Bangladesh has experienced phenomenal growth in its readymade garments (RMG) sector and become the world’s second-largest RMG exporter after China. Given the country’s robust position in this context, many observers expected that the SAFTA revisions under Phase II – which allowed Bangladesh’s apparel products duty-free and quota-free access to the Indian market – would lead to a surge in Indian imports of apparel and RMGs. However, this did not materialize. This study analyzes Indo–Bangladesh trade in RMGs in order to determine the underlying reasons for this anomaly. Using Balassa’s concept of revealed comparative advantage, the study establishes the strong comparative advantage enjoyed by Bangladesh though the results also show a lack of effective trade complementarity between the two countries. Overall, the findings suggest that India enjoys economies of scale in RMG production – as Bangladesh’s competitor, India has artificially maintained a secure regime through a combination of domestic export incentives and nontariff measures to restrain imports.
KEYWORDS: Bangladesh, India, comparative advantage, liberalization, RMGs, SAFTA.
JEL: F14, F15, F13.

Although numerous studies have explored the relationship between education and women’s health-seeking behavior, the role of education – and the pathway through which it affects health-seeking behavior – remains unclear. We use data from the Pakistan Demographic Health Survey for 2006/07 on women aged 15–49 who had given birth at least once in the last three years to determine which socioeconomic factors affect maternal healthcare use, and how the effect of women’s own education is transmitted to their health-seeking behavior. We implement two estimation techniques: (i) a two-step instrumental variable linear probability model, in which women’s exposure to mass media is used as an instrumental variable for their health knowledge; and (ii) a community fixed effects model. The results of the analysis indicate that predisposing factors – such as women’s level of education, their children’s birth order, their spouse’s level of education, type of occupation, and empowerment – are important determinants of maternal health-seeking behavior in Pakistan. The results also confirm the important role played by women’s own health knowledge, independent of their education, on their maternal healthcare use.
KEYWORDS: Maternal health, education, health knowledge, instrumental variable analysis, mass media exposure, Pakistan.
JEL: C26, I15, I29.

This study employs the Richardson model to investigate the presence of an arms race between Pakistan and India during the period 1972–2010. Using the generalized method of moments approach, we find that the grievance term for the Pakistan model is positive while that for India is negative. Both countries’ defense spending in the previous period is negatively related to the change in their own defense spending due to the economic or administrative incidence of an arms race. Moreover, the defense or reaction coefficients in the specified model determine the presence of an arms race between the two countries. The signs of these coefficients are positive in accord with the classical Richardson model, suggesting that an arms race does indeed exist between Pakistan and India.
KEYWORDS: Arms race, defense spending, generalized method of moments, grievance term, reaction coefficients, Pakistan, India.
JEL: C45, H56.

Islamic mutual funds and socially responsible mutual funds are two similar asset classes that incorporate negative screens in their portfolio selection process to filter out stocks that fail to meet certain ethical, social, environmental, and/or religious standards. This study uses a single-factor capital asset pricing model and an adjusted sample consisting of 224 Islamic funds and 573 socially responsible funds to examine their excess risk-adjusted returns, market volatility, and systematic risk. It also gauges the market-timing abilities of the fund managers concerned in relation to both Islamic/socially responsible and conventional market indices. While there are some differences in the risk factors of Islamic funds and socially responsible funds, both are associated with lower risks and have the same market-timing ability.
KEYWORDS: Islamic mutual funds, capital asset pricing model, returns, systematic risk, market volatility.
JEL: G19.

The objective of this study is to identify the significant determinants of firms’ dividend policy across different sectors in Pakistan. Using data on 75 companies listed on the KSE 100 index for the period 2005 to 2010, we find that profitable firms tend to give higher dividends than loss-making firms. Firm size has a negative relationship with the dividend payout ratio and dividend yield, indicating that, the larger the firm, the more likely it is to retain cash to pay off its liabilities. Growth in sales is positively related to dividend yield, whereby an increase in sales leads to higher profitability and higher dividend payments. Ownership concentrated within institutions (such as banks and insurance companies), the management/family, and individuals has a negative impact on the payout ratio. Institutional owners are more likely to retain excess cash and thus omit dividends, individual owners prefer capital gains to dividends given the tax deduction, and management- or family-owned firms avoid dividends, which lead to increased agency problems. Finally, the market-to-book ratio is negative and highly significant: firms with better growth opportunities rely on internal financing more than on generating external funds.
KEYWORDS: Market to book, market cap, dividend payout, ownership structure, Pakistan.
JEL: G32, G30, G35.

This study develops a methodology for the comparative analysis of industry-specific export incentives. The impact of different export incentives extended to the textiles sector in India, Pakistan, and Bangladesh is analyzed using industry-level data for the years 2001–11. Our findings show that Bangladesh operates a highly export-oriented regime – of the three countries, the value of its export incentives is highest. The study suggests that, in order to maintain its competitiveness in textile exports, Pakistan needs to enhance its export incentives, particularly for value-added textiles.
KEYWORDS: Exports, export incentives, fiscal incentives, exchange rate, textiles sector, Pakistan.
JEL: F13, L50, F00.

This study evaluates a Punjab Government development project titled “Customized Lending Program for Furniture Cluster at Chiniot.” The project was implemented by the Punjab Government’s Small Industries Corporation at a total cost of PRs 40 million: the sum of PRs 100,000 was loaned to 400 small and medium furniture manufacturers in Chiniot, to be repaid in 22 equal monthly installments with a grace period of two months. The socioeconomic impact of the loan was determined from data collected through a survey. Overall, the project was deemed unsuccessful: on average beneficiaries’ income fell due to negative factors such as power outages and the fact that uniform loans were made to small and larger manufacturers.
KEYWORDS: Punjab development project, Chiniot, impact evaluation, furniture industry, microfinance, Pakistan.
JEL: O10.

As the Pakistani economy has stabilized over the last few years, the focus has turned towards restarting economic growth. This is a challenging task because of the structural problems faced by the economy as well as the global economic slowdown. This means that Pakistan’s policymakers must move beyond the traditional growth strategy of export led growth and think of ways of expanding the country’s manufacturing base. Keeping this in mind, the organizers of the Eleventh Annual Conference on the Management of the Pakistan Economy chose the topic of “Pakistan as a Regional Manufacturing Hub – Prospects and Challenges.” The objective of the conference was to provide academics and policy makers with new ideas on growth strategies in the context of a changing global environment.
KEYWORDS: Pakistan, budget deficits, Pakistani economy, circular debt.
JEL: N/A.

Professor Robert Wade, Professor of Political Economy and Development at the London School of Economics, delivered the keynote address for the 11th Annual Conference on the Management of the Pakistan Economy. This is a talk about the dramatic change in the understanding of what constitutes “development” that occurred in the West and in much of the developing world after the mid 1980s. Before that time it was widely understood that development meant rising overall “prosperity” and that heavy investment in infrastructure and in industry were key drivers. After the mid 1980s the content of development came to be “extreme poverty reduction”, “humanitarian assistance”, “primary school education”, “primary health care”, “anti-corruption”. Why this change? I argue that it was due to several factors: (1) the end of the Cold War, and the resulting change in the geopolitical strategy of Western states led by the US; (2) the increasing strength of “post-materialist” values in developed countries and their translation into the content of Western development thinking (eg World Bank, USAID, DfID); (3) business interests in the West; and (4) continued Western control of inter-state organizations that are meant to be organizations for the world (eg World Bank). There are now small signs of change in favor of investment in production and infrastructure, thanks partly to the recent emergence of inter-state “by- pass” organizations not controlled by Western states (such as the New Development Bank, the Asia Infrastructure Investment Bank).
KEYWORDS: Development, production, western countries, policy.
JEL: O29.

In this paper we explore how development finance institutions (DFIs) helped to promote industrial growth with active role of public sector in emerging market economies – Korea, China, India, Malaysia, Brazil, Mexico, Turkey. The DFIs provided long-term credit financing which led to structural transformation of their economies. These countries have succeeded in spectacular fashion at this transformation over the past four decades but Pakistan did not; why? There has been an endless debate concerning the role of the public sector vis-à-vis the private sector in promoting economic growth and it continues in the present. I begin by asserting that historically public sector has been in the forefront in starting and sustaining economic growth. This not a leap of faith, rather this has been the experience of most emerging economies. They have gone through reforms, liberalization and structural adjustment, ushering in market-based policy regime and opening up foreign trade and capital flows. Within this framework, the role of DFIs has been exemplary, an assessment I reach based on published researched evidence but from field experience in the East Asian economies during 1980s, where newly established industries, in part supported by World Bank (WB) funded DFI lending, nurtured industrial transformation. When the industries of advanced countries began leaving in droves, pressure mounted to end industrial financing. It is a fascinating saga. We need to discover why Pakistan did not succeed in achieving the same industrial transformation the occurred in emerging economies. This failure occurred in spite of similar types of DFI lending over a long period and an almost manic devotion of government to the role of public sector. Reforms and privatization is still going on; but industrial transformation remains as elusive as ever.
KEYWORDS: Industrial growth, development finance institutions, economic development, Pakistan.
JEL: O10.