We examine the impacts of a sustainable urban transport initiative, the first Bus Rapid Transit System launched in Lahore, Pakistan in year 2013. We measure the socio-economic and environmental impacts of the BRT using a questionnaire-based survey that collected information on customers’ travel purpose, travel frequency, travel time, mode access, previous travel mode choices (pre-BRT) and travel mode choices at present. We estimate that, on average, a BRT passenger saves about 46 minutes per day on a single trip. However, the modal shift from personal automobiles to the BRT system is found to be only 4 percent, i.e., significantly less than the shift found in other worldwide BRT systems. Moreover, we estimate the reduction in the number of private vehicles on roads, total distance travelled in km and associated travelling costs and, subsequently, the reduction in the carbon emissions. We conclude that the Lahore BRT transit system needs to be expanded to other parts of the city.
KEYWORDS: Urban transport, Bus Rapid Transit System, travel time saving, vehicle costs saving, environmental emissions reduction, Lahore, Pakistan.

JEL: R49.

We compare Pakistan's energy consumption structures to selected East Asian economies with a view towards ensuring an adequate supply of power for economic catch-up and, at the same time, meeting the greening goals envisioned by the United Nations Framework Convention for Climate Change. The evidence shows that Pakistan relies significantly less on non-renewable energy to meet its energy demands compared to China, Japan, South Korea, Malaysia, and Thailand, while its dependence on fossil fuels has been rising rapidly. Using data for Pakistan from 1960 to 2015, we deployed panel co-integration and Granger causality tests to analyse selected East and Southeast Asian countries before exploring what it will take for Pakistan to develop its renewable energy (RE) sector. The evidence shows that catching up economically with these countries through rapid GDP per capita growth will exacerbate Pakistan’s current energy imbalance, thereby aggravating greenhouse gas (GHG) and carbon dioxide (CO2) emissions. We argue that Pakistan enjoys strong endowments to avert this problem, and hence, it should strategically focus on the development of RE resources, especially solar and wind energy, but only after taking account the relevant costs
KEYWORDS: Renewable energy, thermal energy, economic growth, hazardous emissions, Pakistan.

JEL: Q41, Q49.

We test the technical efficiency, measured by the degree of integration, of agriculture markets for five crops in the Punjab province of Pakistan using daily wholesale market prices from the Agriculture Management Information System (AMIS). We find that potato, onion and mango markets are well integrated both horizontally and vertically, with the speed of price adjustment in most cases (mango is the exception) being very rapid. We also find that kinnow and basmati rice markets are both vertically fairly well integrated. Furthermore, we find that trends in cropping patterns over the period 2000 to 2014 are in line with the changing market demand and government price interventions. The reforms introduced by the Punjab Agriculture Marketing Regulatory Authority (PAMRA) Act 2020, aimed at increasing competition in agriculture markets, have the potential to significantly improve economic efficiency.
KEYWORDS: price transmission, Agricultural prices, market integration, market efficiency, agriculture marketing.

JEL: Q110, Q111, Q113, C110.

This article studies the supply and demand of major Pakistani crops. We estimate supply elasticities using a Nerlovian partial adjustment process and demand elasticities using the Deaton and Muellbauer Almost Ideal Demand Systems (AIDS). We use secondary data from various Household Integrated Economic Surveys and Agricultural Statistics of Pakistan. Our estimated supply elasticities with respect to price lie between 0.1 and 0.5 for all crops. Pulses tend to have higher elasticities than traditional crops such as wheat and rice. Demand elasticities with respect to price tend to be inelastic, with the exception of poultry and fruit which appear to be luxury items. Pulses are income inelastic, implying that consumption may not rise significantly as per capita incomes and that the introduction of yield enhancing varieties will lead to lower prices
KEYWORDS: Supply, demand, major crops, elasticity, Pakistan.

JEL: Q11, Q19.

This article empirically examines the effects of foreign aid on economic freedom while considering the mediating role of political institutions. We contribute to the literature in two ways. First, we provide an empirical analysis of how different types of foreign aid affect the economic freedom of the receiving country. Second, we provide evidence regarding how political institutions mediate the foreign aid/economic freedom relationship. We use IV and GMM techniques to test a model using data from 40 developing countries covering the time period 1985 to 2016. Our analysis yields three main findings. First, democratic and politically stable countries enjoy more economic freedom. Second, foreign aid’s net effect is to reduce economic freedom, whether we consider official development assistance (ODA) or net official assistance (NOA). Finally, economic freedom increases with both types of foreign aid if the receiving country’s political institutions are more democratic and/or durable.
KEYWORDS: Balance of payments, panel data, economic freedom, Foreign aid, political institutions.

JEL: F35, P48, Do2, C23.

Pakistan’s economy has experienced relatively high growth of above 4.5 percent during FY2014-18. Meanwhile external liabilities and domestic debt have increased by almost 50 percent over the same period. This substantial increase in the external and domestic debt is a major issue for policymakers concerned about debt sustainability in Pakistan. With the objective of analyzing debt sustainability in Pakistan, this study applies a probabilistic approach to project the debt path from FY2019 to FY2025. In this approach, projections of the primary balance are derived from the estimated fiscal reaction function while the density forecast of external debt is derived from various statistical and structural models. The forecasts of the primary balance and the external debt along with the shocks of real GDP growth, real exchange rate and real interest are incorporated in the debt accumulation identity. This procedure provides a fan chart of the total debt-to-GDP ratio, which represents the appropriate uncertainty associated with the projections. The key finding of the paper is that external debt is reasonably sustained; however, the situation of the total debt is alarming. External debt may witness a declining trajectory in FY2019-20 and then remain stable within the range of 20-30 percent of GDP. However, the total debt-to-GDP ratio is rising throughout the projection period, which starts from around 100 to 175 percent of GDP in FY2020 and FY2025 and is higher than any sustainable threshold level. Therefore, policy makers need to contain fiscal deficits by domestic resource mobilization and the adoption of austerity in spending on a priority basis.
KEYWORDS: Pakistan, public debt, external liabilities, debt sustainability, probabilistic approach.

JEL: F34, F47, H63, H68.

Industrial clusters and special economic zones are key areas of focus for industrial policy makers who are aiming to expand the industrial base and increase competitiveness. Thus, the role of development of industrial clusters in the productivity improvement of manufacturing firms merits attention. We use the firmlevel Census of Manufacturing Industries (CMI) and Directory of Industries (DOI) datasets to empirically investigate the relationship between agglomeration and firm level total factor productivity for different sectors in Punjab, Pakistan. Our findings suggest that there is a correlation between localization, urbanization and total factor productivity of firms in the Punjab. However, the relationship varies by sectors, necessarily pointing industrial policy towards sector-specific recommendations.
KEYWORDS: Pakistan, Total factor productivity, industrial concentration, economic geography.

JEL: E24, L19.

This paper tests Uncovered Interest Rate Parity (UIP) using LIBOR rates for six major international currencies for the period January 2001 to December 2008. We find that UIP generally holds over a short-term (above 5-months) horizon for individual as well as groups of currencies. Our results suggest that it is important to consider the cross-correlation between currencies. We also find that “state dependence” plays an important role for currencies with a negative interest rate differential vis-à-vis the US dollar. This state dependence could also be instrumental in explaining exchange rate overshooting.
KEYWORDS: UIP, LIBOR, system SUR, system DGLS, system DOLS.

JEL: G12, F31, G15.

In this article, we investigate the distinguishing features of fast growing firms in the Pakistani textile and apparel sectors. We find that the distribution of firm growth- both in terms of employment and sales - is very heavily skewed toward the right-tail, confirming earlier findings that firm growth is generated by a very small number of firms. We found that small and young companies grow faster and generate higher employment. We also used various indicators of a firm’s innovation behavior and found that more innovative firms grow faster. Our results suggest that it is not the possession of individual attributes, but rather a combination of particular firm attributes that defines fast growing firms. Specifically, we found that the blend of being small, young and innovative explains the fast growth in firms. on overall these companies also create more jobs.
KEYWORDS: Firm growth, employment creation, young innovative companies, textiles, Pakistan.

JEL: O12, L26.

This study empirically investigates the effect of surplus education on the earnings distribution in Pakistan using quantile regression. The method of realized matches is used to measure the required level of education in each occupation from the Pakistan Social and Living Standards Measurement (PSLM) 2013-14 survey data. There is heterogeneity in returns to surplus education among overeducated workers. These returns are higher for workers at the upper half as compared to the lower half of the earnings distribution. Surplus education earns positive returns but less than the returns associated with the level of education required for jobs. Further, the difference in returns among the overeducated is higher than the difference in returns among workers who have the required education for the job. The findings imply that the surplus education factor is significant in explaining how education contributes in earnings differentials and inequality.
KEYWORDS: Surplus education, earning inequality, labor markets, Pakistan.

JEL: I24, J31.

In the context of a high prevalence of both poverty among households and business failures among firms in the majority of Sub-Saharan African (SSA) countries, competition is seen as one of the viable tools for transforming and improving these economies. This can be achieved by boosting productivity, improving output markets, increasing innovation and promoting economic growth. This study examines the sources of market power among firms within a variety of institutional settings using a large sample of data from 23 SSA countries. Tobit panel models comprising both fixed and random effects are used to estimate the determinants of market power. The study reveals that a large number of firms control less than 5 percent of the market with a few firms controlling between 5 and 34 percent of the market. At the same time, there are a small number of firms controlling between 30 and 100 percent of the markets in Sub-Saharan Africa. The findings further show that economic and political institutions significantly matter in the determination of power among firms in SSA. However, the influence of institutions varies significantly depending on the type of institutions and regional differences.
KEYWORDS: Competition, institutions, firm, market power, Sub-Saharan Africa.

JEL: D41, K20, L22, L41, O55.

To counter the severe trade deficit problem that Pakistan faces, we explain how to move up the value chain of exports by reducing tariff rates on the intermediate inputs used by local manufacturers. The availability of cheaper intermediate inputs through tariff reductions can substantially reduce input constraints. We begin by identifying trends in the tariff rates imposed on intermediate inputs, and their imports over time by Pakistan and its counterparts. Using an instrumental variable approach, we measure the gains that can be achieved by importing more of these intermediate inputs in terms of export performance indicators. We emphasize that input tariff reductions could help Pakistan expand exports. We also identify specific sectors in which intermediate input tariff reductions could have significant gains for Pakistan in terms of export growth. We recommend the need to reduce intermediate input tariffs in these sectors only, rather than general tariff reductions across all sectors.
KEYWORDS: trade deficit, exports, tariffs, Pakistan.

JEL: F13.

This article illustrates the dynamics of and tradeoff between inflation and output in Pakistan by utilizing data on 18 major trading partners in a cointegration analysis. In doing so, we use key features of the global vector autoregressive approach to construct a model that captures foreign-specific variables related to Pakistan; these are analyzed empirically along with domestic data for the period 1972–2014. Our findings show that, after accounting for the impact of increasing interdependencies, trade spillovers and changing global macroeconomic conditions, a long-run equilibrium relationship exists between domestic inflation and output. The foreign variables have a significant impact on the key domestic variables. In particular, domestic inflation and trade openness, foreign inflation and world oil prices have significant explanatory power for Pakistani output. Policymakers in Pakistan should therefore account for global developments, specifically in trading partner economies
KEYWORDS: Pakistan, cointegration, cross-country spillovers, inflation-output dynamics, oil prices.

JEL: E31, E52, O47.

This study empirically investigates the aid effectiveness debate in light of the Burnside-Dollar (2000) hypothesis that the recipient country’s policy environment is critical for aid effectiveness. Based on data from ten Asian countries for 1984–2015 and in line with Burnside and Dollar (2000), we construct a new composite policy index. Employing two-stage least squares to estimate the model, we find that aid had a negative impact on economic growth during the study period for these countries, thus refuting the Burnside-Dollar aid effectiveness hypothesis.
KEYWORDS: foreign aid, macroeconomic policy, economic growth, Burnside-Dollar hypothesis, Asia.

JEL: 040, P45.

The evolution of money has accompanied the development of civilizations and technological innovations, leading to today’s cryptocurrencies. Cryptocurrencies have become a popular mode of payment globally because of their low cost, high-speed transferability and a decentralized tracking network that provides secure transactions and a high degree of anonymity. However, the decentralized system of cryptocurrencies has made global monetary systems more dynamic and therefore more prone to misuse as well as posing a threat to financial stability. Cryptocurrencies are also gaining popularity in Pakistan: its first cryptocurrency, named ‘Pakcoin’, was launched in 2015. The State Bank of Pakistan does not recognize any digital currency, and the Federal Board of Revenue and Federal Investigation Agency have taken legal action against local and internationally traded cryptocurrencies. This article reviews these risks and provides various regulatory solutions so that methods can be developed to improve the management of financial innovations and create a safer environment in which financial innovation can continue. Furthermore, developing countries such as Pakistan can take advantage of distributed ledger technology (used in cryptocurrencies) in applications including: microfinance to help the unbanked, in data identification systems and in land registries to help enforce property rights.
KEYWORDS: cryptocurrency, blockchain, regulation, Pakistan.

JEL: G19.

This study analyzes the impact of education, experience, and social capital on firm survival using two waves of a survey conducted in 2008 and 2017 for the electrical fittings cluster based in Sargodha, Pakistan. Estimating a probit model, we find that the entrepreneur’s education, experience, and social network are each positively correlated with firm survival. The interactions of education with both production and marketing experience are also significantly and positively related to firm survival while interactions of social capital with experience are not. Therefore, for the firms in this sector, education plays an important role directly as well as through production and marketing experience.
KEYWORDS: Education, experience, social capital, firm survival, Pakistan.

JEL: J24, L26, L69.

This study analyzes the impact of energy pricing policies on consumers’ welfare in rural and urban Pakistan. The study is based on pooled data from the Household Integrated Economic Survey for the period 1984/85 to 2011/12. We use the Almost Ideal Demand System to estimate parameters and price elasticities. The welfare analysis suggests that the rise in energy prices has been greater than the rise in the general consumer price index over this period. Therefore, consumers have incurred high expenditures in all years from 1984 to 2012, with a consistent welfare loss for all consumers with a decreasing trend. Additionally, the welfare loss to rural consumers is greater than that to urban consumers.
KEYWORDS: welfare, Pakistan, energy pricing, almost ideal demand system.

JEL: Q41, C1, D60.

This paper presents panel data estimates of the relationship between governance, aggregate labor productivity (ALP) growth and total factor productivity (TFP) growth for 12 Asian economies between 1996 and 2013. Our results show that government effectiveness has a positive and significant effect on ALP in both levels and first differences. Regulatory quality has a positive impact on ALP only in first difference. Although both government effectiveness and regulatory quality have a positive effect on TFP growth in first difference, only political stability is significant and positive in the levels specification. Other findings indicate that physical capital and human capital have a positive effect on ALP growth. We also find evidence of positive spillover effects with respect to human capital. The positive association between governance, economic growth and productivity provide a better understanding of the role of governance in enhancing economic performance. Our findings have policy implications for ways to achieve good governance to enhance economic growth and productivity.
KEYWORDS: total factor productivity, economic growth, governance.

JEL: D24, E24, C23, O40.

This paper studies the impact of inventory-intensity, marketing-intensity and firm size on the markups of exporting firms. We used audited financial statement data of publicly listed companies in the spinning, weaving and finishing industry within the textiles sector of Pakistan. We document five observations: 1) average markup of exporters is relatively higher than non-exporters; 2) there is higher dispersion in markups of non-exporters relative to exporters; 3) large firms have relatively higher markup and marketing-intensity; 4) firms which have higher marketing- and inventory-intensity also have higher markups; and 5) exporters have relatively higher markup elasticity with respect to marketing-intensity, inventory-intensity and growth in inventory-intensity.
KEYWORDS: Markups, inventory intensity, marketing intensity, firm size, Pakistan.

JEL: F14, L11, L25.

As part of the massive One Belt One Road (OBOR) project or ‘New Silk Road’ the governments of China and Pakistan have announced that a significant ‘corridor’ will be constructed in Pakistan. This paper looks in detail at the $46 billion China-Pakistan Economic Corridor (CPEC) package of transport, energy and manufacturing projects and asks how we can analyse the impact of a transformative expansion of infrastructure. This paper draws lessons from various old-fashioned economics including Rostow, Hirschman and others and the historical case studies of transformative infrastructure expansion in the nineteenth century United States, Mexico, Germany and India to explore the conditions under which CPEC could promote sustainable long-run economic growth in Pakistan.
KEYWORDS: Pakistan, China, China-Pakistan Economic Corridor (CPEC), growth.

JEL: O10.