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Long-Run and Short-Run Dynamics of the Exchange Rate in Pakistan: Evidence From Unrestricted Purchasing Power Parity Theory
Muhammad Arshad Khan and Abdul Qayyum
Published:Jan - June 2008
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.
Forecasting Wheat Production in Pakistan
Falak Sher and Eatzaz Ahmad
Published:Jan - June 2008
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.
A Case Study of Milk Processing: The Idara-e-Kissan Cooperative
Khalid Riaz
Published:Jan - June 2008
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.
Apple Market Integration: Implications for Sustainable Agricultural Development
Khalid Mushtaq, Abdul Gafoor and Maula Dad
Published:July - Dec 2008
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.
The Determinants of Capital Structure of the Chemical Industry in Pakistan
Muhammad Rafiq, Asif Iqbal, Muhammad Atiq
Published:Jan - June 2008
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.
Book Review by Nina Gera: Structural Adjustment Programs in Pakistan: A Boon or a Bane? Lahore School of Economics Press, Lahore, 2007, pp 169.
Salman Ahmad
Published:Jan - June 2008
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.
Published:Jan - June 2008
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.
The Incidence of Government Expenditures on Education and Health: Microeconomic Evidence from Pakistan
Ahmed Nawaz Hakro and Muhammed Akram
Published:Jan - June 2008
This paper has analyzed the incidence of government expenditures on health and education by using the benefit incidence approach. Recent household level data from the Pakistan Standards of Living Measures (PSLM) has been used to calculate the incidence for Pakistan overall, and at provincial and regional levels, of different education and health services. GINI and concentration coefficients have been used to measure the benefit inequalities of public expenditure. The results demonstrate that education expenditures are progressive in overall Pakistan. The progressiveness hypothesis regarding health expenditure is accepted partially, as the expenditure is progressive for Pakistan overall, but regressive at regional and provincial level of services. Efforts should be directed towards the horizontal and vertical equity in the allocation of resources both at the provincial and regional levels, and greater targeting of rural and low-income groups can make the expenditure programs more effective and result oriented.
KEYWORDS:
Benefit Incidence, Health, Education, and Pakistan.
JEL:
N/A.
Returns to Education and Gender Differentials in Wages in Pakistan
Masood Sarwar Awan and Zakir Hussain
Published:July - Dec 2007
Education is one of the most important factors in human development. The data from two household surveys were used to estimate the returns to education and gender disparities in wages in Pakistan. The model, an extension of Becker and Mincer models, was used to quantify the returns to investment in education. The results revealed that income gaps attributable to education level were significant. Income gaps between educated and uneducated workers in first-time employment also tend to increase with experience. Women earn significantly less than their male counterparts. These differences may be interpreted as the maximum possible effect of discrimination against women. Women also earn less because they acquire less cumulative work experience than men, as a result of breaks in their work histories, owning to the demand of motherhood and domestic chores. Education quality was much lower for students from poor families; the majority of these poor attended public school and did not have access to better quality private schools. Such differences strengthened the influence of the distribution of education and the structure of returns on income concentration.
KEYWORDS:
Earnings function, gender inequality, human capital.
JEL:
N/A.