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The Consequences of Easy Credit Policy, High Gearing, and Firms’ Profitability in Pakistan’s Textile Sector: A Panel Data Analysis
Ijaz Hussain
Published:Jan - June 2012
This study uses panel data on 75 textile firms for the period 2000–09 to examine the consequences of an easy credit policy followed by high gearing, increased financing costs, and other determinants of corporate profitability. Five out of nine explanatory variables—including gearing, financing costs, inflation, tax provisions, and the industry’s capacity utilization ratio—have a negative impact, while the remaining four variables—working capital management, asset turnover, exports, competitiveness, and devaluation—have a positive impact on firms’ profitability.
KEYWORDS:
Easy credit,
energy crisis,
corporate profitability,
textile sector,
panel data,
Pakistan.
JEL:
F14,
L69,
L78.
Human Capital Convergence: Evidence from the Punjab
Uzma Afzal
Published:Jan - June 2012
While the literature on economic growth provides mixed evidence on convergence across different countries and regions, a large number of studies point toward the widening income gap between rich and poor. In the development literature, a broader range of national welfare indicators beyond income per capita—health and education in particular—are considered important instruments for measuring progress in human development. This article examines education and other selective welfare indicators to determine if there has been unconditional and conditional convergence across the districts of Pakistani Punjab over the period 1961–2008. The study can be considered part of the growing literature that looks at growth theory in developing countries in the context of human capital. Thus far, few studies have examined human capital in the context of convergence, and Pakistan has not been studied in any depth up to now. The results of our empirical analysis show that over the last five decades, both unconditional and conditional convergence has taken place in literacy rates across Punjab, and that this has been accompanied by increased gender parity in educational enrolment levels and improved housing conditions.
KEYWORDS:
Human capital,
unconditional convergence,
conditional convergence,
Pakistan.
JEL:
I31,
R10.
Does Access to Modern Marketing Channels Improve Dairy Enterprises’ Efficiency? A Case Study of Punjab, Pakistan
Sana Sadaf and Khalid Riaz
Published:Jan - June 2012
The main objective of this study is to investigate how access to modern marketing channels impacts the efficiency of dairy enterprises. Using data on dairy farms in central Punjab (Sargodha), we carry out a nonparametric data envelopment analysis to measure their technical and scale efficiencies. The results show that, for the sample dairy enterprises, the mean technical efficiency under variable returns to scale was 0.89 while scale efficiency was 0.94. The results of a follow-on regression analysis support the hypothesis that the access to modern marketing channels, where payment for fresh milk is based on measured milk quality (fat content), improved efficiency. We find that efficiency is positively affected by the size of dairy operations, and negatively by the size of operational land area. Moreover, dairy enterprises with smaller herds tend to operate at a suboptimal scale, possibly due to credit and/or land constraints.
KEYWORDS:
Dairy,
marketing,
Punjab,
Pakistan.
JEL:
C14,
M31.
The Impact of Gypsum Application on Groundnut Yield in Rainfed Pothwar: An Economic Perspective
Hassnain Shah, Muhammad Azeem Khan, Tariq Azeem, Abdul Majid, and Abid Mehmood
Published:Jan - June 2012
This study presents an economic analysis of experimental on-farm data on the yield effect of gypsum on groundnut production in Pakistan’s Pothwar region. The data indicates that groundnut pod yield increases significantly with the application of gypsum at 500 kg/ha for both local and improved (chakori) varieties of groundnut. The higher net benefits generate a marginal rate of return of up to 132 percent for local and 202 percent for improved varieties of groundnut. We carry out a sensitivity analysis and minimum returns analysis, and find, respectively, that the recommended application is capable of withstanding price variability and variability in yield. Since price structure changes more rapidly than technology, recommendations should be based on an analysis of returns under varying input and output prices.
KEYWORDS:
Groundnut,
gypsum,
economic analysis,
rate of return,
Pakistan.
JEL:
Q19.
Published:Jan - June 2012
Controlling prices is one of the biggest tasks that macroeconomic policymakers face. The objective of this study is to analyze the demand- and supply-side factors that affect food prices in Pakistan. We analyze their long-run relationship using an autoregressive distributed lag model for the period 1970–2010. Our results indicate that that the most significant variable affecting food prices in both the long and short run is money supply. We also find that subsidies can help reduce food prices in the long run but that their impact is very small. Increases in world food prices pressurize the domestic market in the absence of imports, which cause domestic food prices to rise. If, however, we import food crops at higher international prices, this can generate imported inflation. The error correction is statistically significant and shows that market forces play an active role in restoring the long-run equilibrium.
KEYWORDS:
Food prices,
ARDL estimation,
Pakistan.
JEL:
Q11,
E64.
Corruption, Endogenous Fertility, and Growth
Matthias Cinyabuguma
Published:July - Dec 2011
While much research in economic development has pointed out the
negative impact of corruption on growth, less research has been devoted to
studying the relationship between corruption and demographic transition. This
theme is developed into an overlapping generation model in which corruption
affects fertility decisions through its negative impact on physical capital formation
and its productivity. The analysis indicates that, when the level of corruption is
high, the productivity of capital is low and fertility is excessively high because of
the relatively low cost of raising children. Theoretical and empirical results show
that, in both developed and developing countries, corruption creates distortions
and leads to low-equilibrium traps. Introducing child quality into the model
accelerates the pace of demographic transition and produces effects similar to
reducing the level of corruption. Empirical estimates confirm the predictions of the
model and support the proposition that fertility declines in less corrupt countries.
KEYWORDS:
Endogenous fertility,
corruption,
productivity of physical capital,
Economic growth.
JEL:
F43,
012,
J13,
016.
Tariffs, Trade and Economic Growth in a Model with Institutional Quality
Azam Chaudhry
Published:July - Dec 2011
This article shows how institutional quality can affect the relationship between trade and growth. Our model looks at an economy in which the export sector is a high-innovation sector. In this economy, a government that is politically threatened by innovation can use its tariff policy to block innovation and increase domestic revenues. In this case, higher tariffs reduce economic growth and the government faces a tradeoff: It can either (i) raise tariffs, collect greater rents, and increase stability; or (ii) it can reduce tariffs and increase long-run growth and instability. When the quality of a country’s institutions are reflected in the costs of increasing tariffs, it can be shown that countries with strong institutions gain more (in terms of growth) from trade than countries with weak institutions, due to the effect of institutions on trade policy. It is also possible to show that the quality of institutions in one country can spill over into another by affecting its trading partner’s growth rate of income. However, these results are reversed in the case where a country has a highly innovative domestic sector—this explains the tariff-growth paradox in which countries experience higher growth with higher tariffs in earlier stages of development, but higher growth with lower tariffs in later stages of development.
KEYWORDS:
Economic growth,
institutions,
trade,
tariffs.
JEL:
F13,
E1,
O41,
O43.
Trade Openness: New Evidence for Labor-Demand Elasticity in Pakistan’s Manufacturing Sector
Bushra Yasmin and Aliya H. Khan
Published:July - Dec 2011
This study is an attempt to investigate trade–labor market linkages in Pakistan. Our main hypothesis that trade liberalization leads to an increase in labor-demand elasticity is empirically verified using a panel data approach for the period 1970/71–2000/01 for 22 selected manufacturing industries in Pakistan. We use ordinary least squares to estimate models in levels and first-differences, in addition to a fixed effects model. Overall, our findings suggest weak evidence of increased labor-demand elasticity as a result of trade liberalization in Pakistan’s manufacturing sector. Nor does the study find support for a positive labor market and trade linkage from an employment point of view—as otherwise suggested by standard trade theory. This may be due to increased capital intensity in the manufacturing sector by time, and the infusion of new technology. It could also be attributed to labor market imperfections preventing trade liberalization from favorably influencing employment conditions in Pakistan. Our policy recommendations based on the study’s results stress the need for skill enhancement measures to increase labor productivity, helping it become competitive according to the demands of globalization.
KEYWORDS:
Trade openness,
labor-demand elasticity,
Pakistan.
JEL:
F16.
A Semi-Nonparametric Approach to the Demand for Money in Pakistan
Haroon Sarwar, Zakir Hussain, and Masood Sarwar
Published:July - Dec 2011
The degree of substitutability of different monetary assets serves as a valuable source of information for Pakistan’s monetary authorities in the context of money demand analysis. Barnett’s (1980) concept of the micro-foundations of money demand has paved the way for a more comprehensive demand system analysis. Locally flexible functional forms are unable to estimate substitution elasticities at all data points, and thus, we use the asymptotically ideal model, which is a semi-nonparametric globally flexible functional form. Our data on income, price, and substitution elasticities show that there is less-than-perfect substitution among monetary assets. The results of Allan and Morishima elasticities show that the former are inherently biased toward showing monetary assets as complements, making Morishima a better choice. The study recommends that it is high time Pakistan’s monetary authorities abandoned the simple-sum aggregation method, which assumes perfect substitution among monetary assets.
KEYWORDS:
Substitution,
semi-nonparametric,
globally flexible,
Morishima elasticity.
JEL:
E41.
The Effect of Ownership Rights on Urban Households’ Access to Credit in Lahore
Misha Saleem
Published:July - Dec 2011
Land titling and ownership rights have recently been advocated in policy circles as a powerful tool for poverty reduction. The lack of formal titling prevents the use of property as collateral, and hence prevents the capital embedded in these assets from being "unlocked." Some studies show a fairly insignificant relationship between informal loans and property rights, while others indicate a significant positive relationship between formal loans (credit cards, bank loans, etc.) and land ownership. The objective of this article is to look at the impact of owned titled land on formal and informal loans among urban households in Lahore. Here, formal loans are seen in terms of bank loans and credit cards while informal loans are characterized as loans taken from relatives, friends, or local moneylenders. The findings suggest that land ownership has a positive and significant relationship with formal loans but no relationship with either bank loans or informal loans alone.
KEYWORDS:
Property rights,
land ownership,
credit access,
formal loans,
urban households,
Working Capital.
JEL:
O15,
O16,
D14.