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.

The author here looks at problems in the manufacturing sector. One macro enigma is that while growth had recently risen to 8%, investment levels as a ratio of GDP seem to have fallen. One reason for this is the re-evaluation upwards of the GDP. But the same issue emerges in manufacturing with very high growth rates coinciding with falling investment levels. The declining investment levels could be due to a number of factors including high production costs, transaction costs, policy continuity risks, skills and wages and changes in the demand structure.
KEYWORDS: GDP, Pakistan, industrial growth, manufacturing sector.

JEL: N/A.

The author emphasizes in this paper that this was the moment in Pakistan’s economic trajectory for it to learn to leap frog technologically from a labor intensive economy, by passing the intermediate stages of resource based and scale based activities, to a knowledge based economy. A knowledge based economy is one that bases its growth not on increasing capital or land or labor inputs, but on knowledge. The transition required is considerable, the author points out. There is growing recognition that the global economy is increasingly driven by “knowledge” rather than the traditional factors of production. Pakistan’s Medium-Term Development Framework (MTDF) 2005-2010 and Vision 2030 Approach Paper both recognize the key role of knowledge in economic growth when they describe the goal of transforming Pakistan by 2030 into a “Developed, industrialized, just and prosperous Pakistan through rapid and sustained development … by deploying knowledge inputs”.1
KEYWORDS: Pakistan, knowledge economy, trajectory, technology.

JEL: N/A.

The paper calls for financial devolution from the federal and provincial levels to the local level. The author argues that the present high degree of centralization has failed to deliver an adequate level of social services. In addition, while the more important services such as education, health and water supply had devolved to the local level, higher levels of government imposed constraints on their expenditures.
KEYWORDS: Pakistan, local government, financial devolution.

JEL: N/A.

This paper discusses the institutional structures of the civil service. The author traces four periods in this service, pre-1971, 1972-1977, 1978- 1999 and 2000 onwards. In the first time period the author maintains the service worked well. In the second, the paradigm was vitiated. In the third period the anarchy continued by default. And in the last period the anarchy continued by accident. The author attempts to illustrate the growing disincentives in the paradigm for efficiency.
KEYWORDS: service worked well, paradigm was vitiated, anarchy continued by default.

JEL: N/A.

This paper investigates the relationship between exports and economic growth in Pakistan by utilizing the analytical framework put forward by Feder (1983). The hypothesis that marginal factor productivities are not equal in export and non-export sectors of the Pakistan economy is tested by using time series from 1973 to 2005. The estimation results indicate that marginal factor productivities are significantly higher in the export sector. Moreover, the difference seems to derive, in part, from inter-sectoral positive externalities generated by the export sector. In broad terms, therefore, the results of this study are supportive of the export oriented, outward-looking approach to trade relations adopted by policymakers over the past decade.
KEYWORDS: Pakistan, economy, developing countries, growth rate.

JEL: F1, F21, O53.

Unrestricted trade stimulates economic growth and bridges socio-economic gaps existing in different countries of the world. Pakistan has adopted trade liberalization policies since the late 1980s with the same expectations. This study has empirically analyzed how trade liberalization has affected economic development in the country. Its effects have been examined with respect to four measures of economic development: per capita GDP, income inequality, poverty and employment over the period from 1960-2003. The main analysis is based on a simultaneous equation model. Keeping in view the simultaneity of the chosen development measures, the model is estimated with the 2SLS technique of regression analysis. The analysis shows that, over the study period, trade liberalization has not affected all the chosen indicators of development uniformly. It has affected employment positively but per capita GDP and income distribution negatively. However, it has not affected poverty in any way. The obvious message is that trade liberalization has not affected all the indicators of development favorably in Pakistan. It thus implies the need of a cautious move towards liberalization. The focus of trade liberalization should be to bring about improvement in the performance of mediating factors and to focus exports on labor-intensive products.
KEYWORDS: Trade Liberalization, Economic Development, Poverty.

JEL: F41.

This study is designed to assess the macroeconomic performance of fund-supported programs, and the sequencing and ordering of macroeconomic policies in the context of the Pakistan economy. The generalized evaluation estimator technique has been used to assess the macroeconomic impacts of the IMF supported programs. GDP growth, inflation rate, current account balance, fiscal balance and unemployment are used as the target variables in order to gauge economic performance during the program years. The vector of policy variables (that might have been adopted in the absence of programs) and the vector of foreign exogenous variables are also taken as explanatory variables in the model, so that the individual effect of the IMF supported programs could be assessed. The result suggests that as the IMF prescriptions were applied, the current account balance has worsened, the unemployment rate has significantly increased, and the inflation rate has increased during the years of fund-supported programs. Only the budget balance has shown signs of improvement. Furthermore an inadequate sequencing of reforms has contributed to the further worsening of the economic scenario during the program period.
KEYWORDS: Pakistan, IMF, macroeconomic, policy conduct, policy variables, unemployment rate.

JEL: N/A.

This paper attempts to determine the capital structure of listed firms in the cement industry of Pakistan. The study finds that a specific industry’s capital structure exhibits unique attributes which are usually not apparent in the combined analysis of many sectors as done by Shah & Hijazi (2005). The study took 16 of 22 firms in the cement sector, listed at the Karachi Stock Exchange for the period 1997-2001 and analyzed the data by using pooled regression in a panel data analysis. Following the model developed by Rajan & Zingle (1995) it has chosen four independent variables i.e. firm size (measured by natural log of sales), tangibility of assets, profitability and growth and further analyzed the effects on leverage. The results, except for firm size, were found to be highly significant.
KEYWORDS: Capital structure, Pakistan, cement industry, tangibility of assets, leverage.

JEL: N/A.

The empowerment of women and improvement of their socio-economic status are essential ingredients of economic, political and social development. To achieve these objectives, the Government and NGOs have launched a number of programs in various parts of the country. The Aga Khan Rural Support Program (AKRSP) is working on the same agenda in Northern districts of North West Frontier Province (NWFP). The aim of the present research was to study the gender related interventions introduced by the AKRSP in District Chitral. The study findings show that the gender related interventions introduced by AKRSP have played a key role in the development of rural women in the area under reference. In addition to the provision of water supply schemes, health and credit facilities, training has also been imparted to the local women in different sectors of the rural economy including: agriculture, livestock management, vocational and enterprise development. This training has had a positive effect on economic activities performed by rural women and has enhanced the income of the respondents from various economic activities in their respective fields in the research area. Another major effect of the AKRSP interventions was the saving of time of rural women that had been spent on fetching water before these interventions. Though these interventions have improved the socio-economic conditions of women to a greater extent in the area, their sustainability requires regular monitoring and follow-up of training.
KEYWORDS: AKRSP, NGO, Gender, Pakistan, NWFP.

JEL: N/A.

Bonded labor is a dominant feature of the brick kiln industry of the country. Apparently an outcome of poverty, it is closely linked to the socio--cultural fabric of society. The vicious cycle of bondage subjugates the families physically and economically so that they are unable to break out of the trap despite putting in hard labor. The issue has a number of socioeconomic implications and its solution lies in a multi pronged strategy; economic uplift, social involvement and educational breakthrough of the bonded families. The paper explores the nature and extent of bonded labor in the brick kiln sector and analyzes its repercussions on children and women of the bonded families. It also examines the available legal infrastructure tackling bonded labor. Finally the paper proposes a comprehensive scheme to ameliorate the concerns of bonded families and ways to eradicate the menace from the industry.
KEYWORDS: Pakistan, bonded labor, brick kiln, economic uplift, poverty.

JEL: N/A.

This paper analyzes the impact of exchange market forces on Pak-Rupee/US dollar exchange rates during the 1965-1971 globalization period. The main findings are that a) the behavior of Pakistan’s fundamentals relative to those of the USA help to explain exchange market forces against the Pak-Rupee; b) during the run up to devaluation in the globalization period the monetary authorities in Pakistan were acting to reduce domestic credit; but that c) additional pressure was brought against the Pak-Rupee from speculative sources. These findings relate to current thinking on the choice of the exchange rate regime as even well behaved fundamentals may not be sufficient to sustain a currency on its peg.
KEYWORDS: Exchange market forces, pegged exchange rates, realignment expectations.

JEL: C53.

Bhagwati, Jagdish, In Defense of Globalization, Oxford University Press, New York, 2005, pp 308, Price US $ 15.95. The style is lucid in this provocative book and the author captures the reader’s attention throughout. Yet anyone anywhere including Jagdish Bhagwati who claims that extreme inequality is benign and good for the poor simply cannot by any means be taken too seriously, ‘evidence’ and analysis notwithstanding. Bhagwati, a Columbia University economics professor and author of many books on trade, has a brilliant intellect no doubt, but his thinking and ideas to my mind seem somewhat misdirected.
KEYWORDS: Globalization, book review, Bhagwati.

JEL: N/A.

The study argues for land reform in Pakistan by demonstrating an inverse relationship between students’ enrollment and land concentration and landlessness for 50 districts of the Punjab and Sindh provinces. With the help of enrollment data from the Population Census, a composite measure is constructed and linked with the inequality in ownership of land and landlessness. While the effect of the development level of districts on schooling is as expected positive and substantial, both the Gini coefficient for land ownership and coefficient of landlessness are negative and statistically significant.
KEYWORDS: Pakistan, schooling, land reform, Gini Coefficient.

JEL: N/A.

This paper provides a survey of the theoretical and empirical literature relating to industrial clusters. These clusters are groups of firms that are specialized by sector, located in close geographic proximity and consist of mostly small and medium sized enterprises. The benefits to firms from clustering are sometimes referred to as active and passive collective efficiency. Passive collective efficiency refers to benefits accruing to a firm by virtue of being in a cluster, such as access to markets and skilled labor, technological spillovers, flexible specialization, and reduced transaction costs. Active collective efficiency, on the other hand, stems from purposeful cooperation between clustered firms to undertake a large-scale project to upgrade production, such as entering into product marketing.
KEYWORDS: Industrial clusters, SMEs, transaction costs, passive, active, collective efficiency.

JEL: N/A.

Most behavioral sciences based on rationality have simplistic assumptions; and the same is true about consumption or investment decisions. The aim of such studies is to maximize either utility or wealth. The entire ‘financial economics’ theory revolves around an investor who wants to maximize his return at some given level of risk. To determine the optimal return at a given level of risk or an optimal risk for a given level of return has been widely discussed in the financial literature consequently raising the issue of asset pricing in financial markets.
KEYWORDS: Asset pricing, CAPM, financial literature, review.

JEL: N/A.

In a globalized world in which the structures of the financial service industries are changing rapidly and becoming more and more competitive, the cost efficiency of financial institutions along with better quality of service have assumed crucial significance for their long-term sustainability. Hence, the nature of efficiency of financial institutions will determine the prospects of their success in meeting the challenges of a globalized world. The commercial banks in Pakistan are also facing the challenges of increased competition from foreign commercial banks while their operations over the years have also been called into question. However, the literature, which deals with questions of cost efficiency of commercial banks in Pakistan in a professional manner is scant. The information on relative technical efficiency of commercial banks, if available, can be helpful in designing policy for this important sector.
KEYWORDS: Financial institutions, Pakistan, commercial banks, sustainability, banking sector.

JEL: N/A.

The purpose of this study is to test the efficiency of the Turkish Markets in terms of the monthly inflation announcement effect. The study examines the reaction of the financial services sector to monthly inflation announcements, particularly, in case of unexpectedly low or high levels of inflation. Strong evidence emerges that the Turkish financial services sector does not react significantly to the announcements that are in line with the expectations. In other words, the cumulative abnormal returns around such inflation announcements are not significantly different from 0. The results of the robustness tests for no news, indicate that the t-statistics calculated by means of the Moving Average Approach are insignificant for the sector, which is in line with the results of the original approach. The results of the two robustness tests are found to be supporting the original findings of the adaptive approach.
KEYWORDS: Abnormal Returns (ARs), Cumulative Abnormal Returns (CARs), effects of macroeconomic announcements.

JEL: N/A.

In this paper we investigate both the long and short-run relationship between real money balances, real income, inflation rate, foreign interest rate and real effective exchange rate with reference to Pakistan over the period 1982Q2-2002Q4 using ARDL approach which is a newly developed econometric technique. The estimated results indicate that in the long-run real income, inflation rate, foreign interest rate and real effective exchange rate have a significant impact on real money balances in Pakistan. The dynamics of real money demand show that the effects of rate of inflation, foreign interest rate and the real effective exchange rate are much smaller in the short run than long run. The results also reveal that the demand for real money balances in Pakistan is stable, despite the economic reforms pursued by the government since the late 1980s.
KEYWORDS: Pakistan, ARDL, exchange rates, monetary policy.

JEL: N/A.