After being among the earliest countries to embark on the East Asian path, Pakistan fell away but was still among the ten fastest growing economies of the world during 1960–90. However, the seeds for the subsequent economic and technological malaise were also sown in that period. This paper provides an overview of recent theoretical and empirical work on industrial policies – more accurately labeled learning, industrial and technology (LIT) policies – and examines their implications for Pakistan. These include a selective, more sharply focused approach than the comprehensive agendas of reforms that have become common. Substantial islands of success with industrial policies have emerged in a variety of institutional and governance settings, different from those of the original East Asian developmental states. They offer valuable lessons. Raising the abysmally low level of investment in Pakistan is a requirement as well as an outcome and an instrument of industrial policies. This argues for a revival of development finance to stimulate investment as well as to direct it towards selective targets. How to mitigate the risks of this and other instruments of industrial policy to get the risk–reward ratio right is another concern of the paper. An important target of such policies should be the technological upgrading of existing industries. There is enormous scope for doing so, with international comparisons suggesting that Pakistani manufacturing does poorly – both in terms of variance in productivity between firms within an industry as well as in introducing new technologies and products. Whilst the constraints of the politics–governance–security/terrorism nexus are beyond the scope of the paper, their salience cannot be underestimated.
KEYWORDS: Industrial policies, learning, technology, industrialization, development finance, Pakistan.
JEL: L60, L52.

Pakistan and India were part of that wave of economic liberalization among developing countries from the late 1980s. This paper is about one aspect of that failure to ‘produce the economic magic’, in Pakistan. Pakistan substantially liberalized its international trade after the late 1980s, and contrary to some views managed its exchange rate in an exceptionally clear sighted and prudent manner. In response, Pakistan never experienced sustained and rapid export led-growth. In fact so disappointing was the performance of exports that Pakistan’s degree of integration with the world economy was little higher in 2015 than it had been in 1990. This paper first examines the exciting promise followed by the lackluster performance of trade liberalization. It establishes evidence that the exchange rate was managed in a way that should have helped a more liberalized trading regime contribute to economic growth. The paper explores wider evidence linking trade liberalization to economic growth and argues that the positive relationship is at best only a contingent one. Those contingent factors that have failed to support the positive link between trade liberalization and economic growth in Pakistan are investment, tax revenue, and upgrading/learning.
KEYWORDS: Trade liberalization, exchange rate, exports, Pakistan.
JEL: F19, O49.

The problems that afflict Pakistan’s manufacturing sector are widely known. It is also recognized that the current state of affairs must change, but there is little agreement as to what that might entail. The lack of consensus on required actions and policies can be traced back to the end of the era of rapid industrialization in the late 1960s and subsequent withering away of the “developmental state” as Pakistan could then be characterized. The industry’s woes tend to be attributed to import substitution and high protection, with the policy implication that the country must further open up and liberalize. The paper questions this proposition and argues for a fresh approach to industrial policy, exploring what this might involve.
KEYWORDS: Manufacturing, industrial policy, Pakistan.
JEL: L52.

While “deindustrialization” is now considered normal for developed countries, recent trends show that many developing countries have seen their share of manufacturing employment peak at far earlier levels of income than in advanced countries. This new occurrence, which blocks off the main avenue for a country to catch up with more advanced economies, has been called “premature deindustrialization.” As a result of stagnation in manufacturing since 2007, Pakistan is on the brink – if not already in the process – of premature deindustrialization. This paper focuses on (i) growth trends in manufacturing and the economy, (ii) developments in the context of premature deindustrialization in Pakistan, and (iii) the change in the country’s structure of industry. We adapt and apply the industrial sophistication index developed by Lall, Weiss, and Zhang (2005) to the Pakistan Standard Industrial Classifications in the Census of Manufacturing Industries. The structure of industry in Pakistan, Sindh, and Punjab is mapped from 1990–99 to 2005/06 (2010/11 for Punjab) on the basis of a sophistication index score. Our analysis substantiates the conclusion that Pakistan’s industrial structure has stagnated, drawing on analyses of export data in other studies. It also indicates that our finding of modest upgrading in the industry sector on the basis of an intuitive division of industries into low-technology and high-technology industries may have been too optimistic. Revitalizing manufacturing growth will require Pakistan to once again adopt a proactive industrial policy to address the constraints and weaknesses of the manufacturing sector.
KEYWORDS: industrialization, premature deindustrialization, manufactures, manufacturing, structural change, growth, exports, sophistication of production.
JEL: F1, O14, L60, O25.

Despite the consensus that new firms have a significant economic and socioeconomic impact, there is very little empirical evidence to support this claim in the Pakistani context. In this paper, we start by looking at how new firm entry varies across districts in Punjab over time. We then look at how the establishment of different types of firms across these districts has affected district-level socioeconomic outcomes in the province. We find that firm entry has a positive impact on economic outcomes such as employment and enrollment, and that this impact can vary by the scale of the firms that enter.
KEYWORDS: Firms, entry, Punjab, Pakistan.
JEL: O47, M13.

The electrical fan sector in Pakistan has existed since at least the country’s independence and produced for the domestic market for most of its history, although the sector has had strong export growth in the last 15 years. On the other hand, the readymade garment sector has a shorter history, but has been export-oriented from the beginning. The fan sector has retained the traditional batch production system while garments are produced along a line. Nonetheless, both rely on piece rate-based wages to meet their production targets. In this paper, we describe production, management, wage practices, quality, and some barriers to reorganization in these sectors.
KEYWORDS: Production, management, quality, wage practices, ready-made garments, Pakistan.
JEL: L67, D20, L23.

The history of successful industrializers, such as South Korea and Taiwan, shows a systematic shift in the production structure from low- to high- value added activities in manufacturing and its resulting impact on agriculture, mining and services. Within manufacturing, the transformation is seen in both a movement from low-value added sectors, such as apparel making, to high-tech activities, such as automotive and electronics products, and, within particular industries, vertical integration into knowledge-intensive activities. Pakistan’s failure to engender the conditions to stimulate technological upgrading within its leading manufacturing industry of clothing, and a shift away to higher-value added industries is the prime reason why the country has not achieved rapid growth in GDP per capital over the long-term. This paper discusses Pakistan’s stagnation in manufacturing over the period 1960-2013 against the experience of the rapid industrializers of South Korea, Taiwan and Malaysia. Drawing on empirical evidence it argues that Pakistan requires a dynamic industrial policy that focuses on technological upgrading in its existing manufacturing sectors and the creation of competitive advantage in high value-added sectors if the country is to experience sustained long-term economic growth.
KEYWORDS: Manufacturing, industries, policy, Pakistan.
JEL: O25.

This paper makes the case for Pakistan to engage actively in globalization. At present, the country is more a recipient of globalization than a participant. There is a need to shift the terms of engagement from passive to active involvement. Particular effort is needed to encourage foreign companies already present in Pakistan to integrate activities with their global operations. Export-oriented investment requires a more favorable trade regime. Above all, global engagement will require Pakistan to build up its technological capabilities substantially, both at the enterprise level and economy-wide. These shifts imply a revitalized industrial policy endorsed by industry and a vigorous policy thrust aimed at investment-led growth.
KEYWORDS: Globalization, investment, trade, technology, industry, Pakistan.
JEL: F21, O38, O53, F63.

This paper analyzes the impact of the macroeconomic environment on Pakistan’s manufacturing sector, emphasizing in particular the role of fiscal and monetary policies in shaping incentives for industrial investment. Arguably, Pakistan’s macroeconomic fundamentals in the last two decades have remained fragile, resulting in severe macroeconomic imbalances that have contributed to macroeconomic instability and hampered private investment in aggregate as well as in the manufacturing sector. Furthermore, macroeconomic stabilization policies have often failed to produce the desired results owing to the lack of coordination between monetary and fiscal policies. Pakistan’s economy has thus lived on borrowed money and time and on rent-seeking behavior. Although some recent macroeconomic indicators have improved slightly, fundamental weaknesses remain. In particular, the recent improvement in the current account deficit was driven largely by the high inflow of remittances, coupled with financial engineering such as loan payments from the International Monetary Fund, “friendly” money, European Union bonds, and Islamic sukuk. It is imperative to think about the consequences of a leveraged reliance on remittances in the aftermath of falling oil prices and global deflation. Prudent macroeconomic management aimed at consolidating public finances and controlling inflationary pressures is essential to boost industrial investment and yield sustainable growth.
KEYWORDS: Pakistan, economic activity, fiscal and monetary policies, manufacturing activity.
JEL: L69, O23.

This paper profiles the flow of credit to manufacturing SMEs and their subsectors in Pakistan. We discuss the challenges confronting the SME sector as well as the role of the central bank in this context. Based on the literature and data available, we find that the flow of financing to the manufacturing sector witnessed a gradual and steady increase in absolute terms, although its share of total industry credit declined sharply over a nine-year period. Financing to manufacturing SMEs initially declined and then increased over a period of six years.
KEYWORDS: Credit, manufacturing, small & medium enterprise (SME), Pakistan.
JEL: L60, E51.