This paper focuses on a group of Asian countries that have successfully increased exports and found a common industrial strategy. Several key factors emerge from this study. First, countries that have managed to increase their exports focused on doing so in sectors in which they had expertise while slowly developing new export sectors at the same time. Second, high-growth Asian economies have developed their export sectors by making a significant move up the quality ladder and, in particular, moving away from low value-added to higher value-added exports. Third, there is no single economic policy that has worked across Asia; rather, successful exporters have used two or three policies in tandem to boost exports. Fourth, industrial policy has been coordinated with education and training policies to develop both the entrepreneurs and the workforce needed to produce high value-added exports. Finally, the only consistent factor that has an impact on high value-added export growth is domestic credit to the private sector. These results point to the urgent need for a coherent industrial strategy to boost Pakistan’s exports (preferably before future trade agreements are signed, which could otherwise damage potential export sectors).
KEYWORDS: Pakistan, East Asia, industrial policy, quality ladder.
JEL: F10, L50.

A variety of stylized facts about exporters have emerged in the new literature on international trade based on firm-level data. These include low levels of export participation among firms; small shares of export sales in firm revenue; larger firms; and higher levels of productivity, skill, and capital intensity among exporters. In this paper, we seek to examine the extent to which these stylized facts fit the experience of firms in Pakistan, using two cross-sections of firm-level data—the Census of Manufacturing Industries (CMI) 2000/01 for Punjab and the World Bank Enterprise Survey dataset (2006/07) for all Pakistan. We find similar levels of export market participation but very large shares of export sales in firm revenue for those who do, compared to the US sample studied by Bernard, Jensen, Redding, and Schott (2007). We also find, as do many other studies, that exporters exhibit significantly higher total factor productivity (TFP) and are larger in terms of employment than nonexporters. Exporters’ TFP was 150 percent higher than non-exporters before we controlled for firm size. Considering the eight largest sectors (which comprise more than 80 percent of the CMI Punjab), with a few exceptions, exporters had higher labor productivity and offered higher compensation to workers, but used more capital per worker and more imported inputs. The government’s recent emphasis on developing the readymade garments sector is well placed: more than half the apparel producers in the CMI Punjab 2000/01 were exporting—and nearly all of their output (93 percent). The capital-labor ratio and use of imported inputs was modest. Exporters were relatively large employers with 400 workers on average and offered significantly higher compensation than nonexporting firms. A greater understanding of firm dynamics could be gained if the CMI were to resume collecting data on firm-level exports (not collected since 2000/01) and if this data were linked across years so that firm performance could be measured over time.
KEYWORDS: Pakistan, export, firm, sales, revenue, Census of Manufacturing Industries (CMI).
JEL: F10, L60.

This paper describes the level of compliance with quality standards in relation to Pakistan’s top export product categories. With greater competition, innovations in technology, and stricter measures of quality being enforced, Pakistan needs to adopt a holistic, systematic approach to not just meeting, but also exceeding, international quality standards and certifications for its exports. Focusing on rice and textiles, we identify which compliance-related gaps need to be filled to ensure the sustainable growth of high-quality exports to major global markets. The study outlines the key dimensions of international quality standards as well as specific standards and requirements for textiles and rice, examines the quality assurance infrastructure in Pakistan, and presents policy recommendations.
KEYWORDS: Global quality standards, exports, compliance, Pakistan.
JEL: P45, L15, Q18, Q27.

This paper makes the case for a vigorous policy thrust to support investment-led growth. Pakistan’s economy has not maintained a sufficient level of capital formation to sustain growth over the long term. Two thirds of current growth is driven by consumption and not investment: this needs to be turned around. The government needs to put in place an investment regime that motivates and induces industry to invest, innovate, and reinvest. Foreign direct investment can play an important role in strengthening the country’s investment rates. There is also need for deliberate polices to boost technological capabilities in the enterprise sector. In this context, East Asia – which successfully created a dynamic process of capital formation and technological learning that upgraded its productive capacity and underpinned export success – holds important lessons for Pakistan.
KEYWORDS: Investment, technology, industry, Pakistan.
JEL: F21, O38, O53.

The textiles and garments (T&G) sector accounts for almost 50% of Pakistan’s exports and is the largest component of manufacturing. T&G sector, because of recent favorable developments for the industry in Pakistan and the expected future changes in the international trade structure for the sector, has the potential to play an important role in expanding Pakistan’s exports. In addition, garments manufacturing is the least energy and capital intensive industrial activity and thus resonates with Pakistan’s resource endowment to generate economic growth and employment. Garment manufacturers have tried to overcome the constraints arising from the energy shortages and adverse security and country risk perceptions by investing in power generation, upgrading IT, developing design and R&D capability. Punjab Government’s focus on garments as a central plank of its industrial strategy has also helped. However, this paper argues that for the sector to fully realize its potential, government policies that shape the incentive structure faced by the industry need to be re-aligned In this regard, the most important is Pakistan’s import policies and customs procedures that discourage the import of materials such as synthetic yarn and fabric, technical textiles and specialized trimmings and accessories needed by exporters to move up the value chain, and a significant bump up in the growth trajectory will only take place if import policy and custom procedures are substantially reformed. This paper focuses on the following themes: First, structural changes and trends in T&G exports; second, the associated constraints to growth of the garments sector; and third, to highlight some of the steps taken by the industry leaders in terms of policy reforms and by firms, particularly with regards to managing resources to enhance competitiveness.
KEYWORDS: Pakistan, exports, textiles, garments, international trade, growth, global value chain.
JEL: F13, O10, O14, F10, L50, L10, L25, L60, L67.

This paper examines historical trends in the diversification of exports in Pakistan, using the Hirschman index to quantify the degree of export diversification. We analyze the structure of exports through the lens of ‘traditionality,’ for which we construct industry-specific, average cumulative export experience functions, i.e., a traditionality index of all 2-digit export industries in Pakistan from 1972 to 2012. This is useful in distinguishing between traditional and nontraditional export industries. We also study the degree of structural change in the export sector since 1972 by recalculating the traditionality index based on five-year interval periods. The cross-industry variance of this index is then used to calculate the structural change index. Periods for which the index values are low are interpreted as periods during which the export industries experienced uniform patterns of export growth (and thereby no structural change). Periods for which the index values are high are interpreted as periods during which the export industries experienced varied patterns of growth, thus undergoing structural change. Finally, we explore the determinants of structural change in exports by looking at variables such as GDP growth, export growth, the real exchange rate, the growth rate of world trade, trade liberalization, and the degree of product concentration in the country’s export base.
KEYWORDS: Pakistan, export, growth, trade.
JEL: F40.

Pakistan and India have not yet normalized trade relations and gained the full benefits of bilateral trade despite significant developments to this end since 2011. Pakistan has yet to reciprocate the most-favored-nation status granted by India. This study investigates the benefits of trade liberalization between the two countries by studying the global competitiveness of Pakistan’s industrial sector from a policy perspective. We construct a revealed comparative advantage index for manufacturing products (HS 2-digit level) for Pakistan, India, and China for the period 2003–12, and then identify the changing patterns of comparative advantage for Pakistan. We find that 18 industries should be protected upon liberalizing trade with India. These industries are termed ‘vulnerable’ as they have moved from either borderline competitiveness to becoming uncompetitive or vice versa. Additionally, the excessive concessions granted to China in its free trade agreement with Pakistan and the resistance to opening up trade with India may have resulted in inefficient trade, i.e., imports from a less competitive partner and exports to a less lucrative market. We aim to establish a direction for further research to determine the ex ante impact of trade with India on the economy via a change in the production levels of these vulnerable industries, given the impact of free trade with China and the availability of Chinese substitutes.
KEYWORDS: Pakistan-India trade, revealed comparative advantage, manufacturing exports, trade liberalization.
JEL: F10, F11, F12.

Growing economic cooperation between the Pakistani and Turkish governments—manifested in the recently proposed preferential trade agreement (PTA)—has served to strengthen the historically good relations between both countries. This paper explores the trade relationship between Pakistan and Turkey in an attempt to analyze the potential gains for Pakistan under the proposed PTA. We evaluate potential trade opportunities using descriptive statistics and three trade indices: a trade complementarity index, export similarity index, and intraindustry index. Our findings suggest that Pakistan’s trade surplus with Turkey, strong export similarities, and intra-industry trade would allow greater opportunities for firm synergies between the two countries. This, in turn, would help Pakistan achieve greater value addition and a broader market base for its exports. The Government of Pakistan should, therefore, lobby strongly for the proposed PTA (which might later evolve into a free trade agreement) and leverage the agreement in such a way that Pakistan can maximize its potential benefits.
KEYWORDS: Preferential trade agreement, Pakistan, Turkey, trade complementarity index, export similarity index, intraindustry trade index.
JEL: F14, F15, F13.

This paper investigates the conventional import demand function for Pakistan using time-series data sourced from the World Development Indicators for the period 1970 to 2010. Using a vector error correction model and impulse response functions, we show that, for the given period, relative prices and income lose their significance as long-run determinants of import demand. This indicates the need for additional determinants. We compare the residuals of the conventional import demand function with those of a model that includes the terms of trade and foreign exchange availability (in addition to the conventional parameters) as determinants of import demand, and find that the latter largely resolves much of what is nondeterministic in the former model. The paper also explores the peculiar trend of a falling imports-to-GDP ratio (from the 1980s to the 2000s), which is unusual for a developing country. In a subsidiary regression analysis for this period, we argue that falling net capital inflows explain this persistent fall in the imports-to-GDP ratio. The recovery thereafter, when Pakistan started catching up with other developing economies, may have been responsible for the 2008 balance-of-payments crisis.
KEYWORDS: Pakistan, import demand function estimation, capital inflows, balance of payments.
JEL: F140.

With growing global and regional economic integration, Pakistan, too, is actively seeking to enhance regional economic cooperation; it has entered into various regional and bilateral trade agreements that encompass trade policies ranging from import substitution to export promotion. However, the country’s imports remain concentrated in a few product categories as well as in terms of origin. Despite several regional trade agreements, Pakistan has not been able to source its imports from regional trading partners. This stems from constraints relating to trade facilitation, regulatory frameworks, and physical infrastructure. Our empirical analysis shows that, while changes in real income and import prices have a significant effect on import demand in the long run, variations in the domestic price level do not. If Pakistan is to grow at 7–8 percent per annum as envisaged in official development plans, it will continue to experience strong growth in imports to meet its rising industrial and consumer needs. Pakistan needs to develop a strategy to use regional integration schemes as a platform for enhancing trade ties in both imports and exports. This will ensure greater trade and investment links with its regional trading partners, helping to lower the transaction costs of trade and boosting economic growth.
KEYWORDS: Pakistan, import demand, regional integration.
JEL: F13, E64.