This study develops a methodology for the comparative analysis of industry-specific export incentives. The impact of different export incentives extended to the textiles sector in India, Pakistan, and Bangladesh is analyzed using industry-level data for the years 2001–11. Our findings show that Bangladesh operates a highly export-oriented regime – of the three countries, the value of its export incentives is highest. The study suggests that, in order to maintain its competitiveness in textile exports, Pakistan needs to enhance its export incentives, particularly for value-added textiles.
KEYWORDS: Exports, export incentives, fiscal incentives, exchange rate, textiles sector, Pakistan.

JEL: F13, L50, F00.

This study evaluates a Punjab Government development project titled “Customized Lending Program for Furniture Cluster at Chiniot.” The project was implemented by the Punjab Government’s Small Industries Corporation at a total cost of PRs 40 million: the sum of PRs 100,000 was loaned to 400 small and medium furniture manufacturers in Chiniot, to be repaid in 22 equal monthly installments with a grace period of two months. The socioeconomic impact of the loan was determined from data collected through a survey. Overall, the project was deemed unsuccessful: on average beneficiaries’ income fell due to negative factors such as power outages and the fact that uniform loans were made to small and larger manufacturers.
KEYWORDS: Punjab development project, Chiniot, impact evaluation, furniture industry, microfinance, Pakistan.

JEL: O10.

As the Pakistani economy has stabilized over the last few years, the focus has turned towards restarting economic growth. This is a challenging task because of the structural problems faced by the economy as well as the global economic slowdown. This means that Pakistan’s policymakers must move beyond the traditional growth strategy of export led growth and think of ways of expanding the country’s manufacturing base. Keeping this in mind, the organizers of the Eleventh Annual Conference on the Management of the Pakistan Economy chose the topic of “Pakistan as a Regional Manufacturing Hub – Prospects and Challenges.” The objective of the conference was to provide academics and policy makers with new ideas on growth strategies in the context of a changing global environment.
KEYWORDS: Pakistan, budget deficits, Pakistani economy, circular debt.

JEL: N/A.

Professor Robert Wade, Professor of Political Economy and Development at the London School of Economics, delivered the keynote address for the 11th Annual Conference on the Management of the Pakistan Economy. This is a talk about the dramatic change in the understanding of what constitutes “development” that occurred in the West and in much of the developing world after the mid 1980s. Before that time it was widely understood that development meant rising overall “prosperity” and that heavy investment in infrastructure and in industry were key drivers. After the mid 1980s the content of development came to be “extreme poverty reduction”, “humanitarian assistance”, “primary school education”, “primary health care”, “anti-corruption”. Why this change? I argue that it was due to several factors: (1) the end of the Cold War, and the resulting change in the geopolitical strategy of Western states led by the US; (2) the increasing strength of “post-materialist” values in developed countries and their translation into the content of Western development thinking (eg World Bank, USAID, DfID); (3) business interests in the West; and (4) continued Western control of inter-state organizations that are meant to be organizations for the world (eg World Bank). There are now small signs of change in favor of investment in production and infrastructure, thanks partly to the recent emergence of inter-state “by- pass” organizations not controlled by Western states (such as the New Development Bank, the Asia Infrastructure Investment Bank).
KEYWORDS: Development, production, western countries, policy.

JEL: O29.

In this paper we explore how development finance institutions (DFIs) helped to promote industrial growth with active role of public sector in emerging market economies – Korea, China, India, Malaysia, Brazil, Mexico, Turkey. The DFIs provided long-term credit financing which led to structural transformation of their economies. These countries have succeeded in spectacular fashion at this transformation over the past four decades but Pakistan did not; why? There has been an endless debate concerning the role of the public sector vis-à-vis the private sector in promoting economic growth and it continues in the present. I begin by asserting that historically public sector has been in the forefront in starting and sustaining economic growth. This not a leap of faith, rather this has been the experience of most emerging economies. They have gone through reforms, liberalization and structural adjustment, ushering in market-based policy regime and opening up foreign trade and capital flows. Within this framework, the role of DFIs has been exemplary, an assessment I reach based on published researched evidence but from field experience in the East Asian economies during 1980s, where newly established industries, in part supported by World Bank (WB) funded DFI lending, nurtured industrial transformation. When the industries of advanced countries began leaving in droves, pressure mounted to end industrial financing. It is a fascinating saga. We need to discover why Pakistan did not succeed in achieving the same industrial transformation the occurred in emerging economies. This failure occurred in spite of similar types of DFI lending over a long period and an almost manic devotion of government to the role of public sector. Reforms and privatization is still going on; but industrial transformation remains as elusive as ever.
KEYWORDS: Industrial growth, development finance institutions, economic development, Pakistan.

JEL: O10.

After being among the earliest countries to embark on the East Asian path, Pakistan fell away but was still among the ten fastest growing economies of the world during 1960–90. However, the seeds for the subsequent economic and technological malaise were also sown in that period. This paper provides an overview of recent theoretical and empirical work on industrial policies – more accurately labeled learning, industrial and technology (LIT) policies – and examines their implications for Pakistan. These include a selective, more sharply focused approach than the comprehensive agendas of reforms that have become common. Substantial islands of success with industrial policies have emerged in a variety of institutional and governance settings, different from those of the original East Asian developmental states. They offer valuable lessons. Raising the abysmally low level of investment in Pakistan is a requirement as well as an outcome and an instrument of industrial policies. This argues for a revival of development finance to stimulate investment as well as to direct it towards selective targets. How to mitigate the risks of this and other instruments of industrial policy to get the risk–reward ratio right is another concern of the paper. An important target of such policies should be the technological upgrading of existing industries. There is enormous scope for doing so, with international comparisons suggesting that Pakistani manufacturing does poorly – both in terms of variance in productivity between firms within an industry as well as in introducing new technologies and products. Whilst the constraints of the politics–governance–security/terrorism nexus are beyond the scope of the paper, their salience cannot be underestimated.
KEYWORDS: Industrial policies, learning, technology, industrialization, development finance, Pakistan.

JEL: L60, L52.

Pakistan and India were part of that wave of economic liberalization among developing countries from the late 1980s. This paper is about one aspect of that failure to ‘produce the economic magic’, in Pakistan. Pakistan substantially liberalized its international trade after the late 1980s, and contrary to some views managed its exchange rate in an exceptionally clear sighted and prudent manner. In response, Pakistan never experienced sustained and rapid export led-growth. In fact so disappointing was the performance of exports that Pakistan’s degree of integration with the world economy was little higher in 2015 than it had been in 1990. This paper first examines the exciting promise followed by the lackluster performance of trade liberalization. It establishes evidence that the exchange rate was managed in a way that should have helped a more liberalized trading regime contribute to economic growth. The paper explores wider evidence linking trade liberalization to economic growth and argues that the positive relationship is at best only a contingent one. Those contingent factors that have failed to support the positive link between trade liberalization and economic growth in Pakistan are investment, tax revenue, and upgrading/learning.
KEYWORDS: Trade liberalization, exchange rate, exports, Pakistan.

JEL: F19, O49.

The problems that afflict Pakistan’s manufacturing sector are widely known. It is also recognized that the current state of affairs must change, but there is little agreement as to what that might entail. The lack of consensus on required actions and policies can be traced back to the end of the era of rapid industrialization in the late 1960s and subsequent withering away of the “developmental state” as Pakistan could then be characterized. The industry’s woes tend to be attributed to import substitution and high protection, with the policy implication that the country must further open up and liberalize. The paper questions this proposition and argues for a fresh approach to industrial policy, exploring what this might involve.
KEYWORDS: Manufacturing, industrial policy, Pakistan.

JEL: L52.

While “deindustrialization” is now considered normal for developed countries, recent trends show that many developing countries have seen their share of manufacturing employment peak at far earlier levels of income than in advanced countries. This new occurrence, which blocks off the main avenue for a country to catch up with more advanced economies, has been called “premature deindustrialization.” As a result of stagnation in manufacturing since 2007, Pakistan is on the brink – if not already in the process – of premature deindustrialization. This paper focuses on (i) growth trends in manufacturing and the economy, (ii) developments in the context of premature deindustrialization in Pakistan, and (iii) the change in the country’s structure of industry. We adapt and apply the industrial sophistication index developed by Lall, Weiss, and Zhang (2005) to the Pakistan Standard Industrial Classifications in the Census of Manufacturing Industries. The structure of industry in Pakistan, Sindh, and Punjab is mapped from 1990–99 to 2005/06 (2010/11 for Punjab) on the basis of a sophistication index score. Our analysis substantiates the conclusion that Pakistan’s industrial structure has stagnated, drawing on analyses of export data in other studies. It also indicates that our finding of modest upgrading in the industry sector on the basis of an intuitive division of industries into low-technology and high-technology industries may have been too optimistic. Revitalizing manufacturing growth will require Pakistan to once again adopt a proactive industrial policy to address the constraints and weaknesses of the manufacturing sector.
KEYWORDS: industrialization, premature deindustrialization, manufactures, manufacturing, structural change, growth, exports, sophistication of production.

JEL: F1, O14, L60, O25.

Despite the consensus that new firms have a significant economic and socioeconomic impact, there is very little empirical evidence to support this claim in the Pakistani context. In this paper, we start by looking at how new firm entry varies across districts in Punjab over time. We then look at how the establishment of different types of firms across these districts has affected district-level socioeconomic outcomes in the province. We find that firm entry has a positive impact on economic outcomes such as employment and enrollment, and that this impact can vary by the scale of the firms that enter.
KEYWORDS: Firms, entry, Punjab, Pakistan.

JEL: O47, M13.

The electrical fan sector in Pakistan has existed since at least the country’s independence and produced for the domestic market for most of its history, although the sector has had strong export growth in the last 15 years. On the other hand, the readymade garment sector has a shorter history, but has been export-oriented from the beginning. The fan sector has retained the traditional batch production system while garments are produced along a line. Nonetheless, both rely on piece rate-based wages to meet their production targets. In this paper, we describe production, management, wage practices, quality, and some barriers to reorganization in these sectors.
KEYWORDS: Production, management, quality, wage practices, ready-made garments, Pakistan.

JEL: L67, D20, L23.

The history of successful industrializers, such as South Korea and Taiwan, shows a systematic shift in the production structure from low- to high- value added activities in manufacturing and its resulting impact on agriculture, mining and services. Within manufacturing, the transformation is seen in both a movement from low-value added sectors, such as apparel making, to high-tech activities, such as automotive and electronics products, and, within particular industries, vertical integration into knowledge-intensive activities. Pakistan’s failure to engender the conditions to stimulate technological upgrading within its leading manufacturing industry of clothing, and a shift away to higher-value added industries is the prime reason why the country has not achieved rapid growth in GDP per capital over the long-term. This paper discusses Pakistan’s stagnation in manufacturing over the period 1960-2013 against the experience of the rapid industrializers of South Korea, Taiwan and Malaysia. Drawing on empirical evidence it argues that Pakistan requires a dynamic industrial policy that focuses on technological upgrading in its existing manufacturing sectors and the creation of competitive advantage in high value-added sectors if the country is to experience sustained long-term economic growth.
KEYWORDS: Manufacturing, industries, policy, Pakistan.

JEL: O25.

This paper makes the case for Pakistan to engage actively in globalization. At present, the country is more a recipient of globalization than a participant. There is a need to shift the terms of engagement from passive to active involvement. Particular effort is needed to encourage foreign companies already present in Pakistan to integrate activities with their global operations. Export-oriented investment requires a more favorable trade regime. Above all, global engagement will require Pakistan to build up its technological capabilities substantially, both at the enterprise level and economy-wide. These shifts imply a revitalized industrial policy endorsed by industry and a vigorous policy thrust aimed at investment-led growth.
KEYWORDS: Globalization, investment, trade, technology, industry, Pakistan.

JEL: F21, O38, O53, F63.

This paper analyzes the impact of the macroeconomic environment on Pakistan’s manufacturing sector, emphasizing in particular the role of fiscal and monetary policies in shaping incentives for industrial investment. Arguably, Pakistan’s macroeconomic fundamentals in the last two decades have remained fragile, resulting in severe macroeconomic imbalances that have contributed to macroeconomic instability and hampered private investment in aggregate as well as in the manufacturing sector. Furthermore, macroeconomic stabilization policies have often failed to produce the desired results owing to the lack of coordination between monetary and fiscal policies. Pakistan’s economy has thus lived on borrowed money and time and on rent-seeking behavior. Although some recent macroeconomic indicators have improved slightly, fundamental weaknesses remain. In particular, the recent improvement in the current account deficit was driven largely by the high inflow of remittances, coupled with financial engineering such as loan payments from the International Monetary Fund, “friendly” money, European Union bonds, and Islamic sukuk. It is imperative to think about the consequences of a leveraged reliance on remittances in the aftermath of falling oil prices and global deflation. Prudent macroeconomic management aimed at consolidating public finances and controlling inflationary pressures is essential to boost industrial investment and yield sustainable growth.
KEYWORDS: Pakistan, economic activity, fiscal and monetary policies, manufacturing activity.

JEL: L69, O23.

This paper profiles the flow of credit to manufacturing SMEs and their subsectors in Pakistan. We discuss the challenges confronting the SME sector as well as the role of the central bank in this context. Based on the literature and data available, we find that the flow of financing to the manufacturing sector witnessed a gradual and steady increase in absolute terms, although its share of total industry credit declined sharply over a nine-year period. Financing to manufacturing SMEs initially declined and then increased over a period of six years.
KEYWORDS: Credit, manufacturing, small & medium enterprise (SME), Pakistan.

JEL: L60, E51.

The very topic raises a challenging question: that is, of the role and significance, if not the “survival,” of small and medium enterprises (SMEs) and related structures amid forces, which – particularly in the sphere of industry – tend to favor the “big” over the “small” at first sight. At the same time, this points to underlying aspects and challenges of broader socioeconomic and structural dimensions with a concomitant need to formulate appropriate, more differentiated, and specifically designed business policies. Today, such challenges and related problems are seen as intertwined and multipronged, given (i) the growing international (not least as a strategic ingredient of development) perception of the role and exposure of SMEs in terms of their sector-related structural significance nationally, regionally, and globally; (ii) a closer-to-the-skin view of developments related to ongoing restructuring in the European business environment, which, in the context of SMEs, is in many ways regionally unique; and (iii) the overriding socioeconomic and systems-related aspects of a more comprehensive SME-specific policy formulation.
KEYWORDS: SMEs, business policies, growth.

JEL: L29.

This study uses multiple rounds of national household sample surveys to examine the extent and nature of private school participation at the primary and secondary levels in Pakistan. Today, one fifth of children in Pakistan—or one third of all students—attend private school. Private school students tend to come from urban, wealthier, and better-educated households than government school students and especially out-of-school children. The characteristics of private school students relative to their government school peers and the former’s composition differ in important ways across Pakistan’s four provinces. Private school participation among children varies largely from one household to another rather than within households, and to a greater extent than government school participation. Private schooling is spatially concentrated, with a few districts (situated mainly in northern Punjab) accounting for most private school students. The spatial distributions of private school supply and participation are strongly correlated. In the 2000s, private school participation rates grew in Punjab, Sindh, and Khyber Pakhtunkhwa and across socioeconomic subgroups, contributing in particular to the growth in overall school participation rates for boys, urban children, and rich children. Nevertheless, the composition of private school students has become more equitable, driven mainly by Punjab, where the shares of private school students from rural and nonrich households have risen.
KEYWORDS: Private schools, private school participation, Pakistan, household surveys.

JEL: I25, I21.

This study examines the costs and household-level benefits of overseas migration in Toba Tek Singh, Pakistan. A household survey was conducted to assess the transaction costs associated with the transfer of remittances and the sources used to finance overseas migration. We also carry out a propensity-score matching exercise, which reveals that overseas migration has substantial benefits as measured by migrants’ consumption levels, their expenditures on health, education, and vehicles, and the level of household savings. Policy options to facilitate migration and the transfer of remittances include (i) establishing technical training institutions to help workers upgrade their skills, (ii) information campaigns on the migration process and opportunities available, (iii) setting up institutions to provide loans for potential migrants, (iv) reducing money transfer costs through formal channels, and (v) building awareness of the Pakistan Remittance Initiative.
KEYWORDS: International migration, remittances, Pakistan.

JEL: F24, F22, I30.

For developing countries with budgetary and balance-of-payments gaps to meet, maintaining large stakes of external debt is not free of cost. Highly indebted countries have to set aside a sizeable fraction of their scarce resources to service their debt, which naturally affects their development spending in general and allocations for the social sector in particular. This study examines the behavior of seven developing Asian countries and analyzes the impact of public external debt on social sector spending. The panel dataset includes Pakistan, India, Bangladesh, Sri Lanka, Nepal, the Philippines, and Indonesia, and spans the period 1980–2010. Our empirical analysis is based on three interrelated equations for different spending categories, which are estimated using the general method of moments. The study’s results confirm the common wisdom that outstanding external debt and its servicing liability have an adverse impact on public spending, particularly on social sector spending. This suggests that developing countries need to mobilize their own resources and minimize their dependence on external borrowing as far as possible.
KEYWORDS: Public debt outstanding, debt servicing, fiscal deficit, current account deficit, social sector development.

JEL: H69.

This study tests the relative factor price equality across districts in Punjab using the methodology developed by Bernard, Redding, and Schott (2009) and data from the Census of Manufacturing Industries for 2000/01 and 2005/06. The results indicate the absence of relative factor price equalization due to the uneven distribution of factors in the province. Nonproduction (white-collar) workers) are relatively scarce in Punjab, which results in a wage premium for this type of labor. The study adjusts for worker quality by using a Mincerian wage equation as worker quality could explain the wage differential between white-collar and blue-collar workers. However, this exercise yields similar results, implying that factors are distributed unevenly across the districts of Punjab even after controlling for worker quality differences.
KEYWORDS: Sector price, wages, equality, Punjab, Pakistan.

JEL: E24.