This paper investigates the efficiency of the Karachi stock exchange (KSE) with corrections for thin trading and non-linearity as suggested by Miller, Muthuswamy and Whaley (1994). Daily, weekly, and monthly data on stock prices from December 1991 to May 2003 have been used, with three non-overlapping periods (December 1991 to May 1998; May 1998 to September 2001; and September 2001 to May 2003) and one combined period (May 1998 to May 2003). The results indicate that the Karachi Stock Market is efficient for the overall period, the three sub-periods, and the combined period in linear and non-linear behavior after making adjustments for thin trading. The same result is observed when the efficiency test is conducted on weekly and monthly data after adjusting for thin trading during the overall study period.
KEYWORDS: Karachi Stock Exchange, KSE, efficiency, market, Pakistan.

JEL: N/A.

The Policy Analysis Matrix (PAM) methodology was used to determine the level of economic efficiency and competitiveness in the production of rice crops in Pakistan’s Punjab. The methodology was also used to assess the effect of policy intervention on the production of Basmati and IRRI rice crops. The results indicate that an expansion of the production of Basmati rice can lead to an increase in exports. The production of IRRI in Pakistan’s Punjab is characterized by a lack of economic efficiency implying inefficient use of resources to produce the commodity. On the other hand, both Basmati and IRRI rice production in the Punjab demonstrate a lack of competitiveness at the farm level for the period under analysis. The analysis shows that the prevailing incentive structure affected farmers negatively. A negative divergence between private and social profits implies that the net effect of policy intervention is to reduce the farm level profitability of both rice production systems in Punjab. The results highlight the need for removing existing policy distortions in the structure of economic incentives to enhance economic efficiency and to attain farm level competitiveness in rice production.
KEYWORDS: Pakistan, Punjab, Policy Analysis Matrix, PAM, policy intervention.

JEL: N/A.

Six carp and carp based culture technologies were selected to examine the sustainability of supplementary feed-based aquaculture through availability of domestic feeds compared to the total requirement in Bangladesh. The study covered seven districts of Bangladesh with a sample size of 376. It was found that farmers used a good number of feeds (more than 35) for the selected technologies but they maintained no standard doses for them. There were important differences among the prices of different feeds and other inputs used for different technologies in different parts of the country. Prices of all inputs were found to be increasing and this increase has been greater in recent years as compared to previous years. Though all the technologies were found to be profitable, the feed situation was not satisfactory. Except for rice polish, the supplies of other local feeds were unable to meet the national demand. If this situation persists and no measures are taken to secure the local feed supply, the present development of supplementary feed-based aquaculture will become dependent on imported feeds and would not be sustainable in the future. This study strongly suggests that the authorities should handle the matter with proper attention, considering its significant impact in the economy of the country.
KEYWORDS: Bangladesh, feed-based aquaculture, sustainability, technologies.

JEL: N/A.

Inayatullah, Rubina Saigol, Pervez Tahir (Eds), Social Science in Pakistan: A Profile, Council of Social Science Pakistan (COSS), Islamabad, 2005, pp 512, Price Pak Rs. 500, US $ 20. Social scientists study various facets of human society. Historically, societies were understood and explained through religious and philosophical texts. History, Philosophy and Politics also developed as independent disciplines. One thinks of Plato’s Republic, Chanakya’s Arthashastra, and histories by various Greek, Roman, Arab, Persian, Turk, Chinese and Indian writers. One notable contribution to the study of societies is by Ibn Khaldun, the 14th century Tunisian, considered the first sociologist of the world.
KEYWORDS: Book review, social science, Pakistan.

JEL: N/A.

Potato cultivation accounts for 5.71 percent in total cropped area of the Punjab province and it supplements the diet of the growing population at lower prices as compared to grains, meat and chicken. Data from 100 farmers, 50 each from the districts of Okara and Kasur during the year 2002-2003 (the autumn crop) has been collected. The study estimates the technical efficiency in potato production by employing the Cobb-Douglas stochastic production frontier approach. The null hypothesis of no technical inefficiency in the data is rejected. Our results indicate that potato farmers are 84 percent technically efficient, implying significant potential in potato production that can be developed. By shifting the average farmer to the production frontier, the average yield would increase from 8.33 tons per acre to 9.92 tons per acre using the available resources. The additional quantity of potatoes gathered through efficiency improvements would generate Rs. 990.81 ($16.51) million of revenue each year. Consultation with extension workers significantly contributes to the improvement of technical efficiency and implies that the extension department should be one of the major targeted variables from the policy point of view in order to improve technical efficiency in potato production.
KEYWORDS: Potato, stochastic production frontier, technical efficiency.

JEL: QR.

This paper investigates the technical efficiency of selected manufacturing industries of Bangladesh using a stochastic frontier production function approach suggested by Battese and Coelli (1992) applied to panel data. A feasible Cobb-Douglas stochastic frontier production function, which has time-varying technical inefficiency effects, was estimated. Two alternative distributions were used to model the random inefficiency term: a truncated normal distribution and a half-normal distribution. The estimated average technical efficiency for four groups of industries of Bangladesh over the reference period was 40.22% of potential output for the truncated normal distribution, whereas it was 55.57% of potential output for the half-normal distribution.
KEYWORDS: Stochastic frontier, Production function, Technical efficiency.

JEL: N/A.

This study, which is among the first in Pakistan to value recreational benefits, estimates the benefits of the Margalla Hills National Park near Islamabad. The study examines how much park visitors are willing to pay to visit the park. Annual benefits from the park are considerable—the total annual consumer surplus or economic benefit obtained from recreation in the park is approximately Rs. 23 million (US $ 0.4 million). Various factors influence the value visitors obtain from the park — these include travel cost, household income, and the quality of the park. Improvements in the quality of the park are estimated to increase recreational benefits by 39%. The study recommends that a park entrance fee of Rs. 20 per person be introduced, which could be utilized for park management. This would generate nearly Rs. 11 million in revenues annually, a sizable amount of money that represents about 4% of the annual budget allocated to the environment sector in Pakistan.
KEYWORDS: Environmental valuation, willingness to pay, total recreational value, consumer surplus, environmental resources, national parks, Pakistan.

JEL: N/A.

This paper examines the existence of a long-run relationship between population and per capita income in Pakistan for the period 1960-2001 using cointegration analysis. Unit root results show that population is integrated of order zero while per capita income is integrated of order one; further, Johansen’s procedure show that no long-run cointegrating relationship exists. Thus, population growth neither causes per capita income growth nor is caused by it. A corollary is that population growth neither stimulates per capita income growth nor reduces it.
KEYWORDS: Pakistan, population growth, economic development, per capita income.

JEL: N/A.

This study examines the regulatory intervention in India and Pakistan in response to episodes of excessive market volatility and manipulation and its effectiveness in achieving declared objectives. Our empirical analysis indicates that while the Indian regulatory agencies seem to have achieved their objectives in curtailing manipulative and speculative behavior, there appears to be little impact on such behavior in the case of the Karachi Stock Exchange. Significant differences in the regulatory effectiveness and industry structure may explain the difference in the market behavior outcomes following regulatory interventions. A stronger competitive environment in India, because of the existence of multiple organized exchanges, seems to facilitate effective enforcement of public policy.
KEYWORDS: Pakistan, India, regulatory intervention, speculative behavior, Karachi stock exchange.

JEL: N/A.

This paper focuses on the role of the financial futures market in the volatility of Pakistan’s stock market and determines whether the stock futures price is capable of providing some relevant information for predicting the spot price. The Generalized Autoregressive Conditional Heteroscedasticity (GARCH) approach is used to measure volatility in the spot and the futures market and to analyze the relationships between spot and futures market volatility. Causality and feedback relationships between the two markets are analyzed and determined through the Vector Error Correction Model (VECM). Empirical results support the evidence that spot prices generally lead the futures prices in incorporating new information, and that volatility in the futures market does not increase volatility in the spot market. Rather the study finds more consistent support for the alternative hypothesis that volatility in the futures market may be an outgrowth of the volatile spot market.
KEYWORDS: Pakistan, stock market, GARCH, VECM.

JEL: N/A.

This paper investigates the calendar anomalies in the Singapore stock market over the recent period from 1993-2005. Specifically, changes in stock index returns are examined surrounding January (the January effect), on different days of the week (the day-of-the-week effect), around the turn of the month (the turn-of-the-month effect) and before holidays (the pre-holiday effect). The findings reveal that these anomalies have largely disappeared from the Singapore stock market in recent years. The disappearance of these anomalies has important implications for the efficient market hypothesis and the trading behavior of investors.
KEYWORDS: Calendar anomalies, January effect, day-of-the-week effect, turn- of-the-month effect, pre-holiday effect.

JEL: C10.

Consistent with asymmetric information arguments, prior research has shown that the financial market typically responds negatively to the announcement of a seasoned equity offering (SEO). Korajczyk and Levy (2003), however, suggest that while some firms time the issuance of their common stock to take advantage of outside investor overvaluations, financially constrained firms do not. We examine whether prior information on how financially constrained a firm is along with its growth prospects influences the financial market’s response to the firm’s announcement to sell common stock. We find evidence that the financial market does condition its response upon such information using a sample of SEOs from the U.S. Our results also have implications for the financial market’s reaction to SEOs/rights offerings in emerging markets.
KEYWORDS: Financial market, reaction, seasoned equity offering, SEO, common stock.

JEL: N/A.

This paper is an ethnographic study defining and assessing the organizational culture exhibited by Small and Medium Enterprises (SMEs). It primarily focuses on four cultural categories: clan, adhocracy, hierarchy and market-driven. These conceptual domains have been examined by the Organizational Culture Assessment Instrument. Results from a sample of 162 SMEs in the Rawalpindi/Islamabad area indicate that SME culture lacks creativity, innovation, freedom and risk taking. SMEs are not looking to change in the future, preferring the status quo. The most important finding is that SMEs exhibit a market- oriented culture focusing on results, competition and achievements.
KEYWORDS: ethnographic study, SMEs, Pakistan, Islamabad, Rawalpindi.

JEL: N/A.

This note discusses the workings of the Dispute Settlement Process (DSP) of the WTO, and the major problems concerning the implementation of decisions in the DSP. It provides some suggestions in order for the DSP to work for the benefit of all. It maintains that the ability to extend dispute settlement across agreements is one of the strengths of the World Trade Organization. The author concludes that substantial reform can be undertaken in the DSP if concerted efforts are made to quantify economic damages for working out the suspension of concessions.
KEYWORDS: WTO, DSP, Dispute Settlement Process, developing countries.

JEL: N/A.

Levitt, Steven D., and Stephen J. Dubner, Freakonomics: A Rogue Economist Explores the Hidden Side of Everything, Harper Collins Publishers, New York, NY, 2005, pp 356, Price: Hardback $ 27.95. Ever wondered why drug dealers still live with their mothers? Why the United States’ crime rate plummeted to new lows in the 90s? Why did the racist hate group the Ku Klux Klan (KKK) falter as an organized unit in America? What do school teachers and sumo wrestlers have in common? “Why” is something Steven D. Levitt does not cease to question. Levitt along with his amanuensis, Stephen Dubner has written a classic titled, Freakonomics.
KEYWORDS: Book review, freakonomics.

JEL: N/A.

The Second Annual Conference on the Management of the Pakistan Economy opened with the Rector of the Lahore School of Economics, Dr. Shahid Amjad Chaudhry, recalling that the first conference last year had seen a good gathering of policy makers led by the Governor of the State Bank Dr. Ishrat Hussain, the private sector comprising bankers and industrialists, and academia. The dialogue generated on public policy had been both intense and diverse, ranging across macro, sectoral and institutional issues, especially edifying for the student body of the School. Dr. Shahid Amjad discussed how this experience warranted the institutionalisation of an annual conference, hence this second conference. The tradition had also been set for the Governor of the State Bank of Pakistan to deliver the inaugural address at the conference.
KEYWORDS: Lahore School, Pakistan, second, annual conference, Pakistan economy, management.

JEL: N/A.

This paper points out that GDP growth is fundamentally on track although a little below the expected 7% target owing to commodity sector weaknesses. The rising trend in unemployment has been reversed over 2002-04. It is expected that longer trend growth over the decade will be over 6%. However, there are certain macroeconomic imbalances, the current account deficit, the widening savings-investment gap and inflationary pressures, that need to be managed. Pakistan’s economy continues to remain on a high-growth trajectory during the current fiscal year, though the real GDP growth rate for the year seems likely to be lower than the 7 percent target. The expectation of the slowdown, relative to the FY06 annual target, owes principally to the (estimated) weakness in the commodity producing sectors of the economy, the impact of which will be partially offset by an anticipated above-target performance of the services sector.
KEYWORDS: Pakistan, economic management.

JEL: N/A.

The paper addresses the structural rigidities in the fiscal system. The fiscal rigidity has resulted in a fiscal overhang over the monetary policy of the SBP. The author contends that policy should be geared to reduce the fiscal tax burden on the formal sector and to reduce the fiscal domination over monetary policy.
KEYWORDS: Fiscal system, Pakistan, structural rigidities, monetary policy.

JEL: N/A.

The paper highlights strong gains in the macro area. The author also shows how total debt as a percentage of GDP has declined from 100% in 2000 to 61% in 2005. This had resulted from a debt restructuring with the Paris Club in 2001 and also due to the re-appraisal of GDP, which has lowered the debt burden as well. We should first focus on the external account, which is very topical in both newspapers and TV. The trade deficit has widened significantly. It is therefore very appropriate to understand what is the external balance. Should we worry about it widening? Should the country across our border also worry, because they are also facing a greater deficit?
KEYWORDS: GDP, Pakistan, foreign debt, debt burden.

JEL: N/A.

The focus of this paper is on inter governmental resource transfers. The question of these transfers crops up because of an asymmetry between revenues and expenditures. Since the federal government earns 90% of the revenues, while the provincial governments spend 25% of the revenues, this calls for transfers from the federal to the provincial governments under the aegis of the National Finance Commission. The allocations through the NFC have increased substantively over time. Pakistan is a federation of four provinces, unequal in area, population and levels of economic and social development. The ethnic distinction of provinces makes horizontal equity in development vital to political stability and national cohesion. The separation of East Pakistan from the federation in 1971 was rooted in a perception, right or wrong, of economic injustice. The adoption of the 1973 Constitution with unanimous1 support of all remaining provinces, by addressing many of the contentious economic issues, provided the country another opportunity to address regional economic disparities and to strengthen the federation. Unfortunately, violations of the Constitutional mandate as well as partisan interpretation of various Articles of the Constitution over the last 33 years have aggravated economic disparities between the provinces and rekindled perceptions of economic injustice among the provinces.
KEYWORDS: intergovernmental resource transfers, federal government, expenditures, Pakistan.

JEL: N/A.