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Interest Rate Pass-through in Pakistan: Evidence from Transfer Function Approach
Get PDFThe transmission of monetary policy through the interest rate
mechanism has been thoroughly discussed in economic literature for quite
some time. The traditional view is that, the change in real interest
rate influences the cost of capital. The change in cost of capital
affects the magnitude of investment and consumption and therefore the
level of, real income and prices [Mishkin (1995)].1 Operationally the
State bank of Pakistan, influences the yield on treasury bills
(T-bills). This is done on the assumption that the yield on treasury
bills influences other interest rates like the Money Market rate (Call
money rate), banks’ deposit and banks’ Lending rates. The change in
these rates influences the cost of capital and thus level of investment
and consumption in the economy. Given this, the central bank can
influence the yield on T-bills to influence the level of real income and
the level of prices. The foregoing explanation of the monetary
transmission mechanism makes it clear that if the changes in yield on
the T-Bill rate are not passed on to the Call money rate and the bank
deposit and the Lending rate then it becomes difficult for the central
bank to use the channels that involve interest rate, for influencing the
level of output and prices. Hence it is important to test whether the
changes in the treasury bill rate are passed on to money market rate,
bank deposit rate and the bank lending rate and if yes at what speed and
to what extent. Therefore this study examines the pass-through of the
changes in Treasury bill rate to Call Money rate, Banks’ deposit rate
and Banks’ Lending rate
Financial Development and Economic Growth: The Case of Pakistan
Get PDFThe pioneering contributions of Goldsmith (1969), Mckinnon
(1973) and Shaw (1973) regarding the relationship between financial
development and economic growth has remained an important issue of
debate in developing economies. The theoretical argument for linking
financial development to growth is that a well-developed financial
system performs several critical functions to enhance the efficiency of
intermediation by reducing information, transaction, and monitoring
costs. A modern financial system promotes investment by identifying and
funding good business opportunities, mobilises savings, monitors the
performance of managers, enables the trading, hedging, and
diversification of risk, and facilitates the exchange of goods and
services. These functions result in a more efficient allocation of
resources, in a more rapid accumulation of physical and human capital,
and in faster technological progress, which in turn feed economic growth
[Creane, et al. (2004)]
Skill Development, Productivity, and Growth
Get PDFI am extremely grateful to Pakistan Institute of Development
Economics, Islamabad for giving me an opportunity to share my views on
“Skill Development for Growth and Productivity”. Pakistan is currently
experiencing an exciting period of economic and social change. The
post-WTO regime and the global market dictate has exposed Pakistans’
economy to international competitiveness necessitating rapid
technological changes in the industry. There is definite and recurring
need to optimise human resources through Skill Development efforts for
achieving high productivity culture for investments in the industrial,
commercial, agriculture and services sectors. There is clear indication
that low cost labour will no longer be significant advantage for any
business which is not based on productivity charged and quality oriented
workforce. Therefore, a growing realisation exists for the huge skill
deficiency and the demand for competitive workforce with constant supply
from educational, vocational/technical training institutions. These hard
facts point towards urgent development of strong network between various
stakeholders to achieve skill development for economic development.
Indeed skill excellence and human resource development has been
acknowledged as the major component of economic and social development
that contributes in direct proportion to poverty alleviation and
national prosperity
Impact of Exchange Rate Volatility on Growth and Economic Performance: A Case Study of Pakistan, 1973-2003
Get PDF“Exchange rate” is the price of one currency in relation to
another. In a slightly different perspective, it expresses the national
currency’s quotation in respect to foreign ones. Thus, exchange rate is
a conversion factor, a multiplier or a ratio, depending on the direction
of conversion. It is believed that if exchange rates can freely move, it
may turn out to be the fastest moving price in the economy, bringing
together all the foreign goods with it. In the existing literature,
(most of the time) volatility comes with the exchange rate. Volatility
is defined as “instability, fickleness or uncertainty” and is a measure
of risk, whether in asset pricing, portfolio optimisation, option
pricing, or risk management, and presents a careful example of risk
measurement, which could be the input to a variety of economic
decisions
Governance, Globalisation, and Human Development in Pakistan
Get PDFThe controversy over the likely effects of globalisation on
economic wellbeing is well debated in the literature, yet the subject
remains open for further examination. One can easily relate anything to
the concept of globalisation, as it is so broad, diverse, vague and
volatile. The word globalisation has been used in different context and
with so many different connotations. When people use the word
globalisation they mean what they choose it to mean. A large number of
studies have been conducted to ascertain the effects of globalisation on
third world economies including Pakistan. Many scholars, despite
recognising the need for globalisation as an impetus to economic growth,
blame that the process of globalisation has divided the world into two
classes: rich and poor. In this paper we attempt to show that bad
governance has reduced the benefits of globalisation in Pakistan. We
approach this task by first defining the term globalisation and its
various components. Second, we investigate the relationship between
governance and the benefits of globalisation
Redistributive Impact of GST Tax Reform: Pakistan, 1990-2001
Get PDFPakistan has undergone a significant change in tax structure
over the last fifteen years. However, this change is not apparent on the
surface, as there has not been much change in the tax to GDP ratio over
the last fifteen years. But if we look beyond the surface we can see
changes, for example in (1990-91), indirect taxes contributed 82 percent
of total tax revenue with Customs, Excise and Sales tax each
contributing around 55, 28 and 18 percent respectively, while in
(2001-02), indirect tax share within the total tax revenue fell slightly
to 68 percent with Customs, Excises and Sales tax each now contributing
around 18, 18 and 64 percent respectively. Thus, it may not be wrong to
say that there has been a significant change in the tax mix in the span
of less than ten years and this development is important from the
perspective of efficiency, effectiveness and equity with which revenues
have and will be raised. Although, Value Added Tax (VAT) is likely to be
more efficient in raising revenue than both the ordinary Sales Tax and
Trade Taxes that it has replaced see e.g. [Nellor (1987); Liam Ebrill
(2001)], the same cannot be said as far as the fairness issue is
concerned. This in no way implies that the trade taxes replaced by VAT
were more fair. However in most developing countries they operate with
strict import licensing schemes, binding quotas and foreign exchange
restrictions that make them more a kin to lump sum tax. Therefore in
most cases they have no flow through effect to the consumers [for
example see Clarete (1986); Shah (1991)]. But in contrast to this VAT
being a consumption tax has the capacity to directly affect each and
every household. Thus equity becomes much more of a real concern and
this concern is heightened given that governments of most of the
developing countries lack the capacity to carry out significant
redistribution
Prevalence of Relative Poverty in Pakistan
Get PDFMuch has been written11about poverty in Pakistan. A large
number of attempts have been made by various authors/institutions to
estimate the poverty in Pakistan over the last four decades. However,
the conceptual basis of poverty remained limited to absolute concept of
poverty. The concept of absolute poverty emphasises to estimate the cost
of purchasing a minimum ‘basket’ of goods required for human survival.
In Pakistan, the discussion has been centered on estimating poverty
lines consistent with 2550 or 2350 calorie intake per adult per day as
minimum requirement. Thus, absolute definitions of poverty tend to be
minimalist and are based on subsistence and the attainment of physical
efficiency. Subsistence is concerned with the minimum provision needed
to maintain health and working capacity
Rolf J. Langhammer and Lúcio Vinhas de Souza (eds). Monetary Policy and Macroeconomic Stabilization in Latin America. Heidelberg: Springer-Verlag. 2005. ix+254 pages. Hardback. Price not given.
Get PDFMonetary Policy plays a crucial role in macroeconomic
stabilisation of a country. Latin American countries have faced
successive waves of economic instability causing hyper-inflation and
currency and financial crises leading to losses in output. This book is
a collection of papers presented at the conference on “Monetary Policy
and Macroeconomic Stabilization in Latin America”, held at the Kiel
Institute for World Economics (IFW), in Kiel, Germany, on September
11-12, 2003. Well-known speakers from major multilateral policy
institutions and the monetary authorities of Latin American economies
participated in this conference. Graphs and tables throughout the book
make for easy understanding of the main findings, as the book focuses on
the recent experience of Latin American economies with designing,
announcing, and implementing monetary policies with different internal
and external anchors. It deals with the exposure of real exogenous
shocks, high dollarisation, regulated and segmented labour market,
inappropriate policies and monetary institutions, and unrest from deep
financial and currency crises. The book draws lessons from European
monetary integration for Latin America, and examines the role of
financial integration to help reduce the systematic shocks in Latin
America
Enhancing Vocational Training for Economic Growth in Pakistan
Get PDFTraining in general and skills development in particular, not
only play a vital role in individual, organisational and overall
national economic growth but are integral part of Human Resource
Development (HRD). Skill development may be defined as a process to
acquiring and sharpening capabilities to perform various functions
associated with their present and future roles [Tripathi (2003)].
Moreover, literature suggests that human capabilities can be improved
through better education and training [Haq (2002)]. Enhanced skills
enable individuals to be more productive and spawn more money. It not
only raises the rate of return on investment and increases employability
but also ensures the implementation of various development projects in
the time [Booth and Snower (1996) and O’Conner and Lunati (1999)]. To
summarise, vocational education and training are indispensable
instruments for improving labour mobility, adaptability and
productivity, thus contributing to enhancing firms’ competitiveness and
redressing labour market imbalances [Cailods (1994)]