The development of financial equilibrium asset pricing models has been the most important area of research in modern financial theory. These models are extensively tested for developed markets. This paper examines the validity of the Arbitrage Pricing Theory (APT) model on returns from 24 actively trading stocks in Karachi Stock Exchange using monthly data from January 1997 to December 2003. Explanatory factor analysis approach indicates two factors governing stock return. Pre-specified macro economic approach identifies these two factors as the anticipated and unanticipated inflation and market index and dividend yield. Some evidence of instability is found. The overall finding of two significant priced factors at least for a sub period supports APT for an emerging capital market.
KEYWORDS: Financial equilibrium models, capital asset pricing model, arbitrage pricing theory.
JEL: N/A.

In the paper we have estimated elasticities of employment with respect to the expansionary factors. According to our finding, in the small scale manufacturing sector size of employment is negatively related with wage elasticity, positively related with capital elasticity and also positively related with value of product elasticity.
KEYWORDS: Employment elasticities, Pakistan, small-scale manufacturing.
JEL: N/A.

Shahrukh Rafi Khan, Pakistan Under Musharraf (1999-2002): Economic Reform and Political Change, Vanguard Books, Lahore. Pages 178. Price: Pak Rs. 495/-. Dedicated to Omar Asghar Khan, this book can be seen as a continuation of the author’s previous Reforming Pakistan’s Political Economy, published by Vanguard in 1999. Using findings from research done by the Sustainable Development Policy Institute (SDPI), when the author was its Executive Director, Shahrukh Rafi Khan takes us through the political and economic reforms undertaken by the present military government.
KEYWORDS: Pakistan, Musharraf, political economy, reform.
JEL: N/A.

The theory of human capital posits a significant and positive relationship between earnings and work experience. This theory assumes a continuous increase in wages with employment experience at different levels of schooling. Several studies have established that earnings rise rapidly as the level of educational attainment improves. Similarly increase in work experience adds to skills, makes an individual more productive and hence leads to higher earnings. Education provides not only an initial labour market advantage, but also cumulative benefits over the working life. Therefore, it is misleading to assume a uniform rate of return to experience at different levels of education.
KEYWORDS: Human capital, education, higher returns, interaction on earnings.
JEL: N/A.

This article aims at identifying the macroeconomic indicators that account for the Argentine financial crisis. For this purpose, an early warning system (EWS) is built based on a probit model that incorporates six monthly variables spanning the time period between February 1991 and February 2000. The results indicate that the significant indicators are the consumer price index and the ratio of the value of exports to the value of imports. Results further indicate that the predictive power of the model is quite reasonable with a correct prediction probability of 67 percent at 15 percent cutoff level.
KEYWORDS: Argentina, financial crises, early warning systems, EWS, multinomial probit model.
JEL: N/A.

In this paper we attempt to assess the relevance of correspondence principle in determining the possible effects of currency devaluation on balance of payments and employment. We developed a model in line with Buffie (1986) who derived a very strong result that if the model is locally stable and if labour and imported inputs are gross substitutes then devaluation will certainly improve labour employment and balance of payments at the same time. For the general production function the Buffie model predicts that devaluation cannot contract both employment and balance of payments at the same time since either of them is incompatible with the stability of the model. Buffie results by and large depend upon stability conditions of the model and what we have demonstrated that stability analysis of the model unfortunately is not free of error. In the corrected model we observe that the results derived by Buffie do not hold in general.
KEYWORDS: Correspondence principle, balance of payments, employment, labour employment, devaluation.
JEL: N/A.

The role of savings in investment and therefore in the development of a country cannot be exaggerated. In poor countries like ours most of the savings is done by households. In this paper the saving behaviour of Pakistan households, broken down to rural-urban, is examined. Using HIES 1998/99 and utilising OLS, it has been shown that saving behaviour in Pakistan is influenced by various factors including wealth, employment status, education, age and dependency ratio. But the most import role in influencing saving behaviour is played by household income.
KEYWORDS: Pakistan, development, household income, OLS, saving behaviour.
JEL: N/A.

This study focuses on the measurement of the underground economy (UGE) through tax evasion in Pakistan over the time period 1974-2002. The monetary approach is applied in order to estimate the underground economy. First, the currency demand equation is estimated and then an attempt is made to deduce the size of the underground economy and tax evasion. Finally, an Ordinary Least Square (OLS) Model is applied in order to estimate the impact of the underground economy on Gross Domestic Product of Pakistan for a selected time period. The results demonstrated that the underground economy has increased enormously from Rs. 12 billion in 1974 to Rs. 1085 billion in 2002. The findings suggest that the existence of such a large UGE can decrease tax revenues, depress GDP, and raise socio-economic problems. Frequent tax audits and heavier penalties for tax evasion may minimise the size of the underground economy with its ill effects.
KEYWORDS: Pakistan, informal economy, underground economy, tax, tax evasion, tax rates.
JEL: N/A.

This paper applies the technique of Granger Causality to determine the relationship between total government expenditures and total tax revenue using annual revised estimates. The analysis discovers a firm unidirectional effect from expenditure to revenue suggesting the preference of controlling the spending decisions to reduce the tax revenue-expenditure deficit.
KEYWORDS: Pakistan, Granger Causality, estimates,  tax revenue-expenditure deficit.
JEL: N/A.

Pakistan’s youth1 consists one-fifth (25 million) of its population and is one of the most valuable resources for its national growth and prosperity. An educated, skilled, and healthy youth, in other words a developed youth, would most certainly put Pakistan in the course of social and economic enrichment. Hence, it is imperative to determine where Pakistan’s youth stands in terms of development characteristics and indicators. The present study is based on a national survey “Pakistan’s Youth: Transition to Adulthood: Education, Work and Marriage” undertaken in all four provinces by the Population Council in 2001-02, with a sample size of 8,074 youth and 6,812 households in 252 communities. The survey used three comprehensive questionnaires with various modules covering education, work, marriage, fertility, and living conditions of youth, their households and their communities. The survey also covered gender attitudes, norms, mobility, and safe places. The present paper has used the data from the above-mentioned study to work out “Youth Development Index” (YDI). The YDI is a simple summary measurement, as other development indexes, of four dimensions of the youth development concept: educational attainment, employment, recreation and health seeking behaviour. The index has been analysed with other independent variables to ascertain the links of various agents and determinants affecting the development of youth in Pakistan. Then a regression model has been used to finally ascertain the factors that are most significant in a young person’s life.
KEYWORDS: Pakistan, population, youth, living conditions, youth development index, YDI.
JEL: Y - Miscellaneous Categories.