The structural transformation of Pakistan’s economy has not been accompanied by a concomitant decline in the proportion of labor employed in agriculture. While this transformation has resulted in a non-farm sector that is large and growing it has not lead to the rapid absorption of the pool of relatively low productivity labor away from the agriculture sector, as predicted by conventional development theory embodied in the models of the 1960s. Despite the obvious importance of the role of a vibrant rural non-farm economy (RNFE), and in particular, a vibrant non-farm services sector to address the challenges of poverty, food security, agricultural growth and rural development, this sector has received inadequate attention in the debate in Pakistan. Based on a review of literature and data from two large surveys – the Rural Investment Climate Survey of Pakistan 2005 and the Surveys of Domestic Commerce 2007 – this paper attempts to analyze the factors underlying the low level of development of the rural non farm economy and the potential role it can play in Pakistan’s economic development.
KEYWORDS: Pakistan, Poverty, Rural, Development.
JEL: R23, R11.

Periodic research and documentation of the extent and nature of inter-regional and intra-regional inequalities is a pre-requisite for formulating cost effective interventions for the promotion of spatially balanced and sustainable development. These interventions can be in the shape of increased fiscal resource transfers and/or fiscal incentives to the private sector for promoting investments in lagging regions. The analysis of inter-regional and intra-regional consumption and non-consumption inequalities in this paper are a preliminary attempt at assessing their status.
KEYWORDS: Pakistan, Inequality, Consumption, Social Indicator.
JEL: D31, E21.

This paper investigates the relationship between human capital and economic growth in Pakistan with aggregate time series data. Estimated with the Johansen (1991) approach, the fitted model indicates a critical role for human capital in boosting the economy’s capacity to absorb world technical progress. Much higher returns, including spillovers, to secondary schooling in Pakistan than in OECD economies is consistent with very substantial education under-investment in Pakistan. Similarly, extremely large returns to health spending compare very favorably with industrial investment. Human capital is estimated to have accounted for just under one-fifth of the increase in Pakistan’s GDP per head. Since the 1990s, the impact of deficient human capital policies is shown by the negative contribution to economic growth.
KEYWORDS: Human Capital, Economic Growth, Cointegration, Pakistan.
JEL: O53.

The main focus of this paper is to measure the speed of adjustment of the exchange rate by means of the persistent profile approach developed by Pesaran and Shin (1996) to examine the symmetry and proportionality assumptions of the purchasing power parity (PPP) theory of exchange rates for the Pak-rupee vis-à-vis the US-dollar exchange rate over the period 1982Q2-2005Q4. Using cointegration and vector error-correction modeling approaches, we find considerable support for the validity of weak-form PPP in Pakistan. Furthermore, the symmetry and proportionality assumptions of PPP are not verified. In the short-run, the exchange rate and foreign prices play a significant role in the convergence process to achieve long-run equilibrium. However, the speed of adjustment is very slow and the persistence profiles suggest that almost 4-5 years are required to eliminate deviations and bring the nominal exchange rate in line with the long-run equilibrium path.
KEYWORDS: Exchange Rate, Purchasing Power Parity, Cointegration, Vector Error Correction, Pakistan.
JEL: F37.

This study analyzes the future prospects of wheat production in Pakistan. Parameters of the forecasting model are obtained by estimating a Cobb-Douglas production function for wheat, while future values of various inputs are obtained as dynamic forecasts on the basis of separate ARIMA estimates for each input and for each province. Input forecasts and parameters of the wheat production function are then used to generate wheat forecasts. The results of the study show that the most important variables for predicting wheat production per hectare (in order of importance) are: lagged output, labor force, use of tractors, and sum of the rainfall in the months of November to March. The null hypotheses of common coefficients across provinces for most of the variables cannot be rejected, implying that all variables play the same role in wheat production in all the four provinces. Forecasting performance of the model based on out-of-sample forecasts for the period 2005-06 is highly satisfactory with 1.81% mean absolute error. The future forecasts for the period of 2007-15 show steady growth of 1.6%, indicating that Pakistan will face a slight shortage of wheat output in the future.
KEYWORDS: Wheat, ARIMA, Production Function, Pakistan.
JEL: Q16.

The paper focuses on Idara-e-Kissan, a vertically integrated cooperative in the dairy sector, which procures fresh milk, processes it and uses the profits earned in urban milk product markets to provide development services to member farmers. The analysis suggests that, compared to a control group of non-members, the cooperative’s members had 29% higher net returns per milk animal, 9% more milk buffaloes, 6% fewer dry buffaloes and they used three times more milk fat-enhancing cottonseed cake. The members had better access to animal vaccination, artificial insemination, and visits from livestock extension workers; they were able to secure more animal treatments per year, and reported greater satisfaction with service provision. The cooperative’s successes were more modest in areas where the benefits of inputs and services provided were more public, e.g. livestock breed improvement and enhancing fodder productivity, indicating that there is an important role for the government in supplying public goods such as livestock/agriculture R&D.
KEYWORDS: Milk, Dairy, Livestock, Cooperative, Pakistan.
JEL: Q18.

In a market driven economy, price signals guide and regulate production, consumption and marketing decisions over time, form and place. Identifying the causes of price differences in interregional or spatial markets has therefore become an important economic analytical tool to understand markets better. If markets are not well integrated, price signals are distorted, which leads to an inefficient allocation of resources. Further, it may constrain sustainable agricultural development and aggravate inequitable patterns of income distribution. This paper examines the degree of spatial market integration in the regional apple markets of Pakistan using cointegration analysis and monthly wholesale price data from January, 1996 to December, 2005. Results show that apple markets are perfectly integrated and Quetta is the dominating market. The high degree of market integration observed in this case is consistent with view that apple markets in Pakistan are quite competitive and provide little justification for government intervention designed to improve competitiveness to enhance market efficiency.
KEYWORDS: Market Integration, Cointegration, Apple, Pakistan.
JEL: Q13.

This study is an attempt to determine the capital structure of listed firms in the chemical industry of Pakistan. The study finds that by studying a specific industry's capital structure, one can ascertain unique attributes, which are usually not apparent in the combined analysis of many sectors as done by Shah and Hijazi (2004). This study analyzed 26 of 39 firms in the chemical sector, listed at the Karachi Stack Exchange for the period 1993-2004 using pooled regression in a panel data analysis. Six regressors i.e. firm size, tangibility of assets, profitability, income variation, non-debt tax shield (NDTS) and growth were employed to examine their effects on leverage. The results show that these six independent variables explain 90% of variation in the dependent variable and, except for firm tangibility, results were found to be highly significant. The study has policy implications of importance for researchers, investors, analysts and managers.
KEYWORDS: Chemical, Panel Data, Karachi Stock Exchange, Pakistan.
JEL: C51.

Gera, Nina, Structural Adjustment Programs in Pakistan: A Boon or a Bane? Lahore School of Economics Press, Lahore, 2007, pp 169, Price PKR 300. Underdeveloped countries such as Pakistan have been suffering from problems like deficits in the balance of payments, budget deficits, inflation, etc. These countries have been receiving foreign grants and concessional loans, yet the problems were not solved. This continued for about thirty years. Starting from 1980, International Financial Institutions such as the International Monetary Fund (IMF) and World Bank started to consider interventions in these economies and tied their foreign aid to certain structural reforms.
KEYWORDS: Book review, structural adjustments, Pakistan, IMF.
JEL: N/A.

On 24th March 2008, the nation lost one of its leading economists, Dr. Abdul Razzaq Kemal. Not only was he an authority on the Pakistani economy and on economic policy making, he had an unassuming, sensitive personality, and was humble and modest to the core. Born on April 14, 1946 in Amritsar, India, Dr. Kemal had a PhD in economics from Manchester University, UK and a Masters degree in economics from Stanford University, USA. He was the co-author and coeditor of 12 books and had 186 research articles published in both national and international journals and books.
KEYWORDS: A.R. Kemal, memory, in memoriam.
JEL: N/A.