Pakistan provides export financing schemes to support exports. This study examines two main schemes: one offered by the State Bank of Pakistan (SBP) through commercial banks, and the other by the Federal Bureau of Revenue (FBR). The study evaluates the performance of these schemes from the perspectives of commercial banks (as private entities) and exporters (as beneficiaries). While large exporters improve their export performance by utilizing these schemes, the lengthy process and the time lag between production and delivery can hinder exporters’ performance. The qualitative findings indicate that these export financing schemes mainly benefit large exporting firms, while medium and small enterprises are less likely to take advantage of them due to the complexities involved.
Foreign aid has been an essential source of external financing for developing countries, with the belief that it can foster growth in recipient nations. Specifically, the type of aid known as Program Aid is particularly important because it provides the funds needed to implement a reform agenda in the target area or sector. However, the literature shows that the relationship between foreign aid and economic growth is complex, and empirical findings are inconclusive, necessitating further research in this area. In this context, the present study employed an innovative triangular conceptual modeling (TCM) approach to assess the effectiveness of program aid for Pakistan. The goal is to analyze effectiveness both directly, through the reform process, and indirectly, through financing development spending or fiscal deficit. Results show that program aid has a significantly positive impact on economic growth. However, this positive effect becomes negative once the effect of fiscal deficit is taken into account, suggesting that program aid is mainly used to finance fiscal deficits rather than to improve efficiency in the country. Additionally, the findings reveal that the indirect effect of program aid on economic growth is substantially larger than the direct effect. The greater indirect effects imply that the primary objective of program aid is to meet budgetary requirements or to finance the government’s development spending
The study examines the impact of foreign direct investment, human capital, and financial development on labor productivity, utilizing data from 2000 to 2019 and panel data from 180 economies. The estimation technique used in the study is GMM, which helps to solve the problems of endogeneity and unobserved heterogeneity. The findings indicate that foreign direct investment, human capital, and financial development have a positive and significant relationship with labor productivity. The square term of human capital also shows a positive relationship with labor productivity, indicating increasing returns. This study contributes to the literature by examining the roles of structural and financial factors using robust techniques. Furthermore, the study’s results offer important policy recommendations, suggesting that the government should invest in projects to develop education and financial infrastructure to achieve high productivity gains.
Sustainable development in the Global South faces a complex challenge, influenced by environmental, economic, and social factors, as well as issues like poor governance, political instability, and inequality. The literature emphasizes that institutions are crucial in shaping incentives and behaviors that drive development. Inclusive institutions foster sustainability by providing equitable opportunities, safeguarding property rights, and encouraging innovation, whereas extractive institutions—marked by unequal systems and a lack of basic liberties— hinder progress. This research examines how economic and political institutions affect sustainable development in 94 developing countries from 1990 to 2019. Sustainable development, defined as the ecological efficiency of human development, is measured using the Sustainable Development Index (SDI) introduced by Hickel (2020). Economic institutions are measured using two indicators: economic freedom and de jure economic globalization, while political institutions are evaluated via de jure political globalization, judicial independence, democracy, and civil liberties. The empirical analysis shows that all indicators of inclusive institutions positively influence sustainable development in the Global South. Moreover, democracy proved to be the most effective in promoting sustainability, while the effect of de jure political globalization was the weakest in terms of magnitude (though still statistically significant). These findings underscore the vital role of inclusive institutions in achieving sustainability, highlighting their capacity to balance development goals with environmental considerations. This study demonstrates that democracy enhances sustainable development more than economic liberalization in the Global South, challenging conventional policy priorities.
The study examines the impact of foreign direct investment (FDI) inflows on Pakistan's macroeconomic framework, emphasizing improved capital efficiency and technological advancements. Utilizing a Computable General Equilibrium (CGE) model within the GTAP framework, it evaluates the effects of technology-driven FDI on key sectors, including manufacturing, exports, and demandoriented industries. Key findings indicate that priority sectors such as food and beverages, light manufacturing, and heavy manufacturing experience the highest GDP growth from FDI-induced technological upgrades. Sectors like light manufacturing, metals, textiles, and heavy manufacturing demonstrate significant export increases and reduced reliance on imports. Conversely, demand-oriented sectors such as communication and retail trade drive higher imports. Manufacturing and exportoriented sectors help reduce the trade deficit, while retail trade, communication, and financial services contribute to its increase. The study concludes that attracting FDI to manufacturing and export-driven sectors is crucial. However, foreign investors tend to focus on market-seeking sectors. To encourage efficiency-seeking FDI in productive sectors, the government should enhance the business environment, lower costs, deregulate, and ensure a level playing field.
This study contributes to the literature that highlights the penalties of education-occupation mismatch in terms of earnings across different employment statuses. Most existing literature analyzing the education-occupation mismatch has focused on paid employees, overlooking self-employed individuals, and has not controlled for sample selection bias and unobserved heterogeneity bias simultaneously. Therefore, the objective of this study is to analyze the impact of education mismatch on earnings across different employment statuses after correcting for both sample selection bias and unobserved heterogeneity bias. To achieve this objective, we applied the methodology of Duncan and Hoffman (1981) to the Pakistan Social and Living Standards Measurement (PSLM), 2019-20. Our results show that after controlling for unobserved heterogeneity bias and sample selection bias, overeducation has no positive value for both paid employees and the self-employed. The returns from overeducation based on the OLS model might be overestimated if overeducated workers possess lower average ability levels, whereas the returns of adequately educated individuals increase after correcting for the bias and are significantly higher for self-employed individuals compared to paid employees.
This study evaluates the effectiveness of monetary policy in controlling inflation in Pakistan. Using quarterly data from 1980 to 2022, the study finds that the policy rate is either an ineffective or counterproductive instrument, while the monetary base serves as an effective tool for controlling inflation. Significant evidence is found against the view that monetary policy is ineffective in controlling inflation in the presence of inflationary cost-push shocks. The study also finds that the effectiveness of monetary policy is asymmetric in combating inflation during inflationary and anti-inflationary oil price shocks. Despite these observations, the study recommends a cautious approach based on additional research involving diverse tools and experimentation with a gradual mixing of instruments.
This study assesses the impact of external shocks and exchange rate movements on prices. The main benefit of this granular analysis is its ability to capture heterogeneous impacts across different products and geographical areas, which is often overlooked in macro-level studies. The model includes four global shocks: global inflation, US industrial production, global food inflation, and global oil prices. Regarding domestic factors, exchange rate, inflation expectations, and inflation persistence are considered. The dependent variables are prices, including 356 items from the Urban Consumer Price Index (CPI), 244 items from the Rural CPI, and 110 items from the Wholesale Price Index (WPI), all measured monthly. The results show that global food prices have the most significant influence on both national CPI and WPI inflation, while global oil prices have the least impact on consumer and wholesale inflation in Pakistan. Domestically, the exchange rate shows the highest pass-through effect on inflation, with inflation expectations and persistence having comparatively lower impacts.
Productivity growth has remained slow in Asian countries. The study examines the impact of digitalization and innovation on output productivity in four Asian countries: China, India, Bangladesh, and Pakistan, using data from 1990 to 2022. The panel autoregressive distributed lag (ARDL) model was employed to investigate the long-run relationship between the variables. The study implements the Fully Modified OLS (FMOLS) method for robustness checks. The long-run results show that digitalization and innovation have a positive and significant impact on productivity in each country. Human capital, foreign direct investment (FDI), and trade openness also have a significant impact on productivity. The panel ARDL result shows that digitalization, innovation, human capital, trade openness, and FDI significantly affect productivity in the long run. The study recommends encouraging investments in digital infrastructure, inventions, and innovations across various economic sectors, including R&D activities, fostering industry-academia collaborations, and technological advancements. These countries should also invest in education, technical, and vocational training to improve labor productivity and efficiency.
This study investigates the impact of oil price fluctuations on inflation in Pakistan, focusing specifically on asymmetric effects. Employing the Nonlinear Autoregressive Distributed Lag (NARDL) model, it examines how oil price increases and decreases influence inflation differently. Using secondary annual data from the Pakistan Bureau of Statistics and the State Bank of Pakistan, the study considers the Consumer Price Index (CPI) as the dependent variable, while independent variables include domestic oil prices (LOP), exchange rate (LEXH), interest rate (LINTR), and unemployment rate (LUNEMP). Results indicate that oil prices significantly affect inflation, with past oil prices exhibiting a persistent impact. The NARDL model highlights asymmetry, showing that oil price increases (LOP_POS) exert a stronger positive effect on inflation than decreases (LOP_NEG). Exchange rate fluctuations display mixed effects, with lagged depreciation negatively influencing inflation, while interest rates and unemployment rates do not demonstrate statistically significant long-run effects. Given the asymmetric effects, monetary authorities should implement differentiated strategies for oil price increases and decreases to manage inflation effectively. Additionally, exchange rate stability plays a crucial role in mitigating inflationary pressures
This study explores the connection between financial inclusion and inclusive growth, highlighting the pressing need for such growth in contemporary Pakistan alongside the ongoing efforts to enhance financial inclusion levels. Utilizing a time series dataset from 2004 to 2022, we investigate variables including the index of inclusive growth, the composite index of financial inclusion, FDI, budget deficit, remittances, and government effectiveness. The analysis employs the Markov regime-switching technique to address the non-linearity of the data. Findings indicate a non-linear relationship between inclusive growth and financial inclusion. Financial inclusion has a significant and positive effect on inclusive growth during low-growth periods but exhibits negative effects during high-growth periods. Government effectiveness consistently demonstrates a positive impact across both high and low-growth phases, with a more pronounced effect during low-growth periods. Remittances negatively influence growth, while FDI and budget deficit show significant positive effects during low-growth periods. Key recommendations include enhancing rural financial access and digital literacy during low-growth phases, addressing structural and regulatory inefficiencies during high-growth periods, and integrating Islamic finance into national strategies. Strengthening governance and periodically reviewing policies to align with evolving economic conditions are also vital for achieving sustained and equitable development.
The purpose of this paper is to determine whether the information content in the consumer confidence index explains demand in Pakistan, beyond economic fundamentals. We use a wide range of models, starting from ordinary least squares to linear regression models that incorporate common factors driven by principal components, as well as advanced machine learning techniques, including penalized regression methods and neural networks. We apply both fixed and expanding window rolling forecasts to test this phenomenon and present our results using three forecast accuracy measures. Overall, our findings demonstrate that, for each technique considered, the model that includes the consumer confidence information set outperforms the model based solely on economic fundamentals. This indicates that the information content of consumer confidence enhances the explanation of demand-side indicators in Pakistan. This paper directly informs policymakers in developing countries generally, and in Pakistan specifically, that the consumer confidence index offers insights into the expectations of economic agents and should be integrated into analyses for improved policy decisions.
This study narrates the history of trade liberalization in Pakistan from 1972 to 2021. It outlines the history of trade reforms, which is divided into three distinct periods: the partial trade liberalization period from 1972 to 1987, the trade liberalization period from 1988 to 2004, and the post-liberalization period from 2005 to 2021. Existing studies of trade liberalization often overlook the underlying explanations, which frequently fall within the realm of history and interests. This paper addresses that gap and discusses the significance of domestic and international political economy factors leading up to trade liberalization. In Pakistan, trade liberalization did not coincide with compensatory real devaluation of the currency, as the exchange rate policy prioritized price stabilization. Consequently, domestic policy rates remained high, resulting in an overvaluation of the currency, which significantly reduced the rate of capital accumulation. The consumption-driven trade liberalization contributed to the phenomenon of premature deindustrialization. As a result, the country experienced low economic growth.
This study utilizes interim multipliers analysis based on a VAR-X model to investigate the impacts of changes in the world’s crude oil prices on output growth rates, inflation rates, real exchange rates, and real interest rates in Pakistan. The study finds that following oil price inflation, the output growth rate initially increases but then declines in the medium to long run. The effects of oil price deflation on output growth are the opposite, though smaller in magnitude. Oil price inflation is also found to cause a moderate increase in the overall inflation rate, while oil price deflation reduces the inflation rate by a smaller margin. The resilience of the economy to oil price changes is attributed to the low share of oil in production costs, subsidized oil prices by Middle Eastern countries, remittance inflows from workers in the Gulf States, and the managed exchange rate regime. The study recommends the continuation of a conservative monetary policy, the development of inter-provincial political consensus on major hydro projects, and the ensuring of the credibility of fiscal measures aimed at the solarization of the economy, focusing more on long-term considerations rather than short-term budgetary compulsions.
The exchange rate is an important tool for enhancing exports in emerging economies. To quantify the role of the exchange rate in determining trade in Pakistan, this paper presents estimates of the elasticities of relative prices, demand, and exchange rates across various categories of export and import demand for Pakistan’s economy. Our results indicate that the exports of manufactured and intermediate inputs are more responsive to changes in relative prices and exchange rates than the exports of primary goods. Furthermore, the higher magnitude of the elasticity of exports with respect to foreign demand suggests that Pakistan's exports are more responsive to foreign demand. Regarding import demand functions, our results show that the exchange rate plays an important role in impacting the demand for primary and manufactured goods imports, while domestic income drives the demand for intermediate goods imports. Overall, the exchange rate and foreign demand have played a significant role in enhancing exports in Pakistan.
We have used the Dynamic Time Warping (DTW) algorithm to calculate the forward-looking consumer inflation expectation forward-lovingness. We have used DTW instead of widely used parametric techniques as this algorithm does not require specific assumptions relating to time series data. The results suggest that expectations are more backward-looking from 2012 to 2022. Furthermore, we examined consumers' response to the exchange rate regime shift and found evidence of consumers becoming more forward-looking due to the deliberate change in policy stance from fixed to managed float. This suggests that changes in economic policy can directly impact the consumer's expectations formation process.
The Asian Pacific region is spearheading the post-pandemic economic revival, and exploring regional dynamics is becoming increasingly relevant for researchers. In this regard, stock markets have always profoundly influenced a country's economic health, and its behavior varies significantly globally. This indicates stock markets' contextualized nature and response to varying incoming information. Therefore, the study examines the interplay of behavioral and developmental factors in selected stock markets from South Asia. This study draws upon data from 2014 to 2023 and utilizes VAR-based connectedness models to analyze the dynamics of stock market connectedness in the region. This study also considers the influence of pertinent regional climate, security, and economic challenges on stock market behavior. The findings indicate the presence of moderate spillovers among stock markets and from economic, environmental, and security information. Further, most of this spillover is attributed to the markets in developed nations and the economic news sentiments, while climate information's contagion is increasingly becoming relevant. These findings explain the intricate dynamics of these pertinent variables, significantly adding to the understanding of the region.
Public sector employment remains attractive for important reasons such as job security and a guaranteed pension. Evaluating alternate pension systems has gained importance among policymakers concerned about the aging population and rising poverty levels. Pakistan has a Pay-As-You-Go type pension system, financed by taxpayers’ money, and has resulted in the building up of unfunded liability for the government. The expenditures on superannuation are gradually coming into mainstream discussions on fiscal sustainability and public finance management. These additional expenditure liabilities require an increase in future taxes to be solvent. We use scenario-based projections to highlight how the existing pension system is fiscally unsustainable and what approaches are needed to make it sustainable.
This study conducted a regional analysis of poverty in Pakistan with a particular focus on trends and decomposition. Nine Household Integrated Economic Survey rounds were used in this study from 2001-02 to 2018-19. This study estimated poverty using time series data from all the regions and provinces of Pakistan. The unit of wellbeing used in the study is consumption, and the unit of analysis used is the adult equivalent. Our results show that the poverty rate decreased in all regions and provinces over the analysis period. Poverty rates decreased in all regions from 2001-02 to 2010-11. The decomposition shows that the highest population share is found in Punjab, but it has the lowest poverty share. At the same time, Baluchistan has the lowest population share and the highest poverty share. KPK and Sindh have half of their population below the poverty level. Results show that urban poverty share is higher overall than rural poverty share.
This study investigates the impact of foreign aid and governance on human development in Pakistan from 1991 to 2021 using the Autoregressive Distributed Lag (ARDL) technique. The research analyzes not only the individual effects of foreign aid and governance but also how governance quality influences human development outcomes. A governance indicator is constructed through Principal Component Analysis (PCA), incorporating six distinct governance dimensions. The findings reveal that both good governance and foreign aid have significant and positive effects on human development in Pakistan, with good governance enhancing the effectiveness of foreign aid in promoting development. Additional variables such as trade openness, income growth, and government expenditure are also found to positively contribute to human development. The Granger Causality test confirms a directional causality from foreign aid and governance to human development. These results suggest that improving governance quality is crucial for maximizing the benefits of foreign aid on human development. Furthermore, policies aimed at increasing trade openness, government spending on social sectors, and consistent income growth can significantly improve human development in Pakistan.
