Greif, Avner, Institutions and the Path to the Modern Economy: Lessons from Medieval Trade. Cambridge University Press, 2008, pp. 452, Price £19.99. In a comparative study of the late medieval European and Muslim worlds, Greif analyzes the effect of institutions—especially those that facilitated impersonal exchange, such as trade—on the performance of modern economies. His argument rests on the premise that past institutions have an effect on consequent ones, and he contributes the disparity in performance of the Muslim and European economies to their distinct institutional trajectories. The book comprises several parts. It defines institutions in great detail; provides a comparative account of institutions in the medieval European and Muslim worlds; and applies a theoretical, analytical, and empirical framework—particularly game theory—to studying institutions.
KEYWORDS: Modern Economy, European and Muslim worlds, theoretical, analytical, empirical framework.
JEL: N/A.

In April 2008, the Centre for Research in Economics and Business (CREB) at the Lahore School of Economics hosted the Fourth Annual Conference on the Management of the Pakistan Economy on the theme, “Ensuring Stable and Inclusive Growth.” The Centre’s director, Naved Hamid, invited a number of prominent speakers including academics, economists, current and former government officials, and other experts to present a combination of research and policy papers, which can be broadly grouped under two major headings: i) Pakistan’s macroeconomy and ii) Poverty and inequality in Pakistan. These topics were selected because of their timeliness, given the increasing macroeconomic pressures facing the country, in particular those coming from the exchange rate and inflation, and the impacts on poverty that could result. The papers presented at the conference are summarized below:
KEYWORDS: Pakistan, CREB, Lahore School, fourth, annual conference, Pakistan Economy, inclusive growth.
JEL: N/A.

The article provides an overview of the Pakistani economy and addresses various sectoral issues currently being faced by the economy. The first and the most critical problem highlighted concerns the protection of the poor. Other issues highlighted relate to education, healthcare, housing, taxation and energy. This paper discusses how the current account deficit needs to be tackled by higher tariffs, exchange rate adjustments, and possible export duties. The paper also discusses the need to reduce the cost of production for industry and upgrade governance through an emphasis on the local government system. Regarding public sector investments, the paper explains how the government needs to be transparent about the Public Sector Development Programme, and allow projects to be executed by the provinces.
KEYWORDS: Pakistan, Balance of Payments, Fiscal Deficit, Education, Health, Poverty, Public Investment.
JEL: I32, D33.

As a result of policy inaction in addressing structural issues over a protracted period and a wrong set of economic priorities followed over the past several years, Pakistan’s economy faces a grave set of challenges. Among the many issues, which range from high inflation to power deficits and water stress, the most immediate and pressing is the need to restore fiscal order. While pressure on the coalition government to reduce the economic hardship of the electorate is understandably intense, the policy response needs to balance the alleviation of palpable hardship in the short term, with the ability to provide sustained benefits over the longer term. Given the sharp constriction in available fiscal space, adopting a policy course in the short run that raises expectations of “relief” may not be wise, in either political or economic terms. In the longer term, however, it is a misconception to view the available choices in purely binary terms, i.e. that “macroeconomic stability” (a much-maligned term, loath to politicians not just in Pakistan) is mutually exclusive to “pro-poor” agendas. Raising revenues by broadening the tax base meaningfully, in conjunction with rationalizing bloated government/public sector expenditures can free fiscal resources, which can be diverted to targeted subsidy programs. Ignoring macroeconomic stability, on the other hand, will eventually also undermine the ability of the government to influence economic growth, as growing fiscal and monetary constraints limit its ability to run appropriate policies. As experienced in the 1990s, this will slowdown both investment as well as growth, hurting the poor.
KEYWORDS: Pakistan, Macroeconomic Stability, Fiscal Policy, Monetary Policy.
JEL: E62, E52.

Public policy is aimed at increasing the efficiency of the industrial sector in Pakistan. This paper looks at four issues. Firstly, it looks at the adjustments the new government needs to make to restore macroeconomic balance. Secondly, it discusses the global changes that have occurred in the industrial sector and how these could be incorporated into Pakistani policy making. Thirdly, I have briefly discussed the history of policies implemented in Pakistan. Lastly, I have discussed the importance of decentralized industrial policy making. This paper also conducts an empirical analysis of the impact of industrialization on poverty. It is concluded that industrial development in Pakistan has historically been heavily dependent on government intervention and there was poor growth in this sector as compared to other Asian economies. The paper also presents five proposals aimed at achieving higher growth in the industrial sector.
KEYWORDS: Pakistan, Public Policy, Industry, Competitiveness, Poverty.
JEL: F44, D33, H32, L12, L13.

This paper gives a brief overview of Pakistan’s economic growth over the past decades and critically examines the economic policies of the last government. It draws attention to the unchecked state dominance across all sectors of the economy and emphasizes the need for further privatization. The paper concludes with some suggestions on the way forward towards growth and economic prosperity.
KEYWORDS: Privatization, Economic Policy, Economic Growth.
JEL: O43, L33, Q58.

The objective of this paper is to set out the key components of a development strategy for Pakistan. A fundamental premise of our analysis is that the world economic environment is changing dramatically and a development strategy today must position itself to take advantage of the changes taking place. The paper is divided into five sections: First, we provide a brief review of Pakistan’s experience with development strategies so far. Next, we discuss the changes that have occurred, or are taking place in the global economy, which have strategic relevance for Pakistan. In the third section we look at the current situation in Pakistan with regard to the potential drivers of growth, based on the earlier discussion of the global developments. In the final section key elements of an alternative development strategy for Pakistan are outlined.
KEYWORDS: Development Strategy, Growth, Globalization.
JEL: O40, O20, O11.

This paper explores the past 50 years of data on inflation, growth rates of money and real GDP. It is found that inflation is primarily a monetary phenomena; however, the quantity theory of money does not hold in Pakistan below money supply growth rates of 9 percent. A simple monetary rule is also derived by inspecting the maximum probabilities of keeping inflation low (at most 6 percent); this rule is simply to keep money growth rates below 12 percent. This paper also finds that food inflation too is a monetary phenomena and there is no trade-off between inflation and growth, which are independent in the sense of probability measures. The findings are confirmed by the application of Fisher’s Exact Test. The policy implication is that monetary policy should be pursued independently of growth policies of government.
KEYWORDS: Pakistan, Inflation, Monetary Policy.
JEL: E52, E41.

Pakistan has seen strong economic growth in recent years accompanied by a reduction in poverty. However, growth has been concentrated, which has meant that regional and inter-personal disparities are on the rise. In a contestable political environment, this casts a shadow on the sustainability of high growth. The budget, a corrective instrument, has been subject to boom and bust cycles because of rigid claims, poor tax effort and external shocks, rendering it ineffective in addressing long term priorities. This paper argues that robust budgets for sustained and inclusive growth require government programs to be credible (monitoring and evaluation and public information) and cost effective (streamlined budget cycle, public-private partnerships); this will help increase citizen willingness to pay for public programs via improved tax compliance.
KEYWORDS: Pakistan, Budget, Growth.
JEL: E22, O43, E23.

The dramatic increase in international food and fuel prices in recent times is a crucial issue for developing countries and the most vulnerable to these price shocks are the poorest segments of society. In countries like Pakistan, the discussion has focused on the impact of substantially higher food and fuel prices on poverty. This paper used PSLM and MICS household level data to analyze the impact of higher food and energy prices on the poverty head count and the poverty gap ratio in Pakistan. Simulated food and energy price shocks present some important results: First, the impact of food price increases on Pakistani poverty levels is substantially greater than the impact of energy price increases. Second, the impact of food price inflation on Pakistani poverty levels is significantly higher for rural populations as compared to urban populations. Finally, food price inflation can lead to significant increases in Pakistani poverty levels: For Pakistan as a whole, a 20% increase in food prices would lead to an 8% increase in the poverty head count.
KEYWORDS: Pakistan, Poverty, Inflation, Household Budget, Food, Fuel.
JEL: D33, R21, E3.