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Bilateral FTAs in South Asia: Recasting the Regionalism Debate
Dushni Weerakoon
Published:Sept 2009
The slow pace of progress of the South Asian regional trade integration process under SAARC has prompted many countries to seek bilateral agreements. Sri Lanka is a case in point with bilateral agreements with both India and Pakistan. While the former is acknowledged to have yielded positive results, the latter has remained of limited interest. Given that India remains the single most important trading partner for almost all other South Asian countries, regionalism in South Asia essentially entails bilateral market access to India. The current evidence suggests that India has attempted to do so via a host of bilateral and regional arrangements, but that the emerging nature of that integration process is unlikely to be an ‘inclusive’ South Asian regional grouping.
KEYWORDS:
Economic integration, South Asia, trade liberalization.
JEL:
F15,
R10,
F10.
Pakistan-India Trade Potential and Issues
Zareen F. Naqvi
Published:Sept 2009
Pakistan and India are the two largest economies in South Asia with very low levels of bilateral trade. This has been the result of border disputes and political tensions, but also of inward-looking import-substitution growth strategies. Trade (including official and unofficial) between the two countries stood at around US$ 2.5-2.6 billion in 2007/08 but it could potentially be as much as US$ 5-10 billion or two to four times its current levels. The Composite Dialogue Process (CDP) has led to substantial improvements in political relations over the last 5 years and trade relations have shown positive outcomes as well. This paper recommends that the process be strengthened further by restarting the stalled CDP, Pakistan granting most favored nation (MFN) status to India, continuing to reduce impediments to trade and trade logistics, and perhaps even considering the possibility of a free trade agreement (FTA) with India.
KEYWORDS:
Bilateral trade, Pakistan, India, competitiveness.
JEL:
F19,
024.
Trade Liberalization and the Lead Role of Human Capital and Job Attributes in Wage Determination: The Case of Pakistan’s Labor Market
Bushra Yasmin
Published:Jan - June 2009
This study analyzes the role of human capital and job attributes, i.e., supply-side determinants, in determining wages in a period of trade liberalization. Using the Mincerian earning function and based on data from the Labor Force Surveys, we construct a model to estimate various wage determinants and compute the rates of return to different educational qualifications and relative occupational wage shares for the years 2005/06 and 1990/91. The estimated earning functions for 1990/91 and 2005/06 are compared to investigate whether individual characteristics—such as gender, job location, nature of job, educational qualifications, and different occupations—cause the wage gap to widen or contract under conditions of trade liberalization. The mean and quantile regression approach is used for estimation purposes. Our key findings postulate (i) an increasing gender pay gap, (ii) a higher wage premium to the highest educational qualification, and (iii) more or less stable relative wages for different occupations over time. In addition, wage dispersion across occupational groups appears more pronounced in 1990/91 than in 2005/06, implying a declining trend in the difference in wage distribution across occupations. Our findings suggest that trade liberalization cannot be presumed to pose a threat to the labor market in the wage context. However, exposing labor to an open market has not increased the productivity and skills of labor or helped reap the potential benefits of trade liberalization.
KEYWORDS:
Trade liberalization, wage determination, human capital, Pakistan.
JEL:
J31,
F16.
The Impact of Socioeconomic and Demographic Variables on Poverty: A Village Study
Imran Sharif Chaudhry, Shahnawaz Malik and Abo ul Hassan
Published:Jan - June 2009
Poverty is a complex phenomenon based on a network of
interlocking economic, social, political, and demographic factors. An
understanding of the extent, nature, and determinants of rural poverty is a
precondition for effective public policy to reduce poverty in rural Pakistan.
The present study attempts to analyze the impact of socioeconomic and
demographic characteristics of households on poverty, using primary data
collected in the village of Betti Nala in Tehsil Jatoi, district Muzaffargarh
in southern Punjab. We have used two distinct approaches: (i) a poverty
profile, and (ii) an econometric approach in our empirical analysis. The
results show that household size, dependency on household, participation,
landholdings, and number of livestock have a significant impact on poverty
incidence. Our final conclusion is that efforts should be made to improve
socioeconomic factors in general and demographic factors in particular to
alleviate rural poverty in remote areas of Pakistan, while land should be
allotted to landless households.
KEYWORDS:
Poverty, households, Punjab, Pakistan.
JEL:
C10,
A13,
J19.
Economic Value of Irrigation Water: Evidence from a Punjab Canal
Ijaz Hussain, Maqbool H. Sial, Zakir Hussain, and Waqar Akram
Published:Jan - June 2009
This study is based on data from a cross sectional survey of 120 farms located along the Mithaluck irrigation canal in central Punjab. The data collected were analyzed using (i) the residual imputation method, and (ii) the change in net income method, and applied to a linear programming model to estimate the value productivity of irrigation water. Returns to irrigation varied by farm size and location on the canal, but were generally found to be very high relative to the estimated delivery cost of irrigation water. The results of this study could prove useful in determining the economic feasibility of various resources for supplementing water and improving delivery and application efficiencies.
KEYWORDS:
Irrigation, value of water, residual imputation, Punjab, Pakistan.
JEL:
C20,
A10.
Cointegration and Causality: An Application to Major Mango Markets in Pakistan
Abdul Ghafoor, Khalid Mustafa, Khalid Mushtaq and Abedullah
Published:Jan - June 2009
Mangoes are one of Pakistan’s most important fruits; the country is the world’s fourth largest producer and exporter of mangoes. Integrated markets are those where price signals are transferred from one to another, allowing physical arbitrage to adjust any disturbances in these markets; integrated markets are thus a sign of efficiency. From this viewpoint, we investigate domestic integration among ten major mango markets, i.e., Lahore, Faisalabad, Multan, Gujranwala, Sargodha, Karachi, Hyderabad, Sukkur, Peshawar, and Quetta employing Johansen’s cointegration approach and error correction model. Data on monthly wholesale prices data (PRs/100 kg) were obtained from the agricultural and livestock marketing advisor, Government of Pakistan. The results of the study confirm the presence of integration among major mango markets in Pakistan. These markets were able to adjust for 16 to 68% of disequilibrium in one month, implying that it takes almost two to six months to remove any disequilibrium and to move back to long-run equilibrium. The Granger causality test shows that the Karachi market has bidirectional causality with Lahore, Faisalabad, Multan, Hyderabad, and Sukkur, and a unidirectional relationship with the rest. An impulse response analysis was also conducted to check the stability of these markets given a standard error shock to the Karachi base market.
KEYWORDS:
Mangoes, cointegration, causality, Pakistan.
JEL:
C01,
A10.
An Empirical Investigation of the Causal Relationship among Monetary Variables and Equity Market Returns
Arshad Hasan and M. Tariq Javed
Published:Jan - June 2009
This study explores the long-term dynamic relationship between equity prices and monetary variables for the period June 1998 to June 2008. Monetary variables include money supply, treasury bill rates, foreign exchange rates, and the consumer price index. The data have been examined using multivariate cointegration analysis and Granger causality analysis. Johansen and Juselius’ multivariate cointegration analysis indicates the presence of a long-term dynamic relationship between the equity market and monetary variables. Unidirectional Granger causality is found between monetary variables and the equity market. In the case of money supply, a positive relationship supports the liquidity hypothesis. Impulse response analysis indicates that the interest rate shock has a negative impact on equity returns in the Pakistani equity market. Exchange rates also have a negative impact on equity returns in the short run. However inflation has little impact on returns in the equity market. Variance decomposition analysis suggests that the interest rate, exchange rate, and money supply shocks are a substantial source of volatility for equity returns. The contribution of a monetary shock to the equity returns ranges from 4% to 16% over different time lags. Similarly, the VECM also confirms the presence of a short-term relationship between monetary variables and equity returns. This state of affairs demands that monetary variables be considered an important factor in determining stock market movements. Policymakers should be more vigilant and careful in designing monetary policies as it has a direct impact on cash inflows into the capital market and on the stability of the capital market.
KEYWORDS:
Monetary variables, equity, causality, Pakistan.
JEL:
G12,
E31.
The Impact of Corporate Governance on the Cost of Equity: Empirical Evidence from Pakistani Listed Companies
Syed Zulfiqar Ali Shah and Safdar Ali Butt
Published:Jan - June 2009
This study examines the impact of the quality of corporate governance, as measured by a specially constructed corporate governance index, on the expected cost of equity calculated using the capital asset pricing model (CAPM) approach. A total of 114 listed companies were investigated to analyze the relationship between the two variables for the period 2003 to 2007. The quality of corporate governance was measured by assigning weights to a set of related variables, although these variables were also considered individually. We used descriptive statistics, a correlation matrix, a simple ordinary least squares (OLS) approach, and fixed effect model to test the panel data collected. We found a negative relationship between managerial ownership and board size with the cost of equity, and a positive relationship between board independence, audit committee independence, and corporate governance with the cost of equity. These results could be due to the transition phase through which Pakistani companies are passing after the promulgation of the Code of Corporate Governance in 2002.
KEYWORDS:
Corporate governance, cost of equity, Pakistan.
JEL:
G30,
G34.
Book Review: Banker to the Poor, The Story of Grameen Bank, Aurum Press Ltd, London, 1998, ISBN 978-1- 85410-924-8, pp 313
Nina Gera
Published:Jan - June 2009
Yunus, Muhammad with Alan Jolis, Banker to the Poor, The Story of Grameen Bank, Aurum Press Ltd, London, 1998, ISBN 978-1-85410-924-8, pp 313, Price: UK Pounds 8.99.
It is the firm conviction of Muhammad Yunus, winner of the Nobel Peace Prize, that poverty can be eradicated and put away in museums once and for all. As the author puts it, the bottom line of his belief system is that ‘poverty does not belong in a civilized human society. It belongs in museums’. This is what motivated this stalwart to establish the Grameen Bank in Bangladesh, the pioneer in the field of micro-finance for the poor. Today, Grameen Bank can boast that it provides 2.5 billion dollars of micro-loans to over two million rural poor in the country.
KEYWORDS:
Book review, Muhammad Yunus, Grameen Bank, microfinance, micro-finance.
JEL:
N/A.
Size and Value Premium in Karachi Stock Exchange
Nawazish Mirza and Saima Shahid
Published:July - Dec 2008
This study evaluates the ability of the Fama and French Three Factor model to explain a cross section of stock returns in the Karachi Stock Exchange (KSE). Following Fama and French factor approach, we sorted six portfolios by size and book to market. The sorted portfolios were constituted to represent stocks from each and every sector of KSE. Using Daily returns from January 2003 to December 2007, the excess returns for each portfolio were regressed on market, size and value factors. Our findings, in general, supported the notion of the three factor model. The three factor model was able to explain the variations in returns for most of the portfolios and the results remain robust when the sample was reduced to control for the size effect. Our findings are consistent with most of the studies that suggested the validity of the three factor model in emerging markets. These results warrant for the inclusion of size and value factors for valuation, capital budgeting and project appraisals, thus, having substantial implications for fund managers, analysts and investors.
KEYWORDS:
Size Premium, Value Premium, Market Premium, Three-Factor Model.
JEL:
G11,
G12,
G14.