“Pakistan’s investment in its people today not only falls below any decent concept of national governance; we are simply not preparing the nation for technological challenges of the 21st century. Where do we start in such a wasteland of human neglect? The situation cannot be reversed overnight. It would require considerable investment in human development over a fairly long period of time.” Dr. Mahbubul Haq: A National Agenda: Critical Choices for Pakistan's Future: 1993 According to the traditional view in the development debate of the 1960s, land, labor and capital were identified as the main factors of production and within these the focus was on expanding capital by increasing investment to at least 15 percent of GDP to achieve a growth rate of at least 5 percent.
KEYWORDS: Pakistan, development, education.

JEL: N/A.

The experience of the State Bank of Pakistan (SBP) in conducting the monetary policy of the country over the years comprises a whole range of regimes. While the overall objectives of monetary policy have remained the same, policy contents – intermediate targets, choice of instruments and controls etc. – have varied considerably over the years.
KEYWORDS: Pakistan, SBP, inflation, economic growth, monetary policy.

JEL: N/A.

In the heyday of the five year plans in Pakistan, the common expressions for the officials dealing with the economy and their institutional affiliations were “planners” and “planning machinery.” The fiscal crisis of the state and the consequent installation of regimes of stabilization, structural adjustment and reform gave birth to usages such as “economic manager,” “economic management” and “economic team.” It has also marked a shift from the long and medium-term to the near-and short-term. This paper, however, adheres to the broader view of the management of the economy and its institutions taken by Anmad and Amjad in the eighties. According to them, “National economic management is a new but growing science. The developing world's experience of the recent decades underlines the fact that economic and social progress is an induced process. Governments are not only called upon to initiate the development process but are also required to influence its composition, pace, tone, and direction through an appropriate policy-mix. A consistent framework encompassing various policies within the bounds of an overall national strategy needs to be worked out by the national policy-makers.” These authors also pointed out that there was a gap between the increasing requirements of management and the capabilities of individuals and institutions. “Economic management has thus become a critical area for study as well as introspection.”1
KEYWORDS: Pakistan, economy, institutional machinery, institutions, national economic management.

JEL: N/A.

Despite some slight improvement in the last two years the overall employment and labor market situation continues to give rise to serious concern and needs to be given the highest attention in economic and social policy making in Pakistan. The rise in unemployment rate from around 3 per cent in the early 1990s to around 8 per cent in recent years in a country where few people can afford not to work for a lack of any effective safety net, reflects the emergence of a serious imbalance in the labor market. This more than doubling of the unemployed from around 1 million in 1990 to around 3.5 million in 2003-04 has been, as we shall argue, a major contributory factor in the rise in poverty during the 1990s. The severity of the employment problem is reflected in the fact that unemployment in recent years has been higher amongst the poor than the non-poor in the labor force.
KEYWORDS: Poverty reduction, employment, Pakistan, labor market, unemployment.

JEL: N/A.

In our environment governance usually means law and order but in its broadest sense it means thinking about ‘how to steer the economy and society, and how to reach collective goals’. Multinational institutions hold seminars on governance but carefully avoid discussions impinging on the third world scale’s sovereignty; they focus instead on administrative reform, decentralization, elimination of red tape and corruption. But governance has other ramifications that must be considered. Unless a state does a whole array of things to position itself appropriately, it cannot hope to have good governance1.
KEYWORDS: Governance, Pakistan, reform, bureaucracy, administration.

JEL: N/A.

At the start of the 21st century, almost one-fifth of humanity-1.2 billion people-live on less than a dollar a day. Pakistan is confronted by a multifaceted dilemma. The major issues facing the country are poverty and income disparity, particularly among the rural segments of the society. And evidence indicates that both have worsened. The impact of poverty is particularly acute on the most vulnerable sections of the society. In the year 1990-91, 39.42 percent of the total 31.81 percent of the population below the poverty line were termed as absolute poor including 34 percent chronically and 61 percent extremely poor. During the last decade or so, nearly 2 million people are added to the clusters of extremely poor, 5 million to chronically poor, 7 million to transient poor. Thus bringing nearly 59.11 percent of the poor population out of poverty is to a certain extent easier than bringing the remaining 40.89 percent out of the poverty trap. Pakistan has witnessed a decline in the growth rate from 6.1 per cent during the 1980s to 4.2 percent during the 1990s. However, the Poverty Equivalent Growth Rate (PEGR) analysis reported in this paper indicates that the pro-poor growth scenario is improving in rural Pakistan. If growth remains pro-poor in the subsequent years as it was in the year 2000-01, there is a likelihood that the growth will trickle down to the poor more than the non-poor. Punjab province also showed an improving trend in terms of pro-poor growth in the analysis. In order to improve PEGR, the poverty alleviation policy must be accompanied by rational income distribution.
KEYWORDS: Poverty, alleviation, Pakistan, population, PEGR analysis, growth.

JEL: N/A.

In developing countries, children have long been largely ignored in public policy-making and the development of program strategies for improving their welfare. The complex issue of child labor is a developmental issue worth investigating. The notion that children are being exploited and forced into labor, while not receiving education crucial to development, concerns many people. This study focuses on child labor in Pakistan with two main objectives. We first estimate the prevalence of child labor in the 100 districts of Pakistan and then examine the hypothesis that child labor is significantly higher in districts that have a higher incidence of poverty and lower level of educational attainment. The results show that child labor has a negative relationship with the literacy rate both 10-14 year age and 15 years and above. There is a negative but insignificant relationship with per capita income and Deprivation Index in the case of male child labor. The study proved that literacy rate and per capita income has influenced negatively on female child labor.
KEYWORDS: Child Labor, poverty, unemployment, education, literacy.

JEL: N/A.

This article aims at explaining the financial crises Turkey experienced in the last decade through a random effects logit model which incorporates 26 macroeconomic, political, and financial sector variables. Evidence emerges that the only significant variables are current account/GDP, fiscal balance/GDP, GDP per capita, national savings growth, foreign exchange reserves, terms of trade, stock prices, and import growth. Results indicate that all variables have expected signs with the exception of import growth.
KEYWORDS: Logit models, financial crises, currency crises, emerging markets.

JEL: N/A.

Both single-equation models [Houthakar and Magee (1969), Naqvi et al (1983), Bahmani-Oskooee (1986)] and simultaneous equation models [Khan (1974), Goldstein and Khan (1978), Arize (1986), Balassa et al (1989), Anwar (1985) Khan and Saqib (1993) and Afzal (2001)] have been used to study export behavior in developed and underdeveloped countries. Goldstein and Khan [(1978)] have investigated the price responsiveness of export demand and export supply of eight industrial countries for the period 1955- 70 using both equilibrium and disequilibrium models. The studies on the behavior of Pakistan’s exports [Naqvi et al (1983), Anwar (1985), Khan and Saqib (1993) and Afzal (2001)] have not investigated the disequilibrium aspect of exports’ response
KEYWORDS: Export demand, equilibrium model, disequilibrium model, export behaviour, Pakistan, trade liberalization.

JEL: N/A.

According to the World Development Report 2000-2001 almost half of the world’s population – 2.8 billion out of 6 billion live on less than $2 a day; while a fifth, i.e., 1.2 billion live on less than $1 a day with 44 per cent of them living in South Asia.1 The Pakistan Economic Survey 2000-2001 reports that about 33 per cent of the country’s population is living below the food poverty line.2 Food poverty trends since 1990-91 shows that food poverty has been on the rise since 1990-91, with a higher increase being observed in rural areas where food poverty increased from a low of 22.5 per cent in 1992-93 to a high of 34.8 per cent in 1998-99 (Table-1). In Pakistan, a large share of the household budget is spent on food. Approximately half of the household consumption expenditure is used to meet the nutritional requirements of the household at the national level. In rural areas this proportion is about 54 per cent, while in urban areas it is 41 per cent3 (see Appendix Table-1). Despite such high proportions of consumption expenditure on food, the incidence of food poverty remained high, about one-third of households were living below the food poverty line and were not meeting their nutritional requirements
KEYWORDS: Pakistan, poverty, determinants, household consumption expenditure.

JEL: N/A.

As economic activity becomes increasingly knowledge based, disparities in educational opportunity play a more important role in determining the distribution of income and poverty. A greater equity in the distribution of educational opportunities enables the poor to capture a larger share of the benefits of economic growth, and in turn contributes to higher growth rates. In contrast, large-scale exclusion from educational opportunities results in lower economic growth and persistent income inequality. This research appraises education inequalities in Pakistan at the district level. To summarize district performance in terms of education, a District Education Index (DEI) is prepared. Further, it explores the socioeconomic inequalities in education by linking DEI with the level of district economic development.
KEYWORDS: Pakistan, education inequality.

JEL: N/A.

In third world countries, where the level of mechanization in agriculture is low, livestock rearing is mainly for draught purpose. On the other hand, the use of animals for draught purpose is low in developed countries owing to the high level of farm mechanization and the animals are mainly reared for the consumption of meat and milk. Milk production in Pakistan is an important enterprise for over five million households owning buffaloes and cattle. Supply response of livestock has been undertaken mostly in developed countries. In developing countries livestock farming is not done on a large scale basis. This study is an attempt to obtain the best estimates of the response of milk producers while making a decision about production allocation of milk in Pakistan. The main objectives of the study are: (1) to test whether Pakistani milk producers respond to price movements (2) to estimate the elasticities of production with respect to milk producers: (a) relative price (b) credit and lagged production (c) to make a comparison of short-run and long-run price elasticities with that of developed and underdeveloped countries (d) to identify policy measures. The study is based on secondary data at the Pakistan level and covers a period of 31 years, starting from 1971-72 to 2002-03. Marc Nerlove’s (1958) partial adjustment lagged model is used for the study. The result of the analysis reveals that in the process of making the production decisions for milk production, all the variables (relative price, credit availability and lagged milk production) are equally important
KEYWORDS: Pakistan, milk production, dairy, farm mechanization, lagged milk production.

JEL: Q11.

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.