Given the importance of food industries in Pakistan, this study analyzes their cost structure by estimating the transcendental logarithmic cost function. The study also considers elasticity of substitution along with own-price elasticity and cross-price elasticity. Four factor inputs, i.e., labor, capital, energy, and materials, are used to estimate the cost function. The results indicate that materials account for the highest share of the cost. The elasticity of substitution of materials for capital and energy is also weak. The own-price elasticities indicate that the demand for materials is least responsive to a change in its own price while the demand for other inputs varies with price. The cross-price elasticities show that labor, capital and energy are substitutes for each other. The output elasticity of cost demonstrates the presence of economies of scale.
KEYWORDS: Translog cost function, elasticity of substitution, cross-price elasticity, Allen’s partial elasticity.
JEL: D24, Q11.

The study attempts to seek evidence on regional economic integration in driving labor productivity convergence in low- and middle-income East Asian states towards Japan, the country assumed to be the regional technology leader. The labor productivity convergence of low- and middle-income East Asian countries towards their rich neighbor is modelled against their national levels of innovation, technology spill-overs from the regional economic leader and their productivity differential with the frontier country. The hypothesized relationship is empirically verified for seven East Asian states, using a robust econometric approach. The time-series test estimates under Error Correction Representation yield absolute support in favor of valid productivity convergence occurring between Japan and its low-and middle income neighbors. However, panel data estimates generated with better statistical power outperform the time-series test findings and these results reject the significance of Japan as the regional productivity growth driver for its regional developing states.
KEYWORDS: Regional economic integration, productivity convergence, growth spill-over, time-series error correction model, panel cointegration estimators.
JEL: E24, F15.

Neoclassical price theory, and its extension to IMF country advice, argues that balance-of-payments crises such as Pakistan’s are better resolved by depreciating the exchange rate, making exports cheaper and imports dearer. We argue that a partial equilibrium analysis of just the tradeable goods market on the current account side ignores the capital market on the capital account side, where an increase in outflows allows no equilibrium value for the exchange rate, through a phenomenon dubbed ‘depreciationary expectations’, akin to inflationary expectations. This phenomenon will not allow the exchange rate to settle at an equilibrium level, leading to a vicious downward cycle. In such a case, capital controls may well be needed to counter the downward cycle, allowing a return to growth.
KEYWORDS: Balance of payments, exchange rates, equilibrium analysis, Pakistan.
JEL: D51, F38.

This paper examines patterns of export creation and diversion by analyzing Pakistan’s trade agreements at the two-digit industry level for all 88 export-oriented industries. We compare the net change in exports with nine free trade agreement (FTA) partners and the top 15 partners with most-favored nation (MFN) status. We find that 45 industries account for USD4.1 billion in export creation across all Pakistan’s FTA partners. Here, net exports increase after FTAs with both FTA and MFN partners. Conversely, export diversion worth USD137 million occurs in 10 industries with all FTA partners as net exports to FTA partners rise while net exports to MFN partners fall. In the same manner, we find that net exports in 33 industries declined by USD500 million with FTA and MFN partners. The total net exports addition after FTAs was USD3.5 billion or, on average, USD350 million annually, accounting for about 1.4 percent of Pakistan’s total annual goods exports. On average, Pakistan has successfully created exports in half its export-oriented industries, although highly subsidized industries exhibit either export diversion or a net decline with both MFN and FTA partners. A difference-in-difference analysis shows that exports to China and Mauritius rose significantly while the remaining seven FTA partners did not have a significant increase in exports after the FTAs were implemented. In view of these findings, we suggest revisiting the policy of export subsidies.
KEYWORDS: Free trade agreements, export creation, export diversion, industries.
JEL: F14, F1, F68.

Temporary unskilled migration and the remittances it generates have the potential to reduce child labor and improve educational outcomes in developing countries. However, recent literature points towards the adverse impact of the parental absenteeism on children left behind. We build a theoretical model to explore the joint impact of remittances and parental absenteeism on child labor and human capital formation of children left behind in the context of unskilled workers’ migration. We find threshold conditions for the relative wage of source to destination countries beyond which unskilled migration helps in reducing child labor and increasing human capital. Moreover, the threshold is endogenous and depends on the sensitivity of human capital formation to parental absenteeism relative to the child’s time spent on acquiring human capital. In a special case when the former is equal to the latter, the wages in the destination country should at least be twice as much as in the source country to have a detrimental (promoting) impact on child labor (human capital formation). Since the importance of parental absenteeism would depend on a variety of sociocultural factors such as marriage, presence of extended families, religious communities, and social networks, there will be heterogeneity in the impact of unskilled migration.
KEYWORDS: Migration, child labor, parental absenteeism, human capital.
JEL: F24, F22, J24, O15.

The Chinese yuan is poised to become an international currency and play a major role in global finance which will have significant consequences for countries, like Pakistan, which have recently seen large inflows of the Chinese capital. This paper presents empirical evidence of the evolving nature of the yuan, as reflected in the statistical distribution of the exchange rate, with a particular focus on the period after the initiation of Belt and Road Initiative (BRI) projects. We observe that the currency’s empirical distribution exhibits tell-tale characteristics of a managed currency. Over time, though the yuan’s statistical properties have converged towards those of other hard currencies, they still remain distinct. We find that there is a long-term trend of increasing correlations over time as indicated by the Dynamic Conditional Correlations (DCC), which is pronounced in the post BRI period. Furthermore, the yuan is increasingly being influenced by other major currencies in the recent periods, indicating increasingly integration of the currency in global foreign exchange markets. This article discusses the implications of the rise of the yuan for the management of Pakistan’s foreign currency reserves and exchange rate: it should be driven by the yuan’s evolving convertibility, credibility and liquidity.
KEYWORDS: International currency, global finance, Pakistan, yuan.
JEL: F31, F39.

We examine the impacts of a sustainable urban transport initiative, the first Bus Rapid Transit System launched in Lahore, Pakistan in year 2013. We measure the socio-economic and environmental impacts of the BRT using a questionnaire-based survey that collected information on customers’ travel purpose, travel frequency, travel time, mode access, previous travel mode choices (pre-BRT) and travel mode choices at present. We estimate that, on average, a BRT passenger saves about 46 minutes per day on a single trip. However, the modal shift from personal automobiles to the BRT system is found to be only 4 percent, i.e., significantly less than the shift found in other worldwide BRT systems. Moreover, we estimate the reduction in the number of private vehicles on roads, total distance travelled in km and associated travelling costs and, subsequently, the reduction in the carbon emissions. We conclude that the Lahore BRT transit system needs to be expanded to other parts of the city.
KEYWORDS: Urban transport, Bus Rapid Transit System, travel time saving, vehicle costs saving, environmental emissions reduction, Lahore, Pakistan.
JEL: R49.

We compare Pakistan's energy consumption structures to selected East Asian economies with a view towards ensuring an adequate supply of power for economic catch-up and, at the same time, meeting the greening goals envisioned by the United Nations Framework Convention for Climate Change. The evidence shows that Pakistan relies significantly less on non-renewable energy to meet its energy demands compared to China, Japan, South Korea, Malaysia, and Thailand, while its dependence on fossil fuels has been rising rapidly. Using data for Pakistan from 1960 to 2015, we deployed panel co-integration and Granger causality tests to analyse selected East and Southeast Asian countries before exploring what it will take for Pakistan to develop its renewable energy (RE) sector. The evidence shows that catching up economically with these countries through rapid GDP per capita growth will exacerbate Pakistan’s current energy imbalance, thereby aggravating greenhouse gas (GHG) and carbon dioxide (CO2) emissions. We argue that Pakistan enjoys strong endowments to avert this problem, and hence, it should strategically focus on the development of RE resources, especially solar and wind energy, but only after taking account the relevant costs
KEYWORDS: Renewable energy, thermal energy, economic growth, hazardous emissions, Pakistan.
JEL: Q41, Q49.

We test the technical efficiency, measured by the degree of integration, of agriculture markets for five crops in the Punjab province of Pakistan using daily wholesale market prices from the Agriculture Management Information System (AMIS). We find that potato, onion and mango markets are well integrated both horizontally and vertically, with the speed of price adjustment in most cases (mango is the exception) being very rapid. We also find that kinnow and basmati rice markets are both vertically fairly well integrated. Furthermore, we find that trends in cropping patterns over the period 2000 to 2014 are in line with the changing market demand and government price interventions. The reforms introduced by the Punjab Agriculture Marketing Regulatory Authority (PAMRA) Act 2020, aimed at increasing competition in agriculture markets, have the potential to significantly improve economic efficiency.
KEYWORDS: price transmission, Agricultural prices, market integration, market efficiency, agriculture marketing.
JEL: Q110, Q111, Q113, C110.

This article studies the supply and demand of major Pakistani crops. We estimate supply elasticities using a Nerlovian partial adjustment process and demand elasticities using the Deaton and Muellbauer Almost Ideal Demand Systems (AIDS). We use secondary data from various Household Integrated Economic Surveys and Agricultural Statistics of Pakistan. Our estimated supply elasticities with respect to price lie between 0.1 and 0.5 for all crops. Pulses tend to have higher elasticities than traditional crops such as wheat and rice. Demand elasticities with respect to price tend to be inelastic, with the exception of poultry and fruit which appear to be luxury items. Pulses are income inelastic, implying that consumption may not rise significantly as per capita incomes and that the introduction of yield enhancing varieties will lead to lower prices
KEYWORDS: Supply, demand, major crops, elasticity, Pakistan.
JEL: Q11, Q19.