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.

This paper presents an analysis of smallholders’ access to rural credit and the cost of borrowing using survey data from Pakistan. Rural credit in Pakistan comes from formal and various informal sources. The tenure status, family labor, literacy status, off-farm income, value of non-fixed assets and infrastructure quality are found to be the most important variables in determining access to formal credit. On the other hand, the total operated area, family labor, literacy status and off-farm income are found to be the most important factors in determining the credit status of the smallholders from informal sources. The results show that the cost of borrowing from formal sources falls as the size of holding increases. The analysis confirms the importance of informal credit, especially to the smallest of the smallholders and tenant cultivators.
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JEL:

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.

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.

The value of rainfall forecasts for rainfed rice production in the Philippines is estimated under the assumption that farmers adjust the quantities of fertilizer and labor if rainfall forecasts are available. Using a panel of 46 rice farmers in Tarlac, Philippines, a heteroskedastic production function with growing season rainfall (July to October) as one of the independent variables is estimated. The expected value of rainfall forecasts under the assumption of simultaneous adjustments in both fertilizer and labor was estimated to be slightly more than 1% of the net return from rice production. Taking the rainfed rice area in the Philippines of 1.2 million ha and a net return of $446/ha, the total value of the forecast was estimated to be $6.6 million per year. The expected value was also estimated under the assumption that, instead of forecasts of rainfall amounts for each year, forecasts made are for rainfall “above average”, “average”, or “below average”. The value of rainfall forecasts was found to be highest and ranged between 1.4%-4.5% of the net return when the forecast is ‘above average’. The Philippine Atmospheric, Geophysical and Astronomical Services Administration (PAGASA) could help farmers by investing more of its resource for the accurate prediction of ‘above average’ rainfall events.
KEYWORDS: The Philippines, rainfall, forecast, heteroskedastic, prediction.

JEL: N/A.

The study employs the Girton and Roper (1977) measure of exchange market pressure (defined as the sum of exchange rate depreciation and foreign reserves outflow), to examine the interaction between exchange market pressure and monetary variables, viz. domestic credit (Reserve Money) and the interest rate. Evidence from impulse response functions suggests that domestic credit has remained the dominant tool of monetary policy for managing exchange market pressure. The increase in domestic credit upon increases in exchange market pressure (during 1991-98) was imprudent. The results suggest that fiscal needs/growth objectives might have dominated external account considerations during this period. Post 9/11 there is evidence of sterilized intervention in the forex market. The interest rate has also weakly served as the tool of monetary policy during the hay days of foreign currency deposits (1991-98). The finding implies that, for the interest rate to work as tool of monetary policy vis-a-vis exchange market pressure, a reasonable degree of capital mobility is called for.
KEYWORDS: Pakistan, Exchange Market, Pressure, Monetary Policy, State Bank, SBP.

JEL: N/A.

In this paper we compare the performance of different GARCH models such as GARCH, EGARCH, GJR and APARCH models, to characterize and forecast financial time series volatility in Pakistan. The comparison is carried out by comparing symmetric and asymmetric GARCH models with normal and fat-tailed distributions for the innovations, over short and long forecast horizons. The forecasts are evaluated according to a set of statistical loss functions. Daily data on the Karachi Stock Exchange (KSE) 100 index are analyzed. The empirical results demonstrate that the use of asymmetry in the GARCH models and the assumption of fat-tail distributions for the innovations improve the volatility forecasts. Overall, EGARCH fits the best while the GJR model, with both normal and non-normal innovations, seems to provide superior forecasting ability over short and long horizons.
KEYWORDS: APARCH; EGARCH; Fat-tailed distribution; Forecast; Forecast horizon; GARCH; GJR; KSE 100; Volatility.

JEL: N/A.

Anwar, Mumtaz, The Political Economy of Foreign Aid to Pakistan, Nomos Verlagsgesellscharft, Baden-Baden, 2007, pp. 141, Price not mentioned. There are an increasing number of studies that analyze the discrepancies between the stated and the actual motives behind giving aid to developing economies. Given this divergence the subsequent effectiveness of aid is also questioned, paving way for debates on whether aid should be given at all. An analysis of the former question of motives is imperative to understand whether aid will have a positive impact on economies with weak institutions, political instability and economic decision-making backed by the need to preserve the status quo.
KEYWORDS: Book review, Pakistan, Political economy, foreign aid.

JEL: N/A.

The Lahore School’s Third Annual Conference on the Management of the Pakistan Economy, in May 2007, reflected on the economic reforms that have been implemented since the 1990s and on the prospects for additional reforms in both the near and long-term. A number of respected economists and other experts provided evaluations of the government’s past efforts, and offered advice on the direction that future reform efforts should take. The Conference focused on a few key areas which included Governance Reforms, Industrial Competitiveness, Monetary, Fiscal and Financial Sector Policies, Exchange Rate and Trade Policies, and Female Labor Force Participation. The key findings of the papers were as follows:
KEYWORDS: Pakistan, Lahore School, third, annual conference, Pakistan economy, management.

JEL: N/A.

Though government reforms are viewed as important for most developing countries, the rationale for these reforms must be clearly understood if they are to be correctly designed and implemented. From an international perspective, government reforms in Pakistan must be developed to integrate Pakistan into a larger global economy and should be based on the lessons learned from other developing countries. From the domestic perspective, reforms are necessary for the Pakistani government to adapt to the changing domestic environment. The reforms must focus broadly on the Federal, Provincial and District governments, on civil service reform and on business process re-engineering. This paper details the rationale for government reform in Pakistan, focuses on critical areas of reform, and provides a framework for the proposed reform approach.
KEYWORDS: Pakistan, government reform, long term vision.

JEL: N/A.

Though Pakistan’s exports have increased significantly, analyses have shown that Pakistan’s industrial competitiveness is limited to a narrow range of products. This paper looks at the factors affecting Pakistan’s competitiveness ranking and relates these various factors to trends in Pakistan’s total factor productivity. In addition to looking at the components of Pakistan’s competitiveness ranking, this paper details the steps required for Pakistan to increase its global industrial competitiveness.
KEYWORDS: Pakistan, industrial, competition, exports, strategy, competitiveness.

JEL: N/A.

The issue of global competitiveness is critical for developing countries. This paper looks at the drivers that influence industrial competitiveness and provides a comparison of these drivers for Pakistan, India and China. The analysis shows that Pakistan lags behind China and India in most of the main components of the industrial competitiveness index. The analysis also presents a series of micro and macro level policy recommendations aimed at increasing Pakistan’s industrial competitiveness.
KEYWORDS: Pakistan, global competitiveness, macro level policy, micro level policy.

JEL: N/A.

Though the Pakistani economy had recently achieved some level of macroeconomic stability, at present there are fears that this stability could be threatened. This paper looks at monetary and fiscal reforms over the last decade and focuses on the areas that need to be addressed on both fronts. In particular, the paper looks at how present monetary policy needs greater clarity and how fiscal policy needs to focus on raising public savings and diversifying the sources of borrowing.
KEYWORDS: Pakistan, economy, monetary policy, fiscal policy, macroeconomic stability.

JEL: N/A.

The financial system of Pakistan has undergone a sea-change owing to reforms which were implemented over a period of a decade and a half, 1992-2006. The financial system has moved towards promoting the efficiency of financial intermediation while maintaining stability and fostering growth of the economy. Financial repression of the previous decades has receded though it has not been eliminated. Now a shift is warranted for the reform and restructuring of sectoral or sub-sectoral finance which has to be activity based, not institution based. Pakistan’s financial system has entered the post-reform era with all its potentials, complexities and challenges. How well the financial system performs in this era depends on how sustainable the financial regime is and how resilient it is in coping with change and financial shocks, both domestic and global.
KEYWORDS: Pakistan, financial repression, restructuring, reforming, financial system.

JEL: N/A.

In this paper an attempt has been made to review the financial restructuring process and its importance for economic growth and macroeconomic stability. The main focus is on the financial restructuring efforts undertaken by the government of Pakistan since 1990. We also analyze the impact of financial restructuring by using various financial indicators. The overall results suggest that the financial industry in Pakistan is showing remarkable and unprecedented growth. Unlike 1990, the performance of the financial sector is much better today. After the successful completion of first generation reforms, the introduction of second generation reforms is required, which will help to further strengthen the financial system and transfer the benefits of the first generation reforms to society.
KEYWORDS: Pakistan, restructure, financial sector, first generation reforms.

JEL: N/A.

This paper is primarily aimed at assessing the significance of the exchange rate on Pakistan’s foreign trade. It estimates the Equilibrium Real Effective Exchange Rate (ERER) and exchange rate misalignment for Pakistan using annual data from FY78 to FY06. The Engle Granger cointegration technique is used for the estimation of ERER depending upon various macroeconomic fundamentals as recommended by Edwards (1994). The results of the study are also used for the forecasting of ERER and misalignment up to the year 2010. The results of the study reveal that ERER is determined by variables such as: a) terms of trade, b) trade openness, c) net capital inflows, d) relative productivity differential, e) government consumption, and f) workers’ remittances. The error correction term points to the gradual convergence of the real exchange rate towards the long-run equilibrium level which suggests that the prevailing Pak Rupee exchange rate has not deviated from the ERER and captures economic fundamental trends. Moreover, Pakistan’s foreign trade would depend significantly upon the state of economic fundamentals in the future. Improved economic fundamentals are likely to support trade besides paving the way for enhanced inflows of capital and financial receipts.
KEYWORDS: Equilibrium Real Effective Exchange Rate, ERER, Pakistan, external trade.

JEL: N/A.

This study is based on the premise that agriculture remains the key issue in all reform efforts of Pakistan and the Doha Round of trade talks has strategic significance for the second round of the country’s farm sector reforms. It is argued that although there are differences among the individual developing countries, the majority have a comparative advantage in agricultural production and removing farm sector export subsidies and tradedistorting, domestic subsidies is their common concern. Evidence is provided to support the view that the Uruguay Round negotiations on agricultural subsidies are not a done deal, because although signed by the members, the Agreement on Agriculture is not ‘ratified’ by the recent farm bills of the developed countries which continue to defy economic logic and the WTO (World Trade Organization). On the other hand, the evidence provided from Pakistan shows that the governments of developing countries are not fighting the farmers’ cause since they are poorly managing agricultural policy and have been overly compliant with respect to the Uruguay Round ruling on reducing farm subsidies and increasing trade liberalization. The analysis shows that although the developed countries stand to gain far more from the liberalization of trade in agricultural commodities than the developing countries, the handful of farmers in developed countries are the stumbling block to the regeneration of world trade. It is argued that to alleviate world poverty, the developed countries need to demonstrate their willingness to gradually remove both the absolute value of subsidies provided to their farmers and the tariff and non-tariff barriers that protect agriculture. Finally, the author maintains that at world trade forums, the developing countries have exhibited poor representation due to lack of leadership.
KEYWORDS: Agriculture, Pakistan, developing countries, economic reforms.

JEL: N/A.