Toward a Competitive Pakistan: The Role of Industrial Policy
| Autor: | Irfan ul Haque |
|---|---|
| Rok vydání: | 2014 |
| Předmět: |
Pakistan
East Asia industrial policy export performance productivity business.industry Balance of trade jel:F43 International economics International trade Investment (macroeconomics) Export performance Industrial policy jel:L59 Balance of payments Economics East Asia business Productivity Constraint (mathematics) |
| Zdroj: | THE LAHORE JOURNAL OF ECONOMICS. 19:61-90 |
| ISSN: | 1811-5446 |
| DOI: | 10.35536/lje.2014.v19.isp.a4 |
| Popis: | 1. IntroductionPakistan's balance of payments (BOP) has been an enduring constraint to its economic growth. Other factors-natural disasters and political instability in particular-have also been important, but they have not had a deterministic or consistent impact on the country's economic performance. This paper's basic premise is that, while occasional surges in the import bill or sudden declines in foreign inflows may have been proximate causes of past BOP crises, low export growth has remained a persistent drag on economic growth. Thus, improving the country's export performance to match that of other rapidly growing economies is pivotal to achieving and sustaining accelerated economic growth.Why export growth must be taken as a dominant concern in policymaking is elucidated in the next section. We show that unsatisfactory export performance, rather than untoward rises in the import bill, has generally been the underlying cause of Pakistan's unsustainable trade deficits. Section 3 explores the "pathology" of the export failure, which is linked, directly or indirectly, to the failure of a thriving, internationally competitive industry to arise. The factors that have hampered industry have also affected the growth of agricultural or services sector exports. This section is followed by a discussion of the form of industrial policy that could help Pakistan become internationally competitive and realize more secure and rapid export growth. The final section concludes the study.2. Export Performance: The Dominant ConcernFigure 1 traces the changes in Pakistan's trade balance as a percentage of GDP since 1980 along with the corresponding data for four other countries in the region: Bangladesh, China, India, and Indonesia. Two facts are striking. First, Pakistan's trade balance declined consistently for almost two decades, i.e., from the early 1980s up to the early 2000s. Indeed, the decline was substantial: the trade deficit stood at 11 percent of GDP during 1980-84 but fell in each of the succeeding five-year periods, virtually disappearing in 2000-04. However, the trend thereafter reversed and the trade deficit started to rise quickly, reaching about 8 percent of GDP in 2005-09. This was at the core of the economic crisis of 2008/09 (see Haque, 2010).Second, except for a brief period in the early 2000s, Pakistan ran substantially higher trade deficits in relation to its GDP than India, while China and Indonesia had sizeable trade surpluses. This mirrors Pakistan's notorious savings deficit, where it is not just that savings are low in relation to investment but, more seriously, that they are low in relation to a very low investment rate (Haque & Amjad, 2012) The country's problem is not just one of financing the trade deficit but also that such financing supports an extremely low investment rate. In other words, it is really noninvestment expenditures that are behind Pakistan's trade deficits. Thus, measures aimed at cutting investment in order to improve macroeconomic imbalances have tended to fail while dampening economic growth. This was amply evident in the aftermath of the 2008 crisis (Haque & Amjad, 2012).An examination of export and import trends over the three decades 1980-2009 suggests that, because Pakistani exports varied only a little in relation to GDP, the movement in trade deficits was, by and large, driven by imports (Figures 2 and 3). Pakistan's export ratio hovered around 12 percent during the 1980s but rose to about 17 percent in the first half of the 1990s, before trending downward for more than 15 years. Exports were down to less than 15 percent of GDP in 2004-09. This is in sharp contrast to the performance of all other comparator countries, whose export ratios generally rose, in some cases, sharply.While China's export ratio was about the same as Pakistan's (around 12 percent of GDP) during the 1980s, those of India and Bangladesh were less than half (Figure 2). … |
| Databáze: | OpenAIRE |
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