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Implications of Public External Debt for Social Spending: A Case Study of Selected Asian Developing Countries
Sadia Shabbir and Hafiz M. Yasin
Published:Jan - June 2015
For developing countries with budgetary and balance-of-payments gaps to meet, maintaining large stakes of external debt is not free of cost. Highly indebted countries have to set aside a sizeable fraction of their scarce resources to service their debt, which naturally affects their development spending in general and allocations for the social sector in particular. This study examines the behavior of seven developing Asian countries and analyzes the impact of public external debt on social sector spending. The panel dataset includes Pakistan, India, Bangladesh, Sri Lanka, Nepal, the Philippines, and Indonesia, and spans the period 1980–2010. Our empirical analysis is based on three interrelated equations for different spending categories, which are estimated using the general method of moments. The study’s results confirm the common wisdom that outstanding external debt and its servicing liability have an adverse impact on public spending, particularly on social sector spending. This suggests that developing countries need to mobilize their own resources and minimize their dependence on external borrowing as far as possible.
KEYWORDS:
Public debt outstanding,
debt servicing,
fiscal deficit,
current account deficit,
social sector development.
JEL:
H69.
Relative Factor Abundance and Relative Factor Price Equality in Punjab
Resham Naveed
Published:Jan - June 2015
This study tests the relative factor price equality across districts in Punjab using the methodology developed by Bernard, Redding, and Schott (2009) and data from the Census of Manufacturing Industries for 2000/01 and 2005/06. The results indicate the absence of relative factor price equalization due to the uneven distribution of factors in the province. Nonproduction (white-collar) workers) are relatively scarce in Punjab, which results in a wage premium for this type of labor. The study adjusts for worker quality by using a Mincerian wage equation as worker quality could explain the wage differential between white-collar and blue-collar workers. However, this exercise yields similar results, implying that factors are distributed unevenly across the districts of Punjab even after controlling for worker quality differences.
KEYWORDS:
Sector price,
wages,
equality,
Punjab,
Pakistan.
JEL:
E24.
The Effectiveness of Corporate Governance in Constraining Earnings Management in Pakistan
Aysha S. Latif and Fahad Abdullah
Published:Jan - June 2015
Although firms’ annual reports are supposed to provide an unbiased and accurate picture of their financial position, managers may be induced to engage in earnings management in order to circumvent expectations. Such incentives can take the shape of stock prices, management incentives, or debt covenants. The purpose of this study is to investigate the effectiveness of three attributes of corporate governance in constraining earnings management practices. These include board characteristics, audit committee characteristics, and ownership structure. Based on a sample of 120 nonfinancial firms listed on the Karachi Stock Exchange during 2003–12, we find that audit committee independence is negatively associated with earnings management, while CEO duality and institutional shareholding is positively associated with earnings management. Moreover, the effectiveness of governance mechanisms in constraining earnings management practices differs across high- and low-growth firms.
KEYWORDS:
Earnings management,
financial statements,
corporate governance,
board characteristics.
JEL:
G34.
An RCA Analysis of Textiles and Clothing in Pakistan, India, and Bangladesh
Khurram Shahzad
Published:Jan - June 2015
This study focuses on the revealed comparative advantage analysis for Clothing and Textile sectors of Pakistan, India and Bangladesh. We have applied the Balassa’s (1965) Index for the analysis. The revealed comparative advantage has been analyzed in two different ways: one static on the year 2010 and the other one dynamic based on 1980, 1990, 2000 and 2010. For the dynamic analysis, the average of the three previous years from 2010 were taken and used for revealed comparative advantage. The results show Pakistan’s highest revealed comparative advantage for textiles over both India and Bangladesh. India has revealed a comparative disadvantage in textile in competition of Pakistan and Bangladesh. For clothing, Bangladesh has very dominant revealed comparative advantage when competing with Pakistan and India. Dynamic revealed comparative advantage indicates Pakistan has been gaining a comparative advantage in textiles since 1980 but with a declining percentage of textile export. Bangladesh has significantly gained a comparative advantage in clothing since the 1980s.
KEYWORDS:
Revealed Comparative Advantage,
Textile,
Clothing,
Product Positioning,
Balassa Index,
Pakistan.
JEL:
F14,
F15,
F10,
O57.
The Comparative Efficiency of Public and Private Power Plants in Pakistan’s Electricity Industry
Amir Jahan Khan
Published:July - Dec 2014
This study estimates a cost function for fossil fuel-based electricity generating plants operating in Pakistan during 2006–11. It employs a six-year panel dataset for 31 plants to estimate the cost function parameters. In the absence of any current evidence on comparative cost performance, the study’s attempt to document the economic efficiency of power plants in a large electricity sector is an important contribution to the literature. We find that on average, private nonutility plants (IPPs) are about 17 years younger than utility-owned plants and that the average capacity utilization, as measured by load factor, is higher for private IPPs than for public plants. After controlling for observables, the results show that, for a large part of the system, private plants produce electricity at a lower unit fuel cost than utility-owned public plants. The low efficiency of public plants is likely a result of the lack of operational maintenance and routine repairs. We find that the average fuel price (PRs per MMBTU) is lower for public plants and utility-owned private plants compared to nonutility-owned private plants which is mainly due to the composition of the fuel mix used for power generation. We also find that (i) the partial effect of fuel price changes on the average unit cost is higher for private plants than for public plants and (ii) on average, private plants use relatively expensive fuels compared to public plants. On an average fuel cost comparison, the private sector plants may be better base load plants than public sector plants, though the private sector plants may not be being used as base load plants because of the higher tariffs they change.
KEYWORDS:
Cost function,
utility-owned public plants,
load factor,
productive efficiency.
JEL:
D22,
D24,
L94.
The Impact of Corporate Governance and Ownership Structure on Earnings Management Practices: Evidence from Listed Companies in Pakistan
Kamran and Attaullah Shah
Published:July - Dec 2014
This study analyzes the impact of corporate governance and ownership structure on earnings management for a sample of 372 firms listed on the Karachi Stock Exchange over the period 2003–10. We estimate discretionary accruals using four well-known models: Jones (1991); Dechow, Sloan, and Sweeney (1995); Kasznik (1999); and Kothari, Leone, and Wasley (2005). The results indicate that discretionary accruals increase monotonically with the ownership percentage of a firm’s directors, their spouses, children, and other family members. This supports the view that managers who are more entrenched in a firm can more easily influence corporate decisions and accounting figures in a way that may serve their interests. This finding is consistent with prior research evidence on the role of dominant directors in expropriating external minority shareholders in Pakistan. Further, our results indicate that institutional investors play a significant role in constraining earnings management practices. We do not find any evidence that CEO duality, the size of the auditing firm, the number of members on the board of directors, and ownership concentration influence discretionary accruals. Among the control variables, we find that firms that are more profitable, are growing, or have higher leverage actively manage their earnings, while earnings management decreases with the age of the firm. The results are robust to several alternative specifications.
KEYWORDS:
Corporate governance,
earnings management,
ownership structure,
discretionary accruals,
KSE,
Pakistan.
JEL:
G32,
G3,
M4.
Value-at-Risk and Expected Stock Returns: Evidence from Pakistan
Javed Iqbal and Sara Azher
Published:July - Dec 2014
This study investigates whether exposure to downside risk, as measured by value-at-risk (VaR), explains expected returns in an emerging market, i.e., Pakistan. We find that portfolios with a higher VaR are associated with higher average returns. In order to explore the empirical performance of VaR at the portfolio level, we use a time series approach based on 25 size and book-to-market portfolios. Based on monthly portfolio data for October 1992 to June 2008, the results show that VaR has greater explanatory power than the market, size, and book-to-market factors.
KEYWORDS:
Value-at-risk,
emerging market,
Fama-French factors.
JEL:
G32,
C32.
An Impact Assessment of Expected Future Turmoil Risk on FDI: A Panel Data Analysis of Developing Countries
Mahvish Faran
Published:July - Dec 2014
This paper uses foreign direct investment (FDI) data from 39 developing countries for the period 2002–11 to explore whether the expected future turmoil risk of a country plays a significant role in determining FDI. It concludes that countries for which the expected future turmoil risk is very high are likely to have lower FDI inflows than countries for which the expected future turmoil risk is low, keeping all other factors constant. The results also illustrate that GDP per capita, democratic accountability, religious tension, and FDI inflows in the previous period are important determinants of FDI in developing countries.
KEYWORDS:
Political risk,
foreign direct investment,
expected future turmoil risk.
JEL:
F23,
C33,
C23,
F21.
The Growth and Employment Impacts of the 2008 Global Financial Crisis on Pakistan
Mirajul Haq, Karim Khan and Ayesha Parveen
Published:July - Dec 2014
This study examines the impact of the 2008 global financial crisis on economic growth and employment in Pakistan. We conduct a time series analysis of quarterly data for 1997–2011, applying the autoregressive distributed lag bounds-testing approach and an unrestricted error correction model. Our analysis suggests that the impact of the crisis was transmitted primarily through two channels—the financial sector and trade—with a corresponding negative effect on economic growth and employment. Of the two channels, the magnitude of the trade effect is larger than that of the financial sector.
KEYWORDS:
Financial crisis,
financial stress,
economic growth,
cointegration.
JEL:
O16,
C51,
C43,
O4.
The Correlates of Educated Women’s Labor Force Participation in Pakistan: A Micro-Study
Muhammad Zahir Faridi and Ayesha Rashid
Published:July - Dec 2014
This study attempts to determine the factors that affect educated women’s decision to participate in the labor force. Based on a field survey conducted in the district of Multan, we find that a number of factors have a positive and significant impact on women’s decision to work. These include women who fall in the age groups 35–44 and 45–54, the coefficients of all levels of education, the presence of an educated husband, marital status, family structure, and family expenditure. The presence of an educated father, being an educated married woman, location, distance from the district headquarters, the husband’s employment status and income, and ownership of assets significantly reduces women’s labor force participation. The results of the earnings equation show that variables such as women who live in an urban area and their level of education and experience are associated with a substantial increase in earnings with each additional year. The number of children has a negative and significant impact on women’s earnings. The hours-of-work model shows that age and the number of completed years of education have a positive effect on working hours, while the number of dependents and the number of hours spent on household activities have a negative effect on working hours.
KEYWORDS:
Human capital,
labor force participation,
earnings function,
time allocation,
Punjab,
Pakistan.
JEL:
D00,
J21.