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Pakistan: A Case of Premature Deindustrialization?
Naved Hamid and Maha Khan
Published:Sept 2015
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.
The Economic Impact of New Firms in Punjab
Azam Chaudhry and Maryiam Haroon
Published:Sept 2015
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.
Organization, Management, and Wage Practices in Pakistan’s Electrical Fan and Readymade Garment Sectors
Theresa Thompson Chaudhry and Mahvish Faran
Published:Sept 2015
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 State of Manufacturing in Pakistan
Rajah Rasiah and Nazia Nazeer
Published:Sept 2015
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.
Globalization: The Challenge for Pakistan
Khalil Hamdani
Published:Sept 2015
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.
The Impact of the Macroeconomic Environment on Pakistan’s Manufacturing Sector
Inayat U. Mangla and Muslehud Din
Published:Sept 2015
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.
Credit Flows to Pakistan’s Manufacturing SME Sector
Imran Ahmad and Karim Alam
Published:Sept 2015
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.
In Quest of SME-Conducive Policy Formulation
H. C. J. Hanns Pichler
Published:Sept 2015
The very topic raises a challenging question: that is, of the role and significance, if not the “survival,” of small and medium enterprises (SMEs) and related structures amid forces, which – particularly in the sphere of industry – tend to favor the “big” over the “small” at first sight. At the same time, this points to underlying aspects and challenges of broader socioeconomic and structural dimensions with a concomitant need to formulate appropriate, more differentiated, and specifically designed business policies. Today, such challenges and related problems are seen as intertwined and multipronged, given (i) the growing international (not least as a strategic ingredient of development) perception of the role and exposure of SMEs in terms of their sector-related structural significance nationally, regionally, and globally; (ii) a closer-to-the-skin view of developments related to ongoing restructuring in the European business environment, which, in the context of SMEs, is in many ways regionally unique; and (iii) the overriding socioeconomic and systems-related aspects of a more comprehensive SME-specific policy formulation.
KEYWORDS:
SMEs,
business policies,
growth.
JEL:
L29.
Private School Participation in Pakistan
Quynh T. Nguyen and Dhushyanth Raju
Published:Jan - June 2015
This study uses multiple rounds of national household sample surveys to examine the extent and nature of private school participation at the primary and secondary levels in Pakistan. Today, one fifth of children in Pakistan—or one third of all students—attend private school. Private school students tend to come from urban, wealthier, and better-educated households than government school students and especially out-of-school children. The characteristics of private school students relative to their government school peers and the former’s composition differ in important ways across Pakistan’s four provinces. Private school participation among children varies largely from one household to another rather than within households, and to a greater extent than government school participation. Private schooling is spatially concentrated, with a few districts (situated mainly in northern Punjab) accounting for most private school students. The spatial distributions of private school supply and participation are strongly correlated. In the 2000s, private school participation rates grew in Punjab, Sindh, and Khyber Pakhtunkhwa and across socioeconomic subgroups, contributing in particular to the growth in overall school participation rates for boys, urban children, and rich children. Nevertheless, the composition of private school students has become more equitable, driven mainly by Punjab, where the shares of private school students from rural and nonrich households have risen.
KEYWORDS:
Private schools,
private school participation,
Pakistan,
household surveys.
JEL:
I25,
I21.
Migration, Remittances, and Household Welfare: Evidence from Pakistan
Masood Sarwar Awan, Mohsin Javed, and Muhammad Waqas
Published:Jan - June 2015
This study examines the costs and household-level benefits of overseas migration in Toba Tek Singh, Pakistan. A household survey was conducted to assess the transaction costs associated with the transfer of remittances and the sources used to finance overseas migration. We also carry out a propensity-score matching exercise, which reveals that overseas migration has substantial benefits as measured by migrants’ consumption levels, their expenditures on health, education, and vehicles, and the level of household savings. Policy options to facilitate migration and the transfer of remittances include (i) establishing technical training institutions to help workers upgrade their skills, (ii) information campaigns on the migration process and opportunities available, (iii) setting up institutions to provide loans for potential migrants, (iv) reducing money transfer costs through formal channels, and (v) building awareness of the Pakistan Remittance Initiative.
KEYWORDS:
International migration,
remittances,
Pakistan.
JEL:
F24,
F22,
I30.