The Pakistan Development Review
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Analysing the National Tariff Policy
Full text linkWhat is the role of import tariffs in a modern economy?
Tariffs may seem an easy source of revenue, but they do have real
consequences for the economy. The use of tariffs makes imported goods
more expensive. It can be used as a means to prevent the exchange rate
from fully adjusting to market value reducing incentives for export
while increasing incentives for import substitution. Tariff policy can
thus affect the product mix of country, including its direction of
industrialisation, which in the complex globalised world of today
determines its place in the global value chain
The Tariff Tripod of Pakistan: Protection, Export Promotion, and Revenue Generation
No full textThis paper gives an overview of tariff structure of Pakistan.
The protection of local industry, export promotion and revenue
generation constitute the triangular tripod of Pakistan tariff. The said
three objectives are achieved mainly through imposition of high tariffs
on output goods (protection of local industry), duty- exemption schemes
and SROs for exporters (export promotion), and multiple levies at import
stage on tariff-inclusive price (revenue generation). About half of the
revenue of FBR is collected from imports. Protection to sectors like
auto and textile is high and consumer welfare is totally missing from
the entire scheme of tariff. Despite high protection and multiple export
promotion schemes, local manufacturing is weak and exports are stagnant.
The revenue has, however, increased manifold over the years and
interestingly revenue witnessed big upward jump when MFN rates of tariff
fell. Revenue generation is the major consideration in tariff setting.
Tariffs are set as an exercise in accounting with the assumption that
rates and revenue have got a positive linear relationship. Income
effect, substitution effect and volume effect hardly enter into the
mental calculations of tariff setters. Due to high incidence of taxes at
import stage, incentives for smuggling, under- invoicing,
misdeclaration, and evasion are high. Smuggling is rampant and hard to
control due to peculiar geographic situation of Pakistan.
Under-invoicing is clear from the trade gap between China and Pakistan.
As regards misdeclaration, evasion and corruption at ports, I calculate
a hypothetical value of CD based on TWA and CEF for the period 1997-98
to 2018-19. These calculations provide interesting policy insights.
First, evasion through misdeclaration is high when tariff rates are high
and evasion goes down in percentage terms with reduction in tariff
rates. Second, CEF increases as a result of reforms in Customs like
simplification and automation of clearance processes and procedures.
After detailed discussion, paper suggests that protection provided to
the local industry should be time-bound with clear sunset date and
accountability against rent -seeking. Based on cap-cape equation, paper
further suggests that exemptions and concessions in import duties should
preferably be provided through tariff code and not through SROs and
difficult-to-use export-oriented schemes. In order to put the country on
the trajectory of long term growth, import tariffs on input goods and
machinery should be phased out in the short to medium term and instead
of relying on increase in tariff rates and imposition of additional
levies on imports, better policy option is to enhance CEF through
reforms aimed at risk based automated clearances. Keywords: Tariff
Structure, Protection, Under-invoicing, Misdeclaration, Smuggling, Input
goods, Output goods, Collection Efficiency Facto
Volatility in Discretionary Public Spending and Economic Growth: A Cross Country Analysis
Full text linkVolatility in discretionary public spending has diverse
implications for the overall economic performance of economies. In this
study, we examine the impact of volatile non�systematic discretionary
public spending on economic growth. By employing cross-country data of
74 developed and developing economies, we find that volatility in
non-systematic discretionary public spending has an adverse impact on
economic growth. In particular, such impact is severe in the case of
less developed economies. Our findings are robust to the problem of
endogeneity. In order to ensure the accuracy of the results, we conduct
sufficient sensitivity analysis by incorporating a bunch of potential
control variables. In most of the cases, the results with regard to the
policy volatility remain intact. This suggests that effective spending
rules, i.e. permanent numerical limits, should be imposed on budgetary
aggregates to restrain governments from the volatile use of
discretionary spending. JEL Classification: H3; H5 Keywords: Volatility
in Discretionary Public Spending, Economic Growth, Effective Spending
Rul
Bangladesh and Pakistan: The Great Divergence
Full text linkThere was a time when Bangladesh lagged behind Pakistan in the
quality of life measured by any of its major indicators, except for
adult literacy and schooling of children. But it is a different story
today. Bangladesh is ahead of Pakistan in almost every respect. I intend
to present the facts (data) to support this proposition first and then
explore the reasons for the great divergence. I am far more certain
about the evidence than I am of my explanation since some of it is
guesswork, though hopefully not too off the mark
Economic & Cultural Distance & Regional Integration: Evidence from Gravity Model Using Disaggregated Data for Pakistan
Full text linkThis study applies generalised gravity models to analyse
Pakistan’s bilateral trade flows at commodity level using both panel as
well as cross-sectional data estimation techniques. The empirical
findings indicate that distance and size of the economy are the major
determinants of commodity trade flows. For many commodities, real
exchange rate, trade preferences, being landlocked, technological
differences and market size are vital factors, which boost bilateral
trade flows. Remarkably, there is an inverse relationship between
bilateral trade flows and a common border. As far as regional trading
blocs are concerned, the results show that ASEAN is a potentially
significant destination for Pakistan’s commodity trade. The findings
illustrate that in the case of SAARC trading partners, the potential of
trade has not materialised. For the purpose of robustness of our
results, we have also used agricultural and non-agriculture related
trade costs. Estimates indicate that trade costs between Pakistan and
its trading partners are highly significant and negatively related to
commodity trade flows, while other empirical findings confirm the
robustness of the results. Keywords: Gravity Model, Commodity, Regional
Integration, ASEAN, ECO, OIC, SA
Exchange Rate Misalignment and Economic Growth in Pakistan: The Role of Financial Development
Full text linkThis study endeavours to examine empirically how real exchange
rate (RER) misalignment affects economic growth in Pakistan. In this
regard, we have not only estimated the direct impact but also the
indirect impact of misalignment on economic growth by using the
financial development channel. We have used time series data ranging
from 1980 to 2016 to carry out the empirical analysis. After testing the
time series properties of the selected variables, we computed long run
equilibrium RER later used to calculate RER misalignment. Finally, we
estimated the impact of misalignment on per capita economic growth, both
direct and indirect. Our results reveal an adverse impact of RER
misalignment on economic growth. However, we report that financial
development helps in minimising the adverse impact of RER misalignment,
though not fully eliminating it. Based on the empirical findings, the
study suggests that exchange rate policies need to be managed more
cautiously. Moreover, the financial sector development needs to be
strengthened which may help in fully alleviating the adverse impact of
RER misalignment on economic growth. JEL Classification: F31, GOO, O47
Keywords: Real Exchange Rate Misalignment, Financial Development,
Economic Growth, FMOL
Unravelling Water Use Efficiency in Sugarcane and Cotton Production in Pakistan
Full text linkThe present Policy Viewpoint explores water use efficiency
between the two competing cash crops of the Kharif season, sugarcane and
cotton. It is concluded that the sugarcane crop consumes about 3.5 times
more water than the cotton crop. Moreover, one litre of water used in
cotton production generates about 4 times higher monetary benefit at
both the farm gate and at the processing stage. Sugarcane alone consumes
about 42 percent of the total annual household water demand of Pakistan.
Keywords: Cotton, Sugarcane, Water Use Efficiency, Water Pricing,
Pakista
Parents’ Perception of Education and Choice of Childhood Activities: Evidence from Pakistan
Full text linkWe investigate parents’ perceptions of various educational
systems and their impact on the decision to either send their children
to school, or engage them in other childhood activities. Childhood
activities are categorised as follows: secular schooling, religious
(non- secular schooling), child labour, child labour combined with
secular schooling, and leisure (inactivity). The paper uses the
household survey data of 2,496 children, 963 households, and 40 villages
in Pakistan. A Multinomial Probit Model analysed the impact of various
socio- economic variables on the likelihood of choosing an activity for
children. Results indicate that the following factors influence the
parents’ decisions in selection of activities for their children: the
parents’ level of education, mother’s relative authority in household
decisions, degree of religiosity of the head of household, beliefs in
tribal norms, household income, and proximity to the school. The
findings provide insignificant evidence to support the “luxury axiom”
hypothesis that children only work when their families are unable to
meet their basic needs
Agriculture in Pakistan: A Revisit
Full text linkI started studying the structure and performance of Pakistan’s
agriculture in the early 1960s. Sadly this sector of the economy is
still in a precarious state. I think the blame rests with the state, its
policies and agents, more than the vagaries of nature. But the good news
is that we can influence public policy far more than the moods of
nature. The basic challenges for the agriculture sector in Pakistan are
to
Katy Gardner and David Lewis. Anthropology and Development: Challenges for the Twenty-First Century. London: Pluto Press. 2015 (Second Edition). 240 page. Price £24.99
Full text linkThe book entitled Anthropology and Development: Challenges for
the Twenty�First Century by Gardner and Lewis (2015) is the second
edition of their previous book entitled Anthropology, Development and
the Post-Modern Challenge, which was published in 1996. This second book
incorporates recent issues that emerged since the first edition was
released two decades ago. As the world keeps on changing, there are
always new pressing issues that exert a significant influence upon
development work to which an anthropological perspective has much to
contribute