This paper attempts to answer two important questions in the context of Asian exchange rate regimes with respect to the choice of anchor currencies and dynamic preferences for exchange rate pegging. According to our results, the US dollar is the first choice of a de facto peg for many countries such as China, Hong Kong, the Philippines, and Pakistan. Other countries, apart from Korea and Indonesia, seem to prefer a basket peg comprising two or more anchor currencies with rapidly increasing weight attached to the euro. This shift from the US dollar to the euro reflects changes in the choices, preferences, and policies of these economies as a result of varying macroeconomic and global financial realities.
KEYWORDS: Exchange rate regime, flexibility, pegging, Asia.
JEL: F31, E58, F41, E42, F33.

This article estimates the economic returns to schooling as well as analyzing other explanatory factors for the French labor market. It addresses the issue of endogeneity bias and proposes two new instruments for use in the instrumental variable two-stage least squares technique. Our results show that the proposed instruments are relevant and adequate, based on evidence from the available literature. After using the proposed instruments, we find that the OLS coefficients for schooling are biased downwards. Finally, we choose between the two proposed instruments.
KEYWORDS: Endogeneity bias, instrumental variable, Mincerian model, two-stage least squares, wage regression, France.
JEL: C1, I2, J3, P5.

This study attempts to identify a stable money demand function for Pakistan’s economy, where the monetary aggregate is considered the nominal anchor. With evolving financial innovations and regulations, the stability of money demand has been the focus of numerous debates. Where earlier studies have provided conflicting explanations due to inadequate specifications and imprecise estimations, we find that money demand in Pakistan is stable, if specified properly. For developing countries such as Pakistan, it is important to target monetary aggregates or respond to deviations from the desirable path if monetary policy is to be effectively implemented and communicated; this should remain, if not a primary, then an auxiliary target in the monetary policy framework.
KEYWORDS: money demand, stability, monetarism.
JEL: C20, E12, E41, E5.

This study uses the forward-looking rule and backward-looking Taylor rule to investigate the conduct of monetary policy in Pakistan during 1971–2011. We compare the pre- and post-reform periods, and find that the estimates obtained using the generalized method of moments indicate that no interest rate rule was being followed. This explains the inability of monetary policy to control inflation and minimize the output gap. Although monetary policy was not very active in the pre- and post-reform periods, the post-reform quarterly data show some interest rate inertia and smoothing. Monetary policy was less accommodating of the cyclical nature of the output gap. We conclude that the behavior of the State Bank of Pakistan was not very different under forward- or backward-looking rules.
KEYWORDS: Taylor rule, forward-looking behavior, backward-looking policy, monetary policy, generalized method of moments.
JEL: E52, E58, C22.

Using firm-level balance sheet data for 20 of the 24 exchange companies in Pakistan for the period 2006–11, we explore the sources of firms’ vulnerability to short-term financing shocks. Based on the probability estimates of a maximum likelihood binary probit model, this paper shows that the incidence and degree of vulnerability of foreign exchange companies to short-term financing shocks has risen significantly over time. If not managed opportunely, these shocks can cumulate into long-term financing shocks and even lead to corporate failure in the long run. Our regression results show that the corporate managers of these companies cannot ignore macroeconomic factors such as global changes and the macroeconomic environment (inflation and GDP growth) in addition to firm-specific factors (growth opportunities, firm size, permanent earnings, earnings volatility, and working capital management) when managing their firms’ vulnerability to short-term financing shocks.
KEYWORDS: Foreign exchange companies, vulnerability, financing shocks, Pakistan.
JEL: G30, G33, L80, L89.

The Lahore School’s Ninth Annual Conference on Management of the Pakistan Economy took place on 20 – 21 March, 2013 and the topic of this year’s conference was: “Human Capital Development for Sustained Economic Growth”. The conference participants ranged from leading economists and researchers in Pakistan, India, Sri Lanka, the United Kingdom, and the United States to leading Pakistani policy makers and NGO representatives. Over the course of two days, 14 research paper presentations were made on topics related to public service delivery, with a special emphasis on the education and health sectors as well and human development and social safety nets.
KEYWORDS: Pakistan, USA, India.
JEL: N/A.

Whether to provide services by the public or the private sector has been at the center of debates within governments and those in the international aid industry for decades. Unfortunately, this debate has often been cast in terms of absolutes with the private sector either as savior or demon. Casting the issue in this light simply can’t be correct. It cannot be the case that either is appropriate for every service and with every government regardless of its capability to the exclusion of the other. In every case, policy makers need to ask “how can the government improve the well-being of citizens with the constraints and tools at hand?” Those constraints include the ability to implement and monitor policy. This paper outlines how limitations of the market can be matched to appropriate interventions by government as it actually performs, not as it is hoped to perform. This matching will, by necessity, vary with country circumstance. While pure public goods must be provided by government regardless of its weaknesses and pure private goods should generally be left to the market, most serious policies operate in between. The balance of the limitations of the sectors needs careful analysis. The welfare costs of private market failure are rarely measured and the difficulties of implementing different policies are rarely discussed let alone quantified. Policies that are sensitive to deviations from perfect implementation should be avoided in preference to those that are more robust to circumstances. Further, every policy will generate interest groups that will constrain future decisions through political pressure.
KEYWORDS: Social services delivery, governance, education, health delivery, Pakistan.
JEL: H11, L88.

One of the most critical challenges Pakistan faces today is the need to improve and expand its education system. With important political and demographic changes taking place, greater devolution and strengthened democracy, this is an opportune moment to build a better system. Not only does the purpose of education have to be defined beyond what has been left over from colonial administrative objectives, but a much greater effort has to be invested in developing the skills and talents of the majority of the population. Punjab, Pakistan's largest province, has taken several education reform initiatives to improve education outcomes. However about a quarter of school age children are still not attending school either because they never enrolled or because they dropped out early. Low transition rates to secondary education are of special concern. Moreover, recent assessments have shown that students' knowledge and comprehension of basic subjects remains alarmingly low. Improved learning in schools is therefore another important challenge. Patterns in learning achievement in Punjab indicate the importance of school level factors, implying that a good school could make up for other regional and socio-economic disparities. Better quality schools also attract more students from the poorest families, because when parents expect better returns from education, the time and resources spent on schooling becomes worthwhile. This paper will review the extent to which critical gaps in achievement levels and other educational outcomes have been addressed by past policies and current reform programs.
KEYWORDS: Education, schooling, Pakistan.
JEL: I21.

This paper presents descriptive statistics on the government school education system in Sindh. The data are obtained from the latest administrative annual school census in Sindh (2011/12). The province’s schooling system comprises 48,932 schools of which 47,000 are primary, middle, and elementary schools, giving Sindh one of the densest public schooling systems in the world with almost 1.8 schools for every 1,000 people in rural Sindh. The functional schooling capacity, however, is low, with less than 15 percent of these schools having at least two teachers and access to basic facilities such as toilets, drinking water, electricity, and boundary walls. Against this backdrop, we examine key trends in education outcomes using the Pakistan Living Standards and Measurement surveys for 2004/05 and 2010/11. We find that the net enrollment rates (NERs) at primary, middle, and secondary level in Sindh stagnated, at best, during 2007–11 after a sharp increase registered in 2006; this trend is similar to that of the rest of Pakistan. Gains in NER vary significantly across districts with some performing exceptionally better than others. Finally, we cross-validate these statistics using independent household- and school-level census data on 300 communities, collected as part of an ongoing impact evaluation study in three districts of rural Sindh.
KEYWORDS: Patronage model, administrative data, PSLM, net enrollment rate, student achievement, public education, Sindh, Pakistan.
JEL: I21, I28, O20.

While schooling outcomes for girls have improved over the period 2001–11, progress has been uneven within Pakistan. Rural girls lag far behind urban girls and progress across the provinces remains unequal. The transition to secondary school—in some ways more critical for improving employability, reproductive health, and other outcomes—shows even more disparate progress by province and income class. Questions about the preference for public versus private schools and the actual choice of schools available to girls in most rural areas need to be answered if we are serious about a rapid escalation of secondary school enrollments for girls. We use data from the Pakistan Integrated Household Survey for 2001/02 and the Pakistan Social and Living Standards Measurement Survey (PSLMS) for 2007/08 and 2010/11 to look at patterns in this transition. Access is likely to be the main driving force behind the transition to secondary-level schooling. Initial findings reflect the almost total reliance on public schools for 10–14-year-old girls. This suggests that private secondary schools are not an option for girls in rural areas. The next major intervening factor is household income level: even rich families appear to favor public schools for girls. The data also suggest that girls from poor and large families compete with their brothers and other siblings for limited resources. Importantly, secondary school is only an option on completing primary school and the choices are greater at the primary school level. We study the choice of secondary school as conditioned on factors driving primary school completion. Regional patterns reflect the expansion of private schools in Punjab and Khyber Pakhtunkhwa (KP), less so in Sindh and Balochistan.
KEYWORDS: Poverty, girls, education, urban-rural gap, Pakistan.
JEL: I24, I21.