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Crude Oil Price, Monetary Policy and Output: The Case of Pakistan
Get PDFRapid rises in the prices of crude oil in the decade of 2000s
have raised concerns among policy-makers around the world, as the
theoretical and empirical literature has established that oil price
shocks may have an adverse impact on the macro economy of the country.
In particular, for the oil importing developing countries like Pakistan,
this upward trend in the price of oil can have serious repercussions in
terms of creating inflationary pressures in the economy, increasing
budget deficit and balance of payment problems, and thus affecting the
GDP growth. Pakistan was on the path of rising GDP growth in the first
seven years of this decade. But in the year 2007-08, the situation has
changed. This oil price shock could possibly be one of the reasons. As
an impact of rising growth rate of GDP, demand for energy has also gone
up rapidly in this period. In the energy mix for the year 2005-06, oil
accounts for 32 percent of the total energy used in Pakistan, and it is
the second largest source of energy used after natural gas, which
accounts for 39 percent. With oil being the second largest source of
energy used along with almost constant rate of its production Pakistan
is heavily dependent on oil imports from Middle East exporters (Saudi
Arab playing the lead role). Almost 82 percent of the demand for
petroleum products in the country is met through imports.1 Pakistan
spent about 44 percent of export earnings on oil imports in 2006-07.
This percentage was only 27 percent in 2004-05. Therefore, the
international oil price increase has a direct impact on the macro
economy of the country, especially on the oil price GDP relationship.
The share of net oil imports in GDP is an indicator of the relative
importance of the oil price rise to the economy in terms of the
potential adjustments needed to offset it. For Pakistan over the last
few years, this ratio has risen from 3.13 in 1990-91 to -5.24 in 2005-06
[Malik (2007)]. With such a high ratio, unless country is running in
surplus, or has extremely large foreign exchange reserves, high oil
price is dealt by severe macro economic adjustments
Economic Sustainability in a Globalised World (The Presidential Address)
No full textMr Prime Minister, Patron of the Pakistan Society of
Development Economists and Chancellor PIDE, Minister for Planning and
Development, Ministers, Past Presidents and Distinguished Members of the
Society, Excellencies, Ladies and Gentlemen: It is my pleasure to
welcome you all to the 24th Annual General Meeting and Conference of the
Pakistan Society of Development Economists. We are extremely grateful
and honoured by the presence of the Prime Minister. On behalf of the
members of the Pakistan Society of Development Economists (PSDE), I
would like to thank you, Sir, for having spared your precious time to
grace this occasion. I would like also to especially thank our guests
who have come from different parts of the country and from abroad to
participate in the Conference. We are heartily pleased to see here today
many students of Economics and other social sciences from different
colleges and universities of Pakistan who are just as eager as regular
members to understand our subject better. Let me join Dr Arif in
especially welcoming Professor Yu Yongding, Professor John Mellor,
Professor Siddiqur Rahman Osmani, and Dr Parvez Hasan, who will be
delivering the Invited Lectures this year. At the outset, on behalf of
all members of the PSDE, I would like to recognise the support and
encouragement of the Prime Minister as Chairman of the Planning
Commission to the initiative taken by the Deputy Chairman and his
predecessor Mr Salman Faruqui to actively involve professional
economists in Pakistan in the process of economic policy-making. The new
Task Forces on critical economic concerns and the Advisory Panel of
Economists to frame the short-run and medium-term policies by the
Planning Commission are democracy’s gifts to the economists of Pakistan.
Democracy encourages independent thinking, accommodates diverse
viewpoints, and thus makes it possible to evolve a comprehensive policy
for all
International Competition, Debt, and Uneven Development in a North-South Macroeconomic Model
Get PDFThis paper examines whether the intensification of
international competition widens the gap between developing and
developed economies. The intensification of international competition
with an influential trade union in the North is known to lower the
North’s markup rate. This paper is unique because it points out that the
intensification of international competition can widen the North-South
gap when the Southern debt is taken into consideration. It also shows
that the egalitarian policy in the North as influenced by trade unions
is compatible with its international policy: relief of interest
payments. JEL classification: F19, O19 Keywords: North-South, Uneven
Development, Deb
Ownership Concentration, Corporate Governance and Firm Performance: Evidence from Pakistan
Get PDFThe nature of relation between the ownership structure and
corporate governance structure has been the core issue in the corporate
governance literature. From a firms’ perspective, ownership structure
determines the firms’ profitability, enjoyed by different stake-holders.
In particular, ownership structure is an incentive device for reducing
the agency costs associated with the separation of ownership and
management, which can be used to protect property rights of the firm
[Barbosa and Louri (2002)]. With the development of corporate
governance, many corporations owned by disperse shareholders and are
controlled by hire manager. As a results incorporated firms whose owners
are dispersed and each of them owns a small fraction of total
outstanding shares, tend to under-perform as indicated by Berle and
Means (1932). Latter this theoretical relationship between a firm’s
ownership structure and its performance is empirically examined by
Jensen and Meckling (1976) and Shlefier and Vishny (1986). In most of
developing markets including Pakistan, the closely held firms (family or
state-controlled firms or firms held by corporations and by financial
institutions) dominate the economic landscape. The main agency problem
is not the managershareholder conflict but rather the risk of
expropriation by the dominant or controlling shareholder at the expense
of minority shareholders. The agency problem in these markets is that
control is often obtained through complex pyramid structures,1 interlock
directorship,2 cross shareholdings,3 voting pacts and/or dual class
voting shares that allow the ultimate owner to maintain (voting) control
while owning a small fraction of ownership (cash flow
rights)
Institutional Imperatives of Poverty Reduction
Get PDFThe high food inflation in the last three years has pushed 11
million people into a state of hunger and poverty. Given the present
trend, if no policy action is taken, an additional 22 million people
will be impoverished over the next four years (see Table 7). According
to the World Food Programme Survey for the Vulnerability Analysis and
Mapping Unit as many as 77 million people upto March 2008 are deemed
“food insecure”1, where the food insecure population is defined as those
consuming less than 2350 calories per person per day. The statistical
evidence clearly shows Pakistan is in the grip of a poverty crisis. Ms.
Bushra’s action stands as stark testimony of the human experience of
poverty. It also poses a challenge to policy makers as much as to
economists to undertake urgent policy action on the basis of a
scientific analysis of the problem
Edible Oil Deficit and Its Impact on Food Expenditure in Pakistan
Get PDFPakistan, a developing country, is the sixth most populous in
the world [U. S. Census (2008)], whose demand is rising due to steady
economic growth. Agriculture contributes 23 percent of the GDP, 42
percent of the total work force is employed to the agriculture sector
and also contributes substantially to Pakistan’s export earnings [Alam
(2008)]. Agriculture Commodities and Textiles Products accounts for 62.6
percent of Pakistan's total exports [Memon (2008)]. Pakistan is the
ninth largest producer of wheat, 12th largest producer of rice, 5th
largest producer of sugarcane and 4rth largest producer of cotton among
the top producers in the world as per statistics of FY05 [Memon, et al.
(2008)]. Despite overwhelmingly an agrarian economy, Pakistan is unable
to produce edible oil sufficient for domestic requirements. Edible oil
is considered a necessity in Pakistan and hence its demand is relatively
inelastic. There are many reasons behind this shortcoming, for example,
lack of awareness of farmers, ignorance of policy makers regarding
oilseed crops, technological deficiency in oilseed production and
smuggling to neighbouring countries (Afghanistan in particular). The
major crop responsible for 57 percent of edible oil production is cotton
seed which is primarily a fiber crop. Indigenous production of edible
oil is below the consumption levels with a very wide gap between the
production and consumption. This gap is bridged through import of edible
oil worth more than Rs 45.0 billion1 annually. Presently the oilseed
production only meet about 30 percent2 of the domestic requirements and
the rest is covered with imports. The high dependency on imports not
only exerts the pressure on balance of payment but also develops a close
linkage between international price shocks and edible oil price in
Pakistan which is ultimately reflected in food expenditure. The common
Pakistani food includes a significant quantity of edible oil which is
the reason behind high consumption growth rates
Occupational Status and Earnings Inequality: Evidence from PIHS 2001-02 and PSLM 2004-05
Get PDFWage/earnings inequalities are one source of overall
inequality in a country. The former inequalities in turn are closely
linked with differential occupational status either defined in a
contractual or productive/skill sense. Using the Pakistan Standard
Classification of Occupations [PSCO (1994)], this paper estimates Gini
coefficients for three types (all types, employee, selfemployed) of
individuals/earners by occupational status from the Pakistan Integrated
Household Survey (PIHS) 2001-02 and Pakistan Social and Living Standards
Measurement Survey (PSLM) 2004-05. Long-term trends in earnings
inequality from 1992-93 to 2004-05 are documented with the benchmark
estimates in the Ahmad (2002) study, while the short-term trends are
measured from 2001-02 to 2004-05 for self-employed and paid employee.
The long- as well as the short-term trends indicate rising earnings
disparities within each occupational category. Over the longer period,
these disparities have risen in the range of 50 to 100 percent. Shifts
across occupation and across employment status indicate doubling of the
share of Shop and Market Sales and Services Workers and the transition
towards becoming self-employed. A few tentative explanations for the
observed increasing occupational inequalities at the individual level
are: (a) Availability of credit and improved efficiency of capital
market may have relaxed capital constraints of former employees and
enabled them to transit as self-employed. Right-sizing and down-sizing
in public organisations may also have pushed the previous employees into
utilising the ‘golden handshake’ packages towards self-employment.
Assuming that returns on capital (internal or borrowed) are higher and
financial contracts are more lucrative than wage contracts, the
situation can lead to wider disparities. (b) At the paid employee level,
the fall in the share of workers in elementary occupations improved the
wage contracts of those still remaining in this occupation, and thereby
increased the income/earnings inequality within this category. (c)
Premium on skills, education, experience, and talent, in spite of the
entry of a large number of individuals in the Service, Shop and Market
Sales Workers category, has widened the inequalities within this
category
David N. Weil. Economic Growth. (Second Edition). New York: Addison Wesley Press, 2009. 565 pages. Paperback. Price not given.
Get PDFDespite the great concern towards the issue of the convergence
of economies, the world is still witnessing the gap between rich and
poor being widened progressively. The book examines the interesting
question of why some countries are rich and some are poor-why they
differ in their levels of income and their rates of economic growth.
Featuring the latest data, new case studies, and a number of significant
additions in the content, the new Second Edition takes the Weil legacy
further. The text develops a very balanced relevance of both
macroeconomics’ classical roots and its current practice in the field of
growth. Engagingly written, it brings into use simple models, close to
reality examples, and instructive tables and figures to address the key
issues. Chapter summaries, list of key concepts at the beginning of each
chapter, questions for review, as well as problems and applications to
help the diligent reader master the material he provides. The clarity of
the writing, the richness of the empirical and quantitative
descriptions, and the best available evidence of some of the modern
economies confronting growth issues, however, would further deepen his
interest
Testing the Fiscal Theory of Price Level in Case of Pakistan
Get PDFThere are two competing views of the interaction between
monetary and fiscal policy and their effects on price stability for
policy-maker’s point of view. In the classical view, in Ricardian
regimes it is the demand for liquidity and its evolution over time that
determines prices. In such a regime fiscal policy is passive, which
implies that government bonds are not net wealth [Barro (1974)], and
monetary policy works through the interest rate or another instrument to
determine prices. In the opposite view which is more recent, a
non-Ricardian regime will prevail whenever fiscal policy becomes active1
and does not accommodate or adjust primary surpluses to guarantee fiscal
solvency. As a result, the Ricardian equivalence do not hold, and the
increase in nominal public debt to finance persistent budget deficits is
perceived by private agents as an increase in nominal wealth. In fiscal
dominant regime the government’s fiscal policy becomes sustainable
through debt deflation that is an increase in prices that wash away the
real value of public debt and in turn the real value of financial wealth
until demand equals supply and a new equilibrium is reached. In this
regime prices are determined by fiscal policy, and inflation becomes a
fiscal phenomenon. If, on the other hand, primary surpluses follow an
arbitrary process, then the equilibrium path of prices is determined by
the requirement known as fiscal solvency; that is, the price level has
to jump to satisfy a present value budget constraint called
non-Ricardian regime. The basic distinction between the two regimes is
that in non-Ricardian regime fiscal policy plays the role where as in
Ricardian regime monetary policy provides stability in prices. In FTPL,
the results of fiscal and monetary policies depend on which policy has
dominant characteristics. The consequences of policies differ depending
on the active and passive characteristics of the policy and depending on
the characteristics of the following policy. If the policy mix is such
that monetary policy is active and fiscal policy is passive, fiscal
policy accommodates monetary policies; these policies are called
dominant monetary policy by Sargent and Wallace (1981) and Ricardian
regime by Woodford (1994, 1995)