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.

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: 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.

Reforms have begun in Pakistan to sustain the funded pension scheme for government-operated pension schemes such as the Employees Old Age Benefit Institution (EOBI). Presently, the EOBI operates its own fund and invests most of its assets in government-backed securities which are basically interest-bearing debt instruments. Although the returns on the EOBI’s fund have been high for a short period due to higher interest rates and minimum pension distributions, this trend is not likely to continue. Funded pension schemes depend heavily on portfolio performance because risk is transferred to contributors. Therefore, asset allocation becomes considerably important. The purpose of this study is to determine optimal asset allocation and the role of international diversification specifically for the EOBI’s funds and generally for newly created funded pension schemes in Pakistan. The article analyzes the potential benefits accrued through international investments based on historical returns over almost five decades with varying degrees of risk aversion coefficients. Varying degrees of risk may allow policymakers to incorporate their strategies for future asset behavior and take timely action to counter the potential threat of aging, demographic shifts, and liabilities and to ensure decent benefits for pensioners.
KEYWORDS: Asset allocation, international diversification, pension fund, Pakistan.

JEL: G11, G23.

This paper utilizes three Multivariate General Autoregressive Conditional Heteroscedasticity (MGARCH) models to determine variance persistence in the Greater China region from 2009 to 2014. The first approach applies the Baba, Engle, Kraft and Kroner (BEKK) model and shows that the Shanghai Stock Exchange Composite Index (SSEI), Taiwan Capitalization Weighted Stock Index (TAEIX) and the Hang Seng Stock Index (HSEI) stock returns are all functions of their lagged covariances and lagged cross-product innovations. The second MGARCH approach applies two methodologies, namely, dynamic conditional correlation (DCC), and constant conditional correlation (CCC) estimations. The DCC model concludes both short- and long-run persistencies between Taiwan’s TAIEX and Hong Kong’s HSEI. Alternatively, the CCC model confirms the initial findings of the BEKK model, and adds that the relationships among these three strong economies are stable in the long-run. The log-likelihood values determine that the DCC model is better in judging volatility dynamics in the Greater China region, because of economic clauses brought by the Closer Economic Partnership Arrangement (CEPA), the Economic Co-operation Framework Agreement (ECFA) and the Hong Kong - Taiwan Business Cooperation Committee (BCC).
KEYWORDS: Greater China Region, stock market returns, volatility dynamics, MGARCH models.

JEL: P45, C30.

In the last two decades, the financial services sector in Pakistan has seen remarkable growth and structural development. However, it is debatable whether the financial markets and institutions have contributed meaningfully towards promoting growth in the real economy. This paper provides a brief background of the theoretical and empirical literature on the linkage between the financial services sector and economic growth. It evaluates the development of Pakistan's financial markets and institutions in comparison to a cohort of developing countries. The country's governance and regulatory environment in light of these theories and the empirical evidence is compared with other countries. The weaknesses in the linkages between finance and economic growth are identified within the framework of the theoretical models and relevant empirical evidence. The final section discusses the challenges Pakistan faces in making its financial services sector become an effective driver of economic growth.
KEYWORDS: Financial services, economic growth, Pakistan.

JEL: O16.

This paper models the individual-level social capital effect the credit market constraints that reduce the accumulation of costly human capital. Human capital, in turn, improves an individual’s income as well as the bequest that they intend to leave for their children. It also helps reduce inequality across a country. Finally, the model shows that investment in social capital has a negative relationship with the interest rate, so that the initial inherited bequest of every individual affects the output and investment in the short-run, as well as in the long-run.
KEYWORDS: Social capital, credit market, investment, interest rate.

JEL: E24.

Pakistan is an emerging market for fintech, with increasing facilitation for digital payments, widespread internet and smartphone penetration, consumer preferences for social media and booming online commerce. Also, the State Bank of Pakistan provides sound regulations, which act as a platform for fintech growth. While regulations are necessary, they might also become a threat for an industry still in its infancy. This paper aims to provide a qualitative assessment of economic, demographic and technological factors that are conducive for the penetration and growth of fintech in Pakistan. A second, but no less important, objective of this paper is to look at the regulatory framework governing fintech and its contribution in making the segment an active or dormant player in the financial services industry.
KEYWORDS: Fintech, disruption, innovation, financial services, emerging market, Pakistan.

JEL: K20, O16, G20.

Given that autocorrelation tests do not perform well in the presence of heteroskedasticity and in variance-break cases, we present three modified weighted variance ratio tests of autocorrelation. The numerical results show that the proposed tests perform better for small samples. They provide a better approximation of asymptotic distributions and are more powerful when the lag length is mis-specified. The study also applies these tests to data on the daily returns of two companies listed on the Pakistan Stock Exchange.
KEYWORDS: Regression, variance break, wild bootstrap.

JEL: C40.

This paper examines whether regional connectivity causes return and volatility spillovers and the co-movement of stock exchanges to shift from international to regional markets. Using the China-Pakistan free trade agreement (FTA) of 2006 and the China-Pakistan Economic Corridor (CPEC) agreement to represent events of regional connectivity, we test this proposition based on data for two regional stock exchanges (the Pakistan Stock Exchange and Shenzhen Stock Exchange) and two global markets (the FTSE 100 and Nasdaq). We divide the convergence and co-integration of the stock markets into three phases: overall sample (2001–17), pre-FTA and post-FTA, and pre-CPEC and post-CPEC. Applying a GARCH (1, 1) model, co-integration, Granger causality and seasonality, we find that regional connectivity causes return and volatility spillovers and co-movements in the Pakistan Stock Exchange to shift from international markets to regional markets.
KEYWORDS: Financial integration, China-Pakistan economic corridor, interdependency, co-integration, free trade agreement, regional connectivity, Pakistan.

JEL: F15, C22, R58, F21, E44.

This paper examines the impact of exchange rate changes on the stock returns of 232 nonfinancial firms listed on the Pakistan Stock Exchange, for the period January 2000 to June 2014. To mitigate the problem of heteroskedasticity, we use a generalized least squares estimator. The estimated regression models indicate that exchange rate variations have a significant effect on firm value and that firms are exposed significantly to one-period lagged variation in the exchange rate. Our results suggest that, in addition to exchange rate dynamics, increased exchange rate volatility appears to have significant and negative effects on firms’ stock returns. Compared to domestic firms, multinational firms experience greater exchange rate exposure. Finally, we show that exchange rate depreciation and appreciation have significant differential effects on firms’ stock returns. These effects vary significantly across domestic and multinational firms.
KEYWORDS: Exchange rate exposure, stock returns, firm value, domestic firms, multinational firms, volatility of exchange rate, Pakistan.

JEL: G23.

This paper estimates the Mincer wage model for Pakistan’s labor market, using a relatively recent dataset and new independent variables. We employ instrumental variables and two-stage least squares to address the problem of the endogeneity of education. Our results show that the returns to education are biased downward due to endogeneity, with significant wage gaps emerging among different regions, between genders and between urban and rural job markets. The study’s choice of instruments has conceptual as well as empirical grounds. Our findings establish that the wage determination process is different for males and females across provincial labor markets.
KEYWORDS: Endogeneity of education, human capital model, instrumental variables, Mincer regression, labor market, returns to schooling, Pakistan.

JEL: C26.

This paper aims to provide a more comprehensive understanding of the impact of financial developments on output volatility. Using cross-sectional and panel datasets for 79 countries from 1961 to 2012, we find that financial expansion plays a significant role in mitigating output volatility, although the evidence is weak in some cases. The role of financial stability is more prominent than that of other measures of financial growth in mitigating output volatility. The volatility of terms of trade and inflation contributes positively to increasing output volatility. We also evaluate the channels through which financial developments can affect output volatility. Our model investigates the link between financial growth and output volatility through two potential channels, using four measures of financial development. The volatility of inflation and of terms of trade are used as proxies for monetary sector and real sector volatility, respectively. Financial development plays a mixed role in amplifying or mitigating output volatility through real and monetary sector volatility. Overall, there is some evidence to suggest that financial development amplifies monetary sector volatility, but weaker evidence that real sector volatility is reduced by financial development.
KEYWORDS: Output volatility, financial development, panel data.

JEL: O16, E30, E51, G20.