Given that clustered firms in developing countries generally sell their goods through multinational firms, we seek to determine under what conditions might clustered surgical instrument firms band together and form a cooperative to “break out” of their relationship with multinational buyers to market their own goods. Our results, based on a survey of surgical instrument producers in Sialkot, Pakistan, demonstrate that firms are more likely to be interested in such initiatives once they have already had some direct experience in marketing, such as selling products under their own brand name and having already sold some goods directly to hospitals. Firms that have had relationships of longer duration with customers tend to be less likely to be interested in joint action initiatives. This indicates that a higher opportunity cost of engaging in joint action (as proxied by relationships of longer duration) reduces the likelihood of cooperative marketing initiatives in clusters.
KEYWORDS: Surgical instruments, goods, cooperative, market, Pakistan.
JEL: D24, M31, J54.

This paper attempts to estimate Pakistan’s trade potential, using the gravity model of trade. Panel data for the period 1981-2005 across 42 countries is employed in the analysis. The coefficients obtained from the model are then used to predict the country’s trade potential worldwide as well as within specific trading regions. The results reveal that Pakistan’s trade potential is highest with countries in the Asia-Pacific region (the Association of Southeast Asian Nations [ASEAN]), the European Union (EU), the Middle East, Latin America, and North America. Specifically, the maximum potential exists with Japan, Sri Lanka, Bangladesh, Malaysia, the Philippines, New Zealand, Norway, Sweden, Italy, and Denmark. Therefore, Pakistan should explore ways and means to further improve its trade relations with the countries concerned, and also concentrate on ASEAN, the Middle East, and the EU to increase its market share as far as possible. The volume of trade between Pakistan and other members of the South Asian Association for Regional Cooperation (SAARC) and Economic Cooperation Organization (ECO) is very low, despite the existence of significant potential. The main obstacles to this end are the political and social tensions among neighboring countries, particularly between Pakistan and India, which are the main players of SAARC. The same obstacles exist in the case of the EU and NAFTA, where Pakistani exports are adversely affected by political considerations.
KEYWORDS: Trade potential, gravity model, Pakistan.
JEL: O16, F19.

This study uses data from 1999/2000 to 2004/05 to determine the relative efficiency of major crops (wheat, rice, sugarcane, and cotton) in Punjab (Pakistan) and their comparative advantage in international trade as measured by economic profitability and the domestic resource cost (DRC) ratio. An economic profitability analysis demonstrates that Punjab has a comparative advantage in the domestic production of wheat for self-sufficiency but not for export purposes. In basmati production, Punjab has a comparative advantage, and increasing Basmati production for export is a viable economic proposition. The nominal protection coefficient (NPC), effective protection coefficient (EPC), and DRC for Irri rice are more than 1: the given input-output relationship and export prices do not give Punjab a comparative advantage in production of Irri for export. Sugarcane growers did not receive economic prices (i.e. prices reflecting true opportunity costs) during 2001/02 and 2002/03 in an importing scenario, while in 2003/04, the NPC was 1.02, indicating positive support to sugarcane growers. The NPCs estimated under an exporting situation range from 1.33 to 1.99, indicating that the prices received by growers are higher than the export parity/economic prices. This is also an indication that sugarcane cultivation for exporting sugar is not feasible in terms of economic value. The NPCs for cotton under an importing scenario were less than 1 while under an exporting scenario were either close to or greater than 1, implying an expansion in cotton production as imports have been more expensive than domestic production.
KEYWORDS: Crops, comparative advantage, domestic resource cost, policy analysis matrix (PAM), Pakistan.
JEL: Q18, Q17.

This paper attempts to evaluate the impact of monetary and macroeconomic factors on real wheat prices in Pakistan for the period 1976-2010, using Johansen’s co-integration approach. The Augmented Dickey-Fuller test reveals that all the variables used are first-difference stationary, except the trade openness indicator, which is second-difference stationary. There is also a long-run equilibrium relationship among these variables. The results indicate that real money supply, openness of the economy, and the real exchange rate have a significant effect on real wheat prices in the long run. The impulse response function shows that a trade openness shock impacted wheat prices to some extent and that it took three to four years for prices to become stable, following the shock. The findings of the study suggest that the policy thrust should focus on increasing wheat supply in the country by enhancing production or by liberalizing trade. Efforts should also be directed toward stabilizing the value of the Pakistani rupee against foreign currencies, especially the US dollar.
KEYWORDS: Wheat prices, co-integration, Pakistan.
JEL: E31, E00.

This paper deals with the computation and analysis of some fundamental reserve aggregates and associated monetary statistics, which impart important information regarding the design and conduct of monetary policy at the State Bank of Pakistan (SBP). Specifically, we compute the data series for borrowed, unborrowed, free, and drainable reserves using balance sheet data published by the SBP for the period 1985-2009. Results show that Pakistan’s monetary policy revolves around managing the exchange rate while using the t-bill rate as a key policy instrument. However, the value of the t-bill rate is both incorrectly and sub-optimally related to macroeconomic fundamentals rendering monetary policy time inconsistent. This hinges on the finding that, since 2000/01, the SBP has targeted the net free reserves of the banking system at 4 percent of total private deposits. Among other observations, we find that the scope of open market operations as a tool of monetary policy remains limited and that this limited role of open market defenses derives from the concern of the central bank to sterilize its own foreign exchange reserves. Furthermore, the growth rate of unborrowed plus drainable reserves bears a strong negative correlation with the annual average rate of inflation, which, on account of the former being consistently negative since 2005, implies that neither the government nor the SBP have an overriding concern for controlling inflation.
KEYWORDS: Monetary policy, central banks, Taylor rule, monetary targets, Pakistan.
JEL: E52, E58, E51.

The existing literature on education and poverty considers mostly primary data from an income point of view. However, the benefits of education vary from a direct income effect to positive externalities, which can help reduce poverty. This paper uses panel data for 40 developing countries for the period 1999 to 2007, and estimates coefficients by applying the random effect generalized least squares (GLS) technique. The study concludes, first, that income growth plays a moderately positive role in alleviating poverty, but that income distribution does not play a key role in poverty alleviation in the sample overall. Second, it concludes that education is the most significant contributor to poverty alleviation.
KEYWORDS: Education, income, income distribution, poverty alleviation, GLS, Pakistan.
JEL: I32, I30.

Edited by Shahrukh Rafi Khan and Jens Christiansen, Towards New Developmentalism, Market as Means Rather than Master, Routledge, Taylor and Francis Group, London and New York, 2011, ISBN13: 978-0-415-77984-5, pp 286. Neo-liberalism has virtually seen its day and over the last three decades a significant amount of scholarship has evolved that provides a viable alternative to this paradigm. Further, the global financial and economic crisis plaguing countries the world over from 2007-2009 has led to the exploration of alternatives that are presented in this book by scholars.
KEYWORDS: Book review, neo-liberalism, strategy, financial crisis.
JEL: N/A.

This paper is a first attempt to measure and analyze inflation uncertainty in Pakistan. It makes several contributions to the literature. In the first stage, using quarterly data from 1976:01 to 2008:02, we model inflation uncertainty as a time varying process using the GARCH framework. In the second stage, we analyze the asymmetric behavior of inflation uncertainty using the GJR-GARCH and EGARCH models. For further analysis of asymmetry and leverage effects, we develop news impact curves as proposed by Pagan and Schwart (1990). Finally we investigate the causality and its direction between inflation and inflation uncertainty by using the bivariate Granger-Causality test to determine which inflation uncertainty hypothesis (Friedman-Ball or Cukierman-Meltzer) holds true for Pakistani data. We obtain two important results. First, the GJR-GARCH and EGARCH models are more successful in capturing inflation uncertainty and its asymmetric behavior than the simple GARCH model. This can also be seen from news impact curves showing a significant level of asymmetry. Second, there is strong evidence that the Friedman-Ball inflation uncertainty hypothesis holds true for Pakistan.
KEYWORDS: Inflation, uncertainty, GJR-GARCH, EGARCH, Friedman-Ball hypothesis, Pakistan.
JEL: E31, C22, E37.

One of the more celebrated propositions found in international trade is the case that trade liberalization is associated with declining prices, so that protectionism is inflationary. In line with this view, Romer (1993) postulates the hypothesis that inflation is lower in small and open economies. The objective of this study is to examine Romer’s hypothesis in Pakistan. For this purpose, we have used multivariate cointegration and a vector error correction model. The study covers the period from 1960 to 2007. The empirical findings under the cointegration test show that there is a significant negative long-run relationship between inflation and trade openness, which confirms the existence of Romer’s hypothesis in Pakistan.
KEYWORDS: Trade openness, inflation, cointegration, vector error correction model, Pakistan.
JEL: F41, C22, O53.

The objective of this paper is to assess the conditions for inflation targeting in Pakistan. The recent inflationary surge in Pakistan calls for rethinking monetary policy afresh. This paper argues the case for inflation targeting in Pakistan as a policy option to achieve price stability. The country experienced an inflation rate of just below 10 percent during 1970-2009, which makes it a potential candidate for inflation targeting. Applying the VAR technique to data for the same period, inflation is shown to be adaptive in nature, leading us to reject the accelerationist hypothesis. The Lucas critique holds as people are found to use forward-looking models in forming expectations about inflation. The paper also sheds some light on the State Bank of Pakistan’s level of preparedness for the possibility of adopting inflation targeting, for which transparency and autonomy are prerequisites. The interest rate channel can play the role of a nominal anchor in the long run.
KEYWORDS: Monetary policy, central bank, inflation targeting, Pakistan.
JEL: E31, E52, C32.