthermore, the higher magnitude of the elasticity of exports with respect to foreign demand suggests that Pakistan's exports are more responsive to foreign demand. Regarding import demand functions, our results show that the exchange rate plays an important role in impacting the demand for primary and manufactured goods imports, while domestic income drives the demand for intermediate goods imports. Overall, the exchange rate and foreign demand have played a significant role in enhancing exports in Pakistan.
KEYWORDS: Exports, imports, elasticities, exchange rate, relative prices, external demand, domestic demand, Pakistan.
JEL: F11, F14, F17, F19.

This study explores the connection between financial inclusion and inclusive growth, highlighting the pressing need for such growth in contemporary Pakistan alongside the ongoing efforts to enhance financial inclusion levels. Utilizing a time series dataset from 2004 to 2022, we investigate variables including the index of inclusive growth, the composite index of financial inclusion, FDI, budget deficit, remittances, and government effectiveness. The analysis employs the Markov regime-switching technique to address the non-linearity of the data. Findings indicate a non-linear relationship between inclusive growth and financial inclusion. Financial inclusion has a significant and positive effect on inclusive growth during low-growth periods but exhibits negative effects during high-growth periods. Government effectiveness consistently demonstrates a positive impact across both high and low-growth phases, with a more pronounced effect during low-growth periods. Remittances negatively influence growth, while FDI and budget deficit show significant positive effects during low-growth periods. Key recommendations include enhancing rural financial access and digital literacy during low-growth phases, addressing structural and regulatory inefficiencies during high-growth periods, and integrating Islamic finance into national strategies. Strengthening governance and periodically reviewing policies to align with evolving economic conditions are also vital for achieving sustained and equitable development.
KEYWORDS: Inclusive Growth, Financial Inclusion, Regime Switching.
JEL: O11, O16.

This study narrates the history of trade liberalization in Pakistan from 1972 to 2021. It outlines the history of trade reforms, which is divided into three distinct periods: the partial trade liberalization period from 1972 to 1987, the trade liberalization period from 1988 to 2004, and the post-liberalization period from 2005 to 2021. Existing studies of trade liberalization often overlook the underlying explanations, which frequently fall within the realm of history and interests. This paper addresses that gap and discusses the significance of domestic and international political economy factors leading up to trade liberalization. In Pakistan, trade liberalization did not coincide with compensatory real devaluation of the currency, as the exchange rate policy prioritized price stabilization. Consequently, domestic policy rates remained high, resulting in an overvaluation of the currency, which significantly reduced the rate of capital accumulation. The consumption-driven trade liberalization contributed to the phenomenon of premature deindustrialization. As a result, the country experienced low economic growth.
KEYWORDS: Deindustrialization, Protectionism, Tariff, Liberalization, Globalization.
JEL: C63, F31.