The Pakistan Development Review
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Achieving Sustained, Indigenous and Inclusive Growth (The Allama Iqbal Lecture)
No full textThe world economy is now facing paramount problems such as
long tern stagnation of economic growth and worsening income
distributions (or economic polarisation). This is even more
embarrassing, because the humans have been seeking more equal society
during the post-WWII era by engaging in the revised capitalism or social
democracy by the most of capitalist developed economies, the balanced
growth strategies under social democracy by most of the developing
economies and more dramatically the socialist economic regime by the
already collapsed socialist blocs, not to mention the still barely
surviving North Korea. “Growth stagnation and economic polarisation” is
not the one which has been intended and anticipated by policies but is
opposite to intention as well as expectations. Some of the critics on
capitalist economy have been arguing that this is the outcome of the
fundamental contradiction of the capitalist economy from the Marxian
perspective and/or the result of the neoliberal policies since the 1980s
[Piketty (2014) and Stiglitz (2012)]. However, if one understands that
the neoliberalism had short-lived only during the Thatcher-Reagan era,
of course with some lingering effects, this episode can be seen as a
typhoon within the tea cup. In this regard, broadly speaking, the common
underlying institutions of post-war politicaleconomy regime of the world
economy can properly be called as the economic equalityseeking
“egalitarian democracy” which includes the revised capitalism and social
democracy, not to mention the socialism. Therefore, one can see that the
efforts to create more economically equal society or in other words, the
shared growth have in fact created more unequal as well as
growth-stagnated economies against the intention as well as expectation.
This seems to be the fundamental dilemma faced now by the world
economies and these are perhaps waiting for the economic as well as any
other social science profession to come up with a solution to it. Of
course, some naive Marxists or leftist economists would claim that this
phenomenon of the worsening income inequality is simply the fact of the
capitalist econom
Impact of Rising Energy Prices on Consumer’s Welfare: A Case Study of Pakistan
Full text linkThis work investigated the impact of higher energy prices on
consumer’s welfare for the Pakistan from 1987 to 2012. The central
objective of the study is to quantify the consumer welfare through
Compensating Variation (CV) after estimating the demand elasticities by
applying the Linear Almost Ideal Demand System (LA/AIDS) for main energy
sources. Welfare change is also measured in four scenarios (two price
shocks) for Pakistan in order to analyse the impact of energy price
change in different time period. Coal, gasoline and High Speed Diesel
(HSD) oil are relatively less elastic, where High Octane Blended
Component (HOBC), kerosene and Compressed Natural Gas (CNG) are
relatively more elastic, while electricity and natural gas is unit
elastic. Additionally, the results of Compensating Variation suggest
that due to higher energy prices, more income compensation is required
to pay for consumer in order to achieve the initial energy utility. So
mixture of price controlling and income policies should be adopted for
each energy source. JEL Classification: D6, Q4 Keywords: Rising Energy
Prices, Consumer Welfare, LA/AIDS, CV, Time Series Dat
Analysing Econometric Bias and Non-linearity in Returns to Education of Pakistan
Full text linkThis study estimates the returns to education while
controlling endogeneity and sample selection biases in Pakistan, over a
time period using Ordinary Least Square (OLS), simultaneous approach
using both Heckman Sample Selection and Instrumental Variable, and Fixed
Effect techniques. Household Integrated Economic Survey (HIES) data for
2004-05 and 2011-12 time periods have been used in this study. The
returns to education have been found downward biased in OLS estimates
for both time periods. The unbiased real returns to education have
increased on average for wage workers over time period. Landholding and
Non-earned income have been used as exclusion restrictions to control
for sample selection bias in the Heckman Sample Selection technique. The
endogeneity bias has been controlled for with the help of parental
education as instrument in Instrumental Variable technique. Both
techniques have also been used collectively or simultaneously to get
more efficient estimate in simultaneous approach. Household Fixed Effect
technique has also been used with the assumption that ability and family
characteristics largely remain same within family or household. The
increase in the unbiased and real returns to education shows that
profitability still exists in investing in education whereas experience
via skill enhancement reinforces this rise in wage. Sadly, the historic
gender and regional discriminations persist or aggravate in wage market.
Married persons are getting more in returns relative to the unmarried
individuals. Having negative implications for income inequality,
Convexity in education-earning relationship in Pakistan has been
confirmed by Indicator Function technique for both time periods. Low
education prompt low-earning workers who would be unable to bear the
schooling cost of their children. This seriously inhibits earning
potential making income inequality worse. JEL Classification: I26, I24,
J24 Keywords: Returns to Education, Human Capita
Hold-up Problem in Price Cap Regulation with Limited Ability of Commitment in High Inflation
Full text linkIn this study, we examine the hold-up problem under price cap
regulation in developing economies characterised by high inflation that
have a limited ability to commit. The governments of developing
countries are unable to modify the exact inflation rate. If high
inflation is brought about by unexpected monetary expansion after the
initial average price is fixed, the insufficient ability to show exact
inflation causes a lack of commitment to adjust the initial fixed price
to the modified price. The study’s findings show that those that have a
limited ability to commit cause a hold-up problem if inflation is
sufficiently high for a firm to stop production at the initial price,
while the hold-up problem does not occur if inflation is lower and the
initial fixed price generates a sufficient profit for the first-best
investment for the firm. JEL Classification: D86, L14, L43,L51 Keywords:
Price Cap Regulation, Hold-up Problem, Limited Ability of Commitment,
Inflation Adjustmen
Oswalso de Reviero. The Myth of Development: The Non-Viable Economies of the 21st Century. London, U.K.: Zed Books. 2001. 224 pages. £20.99.
Full text linkSince the early 1990s, a new stream of developmental thinking
started getting momentum, questioning and refuting the supposedly
undisputed developmental counseling, pursued by all nations and
practiced for more than four decades. This critique of development,
usually referred to as ‘post-structuralism’ or ‘post-development’,
assesses the genesis of the developmental ideas in post-war era and also
questions the desirability and prospects of the development in the
contemporary world. In the era of intellectual combat of developmental
ideas, Oswaldo De Reviero’s “The Myth of Development” is significant and
thought provoking addition to the PostStructuralist literature. De
Riviero has tended to deconstruct the developmental ideas and identify
the factors that the developmental thinking and practices entail and
have been contributing to the impoverishment of the
countries
Fiscal Space for Investment in Agriculture— A Review of Taxes and Subsidies in Agriculture in Pakistan
Full text linkDespite agriculture’s importance in terms of its relationship
to poverty and welfare of the poorest households, the government finds
it increasingly difficult to find the fiscal space for budgetary
allocations for agriculture and agricultural RD. We hypothesise
that expansion of expenditures on agriculture is possible in the short
to medium run with a combination of reallocations and new taxation. We
argue that existing spending aimed towards the agriculture sector
includes very large outlays on implicit subsidies that are largely
unproductive. These costs include: subsidisation of gas for fertiliser
plants, which approach Rs 48 billion in gas subsidies to fertiliser
companies; the full costs of the infrastructure and operation and
maintenance of the irrigation system, which amount to Rs 166 billion per
year; and losses on wheat procurement, which have been about Rs 25
billion recently. On the taxation side, while agricultural producers are
not currently liable to pay tax on income, they do however pay indirect
taxes on agricultural inputs. Using a Social Accounting Matrix (SAM), we
estimate agricultural producer pay about Rs 61 billion, mostly from GST
taxes on fertiliser. Using a Computable General Equilibrium model, we
show that agriculture could contribute further with an income tax on
agricultural income. With a ―low-rate-widebase‖ income tax of 15 percent
on non-poor, medium and large farms, as much as Rs 130 billion could be
raised, enough to cover, for example, a sizable portion of the operation
and maintenance cost of the irrigation system. JEL Classifications: D58,
E16, H20, H22, H23, Q10 Keywords: Agriculture, Fiscal Policy, Subsidies,
Taxation, General Equilibrium, Social Accounting Matrix,
Pakista
Combating Nutrient Deficiency in Pakistan
Full text linkTo quantify the micronutrient deficiencies and their overtime
trends, food quantities reported to be consumed in HIES surveys data
during 1991-92 and 2011-12 are converted into major and micronutrients
using the FAO Food Composition Table for Pakistan. To see the impact of
different price and income support policies on micronutrient
consumption, nutrient demand elasticities are estimated for 2011-12 for
carbohydrates (energy), protein, calcium, vitamin A, vitamin C, vitamin
B1, vitamin B2, and Niacin. The Almost Ideal Demand System (AIDS) is
applied to estimate the demand elasticities of the eight food groups
which are then converted into nutrient demand elasticities using the
transformation of Hunag (1996). On average, per capita consumptions of
almost all micronutrients are deficient compared to their respective
recommended levels. Our analysis suggest that income support to the poor
in Pakistan through programmes like BISP would have been much more
effective to eradicate nutrient deficiency, if deficient nutrient(s) are
targeted and support is provided to those foods having highest demand
elasticity for that nutrient. For example, the promotion of wheat and
other cereals are important to eradicate energy deficiency, and
promotion of vegetables, fruits, and milk are particularly important in
eradicating vitamin A, C and iron deficiencies. These commodities are
also high value crops for farmers, thus the price support in these crops
will also impact micronutrient consumption through income
effect
Impact of Credit on Education and Healthcare Spending in Rural Pakistan
No full textIt is to access that the microcredit has a positive impact on
education and healthcare spending of the borrowed households is
controversial in developing countries literature or not. This study
reports evidence, from Pakistan for this debate, while utilising data
from PPHS- 2010 (Pakistan Panel Household Survey). Propensity score
matching (PSM) has been used to investigate the impact of household
credit on healthcare and education spending by the poor. In addition to
matching statistically identical borrowers with non-borrowers, the
method controls for household pre-treatment assets and income. These may
be correlated with unobservable factors affecting credit participation
as well as outcomes of interest. The estimates from binary as well as
multiple ordered treatment effect show insignificant impact of borrowing
on education and significant and positive impact on healthcare spending.
JEL Classification: D13, C14 Keyword: Matching; Household Credit;
Per-capita Income; Education and Healthcare Spendin
Neil Wilcock and Corina Scholz. Hartmut Elsenhans and a Critique of Capitalism. Conversations on Theory and Policy Implications. London, U.K.: Palgrave Macmillan, UK. 2016. xii+184 pages. €84.99 (Hard Bound).
Full text linkAfter the Second World War, the world was practically divided
into two competing economic systems, capitalism and socialism. This
ideological competition extended to the socio-political realm, and
became the basis of the cold wars from the late 1940s to early 1990s.
The events in Russia in the early to mid-20th century presented
socialism as a real contender, if not a complete alternative to
capitalism. With its increasing influence in many countries, not just in
Russia’s neighbourhood but also in the continents far across, socialism
emerged as the dominant thought, leading to what became to be referred
to as the socialist bloc. But then came the collapse of the USSR in
early 1990s and the whole socialist thought came to be questioned. In
socialist China, introduction of reforms with a capitalist bent further
questioned the practicability and success of socialism, while reforms in
the Indian economic system encouraged the proponents of capitalism to
declare victory. Adoption of capitalist ideals by purely or
quasi-socialist countries stamped the superiority of
capitalism
Conducting Monetary Policy in South Asian Economies: An Investigation
Full text linkMonetary policy which until recently aimed at targeting
monetary aggregates has quietly given way to adjusting interest rates.
Most of the Central Banks now focus on money reaction function that
directly targets inflation or price level. This paper examines the way
monetary policy is being conducted in the four major South Asian
economies, namely, Bangladesh, India, Pakistan and Sri Lanka. The
analysis is based on a variant of the Taylor rule framework. Using
quarterly data over the period 1990Q1 to 2012Q4, the study finds that
the monetary authorities in India, Pakistan and Sri Lanka have
accommodated some degree of inflationary pressure, whereas Bangladesh
has continuously smoothened interest rate while setting its monetary
policy. Besides pursuing a mild monetary policy stance against
inflation, India, Pakistan and Sri Lanka are also giving importance to
foreign interest rate and real exchange rate movements to justify their
relevance in monetary policy setting. However, the same has not been
found to be true for Bangladesh. JEL Classification: E52, E58, E60
Keywords: Monetary Policy Rule, Central Banks, SAARC
Countrie