24th AGM Papers Abstracts

Crude Oil Price, Monetary Policy and Output: Case of Pakistan
by Afia Malik

Oil price shocks have raised serious concerns among the policy makers around the world, because of its adverse impacts for the net oil importing economies. This paper has analyzed the impact of rising oil prices along with the changing macro conditions on output using the IS, monetary policy and augmented Phillips curve for Pakistan. Oil prices and output are found to be strongly related, and to a great extent this relationship is non-linear, that is, after a certain level it becomes negative. In addition, lower debt-GDP ratio, lower deficit spending, lower real effective exchange rate, and the existence of foreign exchange reserves and capital investment would cause output to rise.


Energy Demand in Pakistan: A Disaggregate Analysis
by Muhammad Arshad Khan and Usman Ahmed

This study examines the demand for energy at disaggregate level (gas, electricity and coal) for Pakistan over the period 1972-2007. Over main results suggest that electricity and coal consumption responds positively to changes in real income per capita and negatively to changes in domestic price level. The gas consumption responds negatively to real income and price changes in the shortrun, however, in the long-run real income exerts positive effect on gas consumption, while domestic price remains insignificant. Furthermore, in the short-run the average elasticities of price and real income for gas consumption (in absolute terms) are greater than that of electricity and coal consumption. The differences in elasticities of each component of energy have significant policy implications for income and revenue generation.


Residential Demand for Electricity in Pakistan
by Muhammad Salman Tariq, Muhammad Nasir and Ankasha Arif

For about a year now, Pakistan is facing the worst energy crisis of her history. If on one hand, the increase in the oil prices at the world level is severely affecting the common masses, on the other hand, the shortage of electricity is creating havoc in the country. Beside others, one important reason that is advocated for this shortage is the rise in electricity demand due to increase in
production as well as rise in household income. Furthermore, it is believed that increasing the unit price of electricity will reduce the electricity demand. That is why the unit prices of electricity vary with different range of unit usage. This motivates us to calculate price elasticity as well. Hence, using time series data from 1979 to 2006, we estimated ARDL model to investigate income and price elasticities of electricity demand. Our results show that electricity demand is price inelastic in both short run and long run. Moreover, income elasticity is almost unitary in short run as well as in long run. In addition, household size has a strong positive impact on electricity demand in Pakistan.


Economic Growth and its Determinants in Pakistan
by Muhammad Shahbaz, Khalil Ahmad & A. R. Chaudhary

This paper aims to investigate the impact of macroeconomic variables on economic growth after Structural Adjustment Program (SAP) in Pakistan. In doing so, study utilizes the quarterly time series data from 1990 to 2007. Advanced Autoregressive Distributed Lag model (ARDL) approach has been employed for co-integration and error correction model (ECM) for short-run
results in the case of Pakistan. Empirical investigations indicate that credit to private sector (financial development), foreign direct investment and inflow of remittances correlate positively with economic growth in the long run. High inflation rate and trade-openness slow down the speed of growth rate in short as well as long run.


Output Gap and its Determinants: Evidence from Pakistan (1963-2005)
by Saadia Sherbaz, Faiza Amjad and Naheed Zia Khan

This study primarily aims at measuring the output gap for Pakistanís economy. The PF approach is applied for this purpose. The potential output of the economy is estimated by using potential employment and potential TFP. The analysis of the time-series data, 1963-2005, reveals that for many of the years the actual employment and TFP in Pakistan have been higher than their potential levels, but the trend is not reflected in the actual output of the economy which, very often, appears to be falling short of its potential level. In recent years, barring 2004-05, the output has for the most part been less than its potential level, despite higher than potential levels of employment and TFP. The study proceeds to determine the factors responsible for the output gap of Pakistanís economy. The output gap series is generated by using the estimated actual and potential output values. A regression model is formulated to regress the output gap against the macroeconomic variables which are believed to have a significant impact on the economy as a whole. The results show that money supply and imports significantly contribute to the escalation of the output gap, while exports and public sector investment help reduce the gap. Finally, the findings lead to the conclusion that macro management of Pakistanís economy does not appear to ensure the consistency of the interventions.


The Long Term Impact of the Health on Economic Growth in Pakistan
by Naeem Akram, Ihtsham ul Haq Padda and Muhammad Khan

The paper investigates the impacts of different health indicators on Economic growth in Pakistan. The Cointegration, Error Correction and Granger Causality techniques were applied on the time series data of Pakistan for the period of 1972-2006. We find that Per capita GDP is positively influenced by health indicators in the long run and health indicators cause the per capita GDP. However, in the short run the health indicators fails to put significant impact on per capita GDP. It reveals that health indicators have a long run impact on economic growth. . It suggests that impact of health is only a long run phenomenon and in the short run there is no significant relationship exists between health variables and economic growth. The major policy implication of the study is that if we desire a high levels of per capita income, we can achieve it by increasing and improving the stock of health human capital, especially if current stocks are at lower end. Moreover, study also points out a rather diminutive role of public health expenditure in determining the per capita GDP.


Macroeconomic Factors and Equity Prices: An empirical investigation by using ARDL Approach
by Arshad Hasan and Dr Zafar Mueen Nasir

This study examine the relationship among the inflation, industrial production, oil prices, short term interest rate, exchange rates, foreign portfolio investment, money supply and equity prices for the period 6/98 to 6/2008 by employing bounds testing procedure proposed by Pesaran et al(2001). Autoregressive distributed lag approach has been applied as yields consistent estimates of the long-run coefficients that are asymptotically normal irrespective of whether the underlying regressors are I(0) or I(1). Data has been tested to examine econometric problems like serial correlation, functional form, normality, heteroscdisticity and unit root by using LM test, Ramsey Reset test, skewness and kurtosis test ,white test and ADF Test and Phillip Parren Test respectively but no potential econometric problem has been observed. Results reveal that Industrial production, oil prices and inflation are not statistically significant in determining equity prices in long run while interest rates, exchange rates and money supply have significant long run effect on equity prices. The error correction model based upon ARDL approach captures the short term dynamics of prices and confirms that changes in industrial production, oil prices and inflation are not statistically significantly in short run while changes in interest rates, exchange rates, and money supply have significant short term effect. However, Foreign portfolio investment has significant short term effect in short term and no long term effect in long term. ECM term suggests that adjustment process is quite fast. CUSUM and CUSUMSQ are with in the critical bounds of 5% indicating that the model is structurally stable. This study facilitates the investors in taking effective investment decisions as by estimating the expected trends in exchange rates , money supply and interest they can estimate the future direction of equity prices and can allocate their resources more efficiently. Similarly, architects of monetary policy should be careful in revision of interest rates as capital market responds negatively to such decisions. Similarly, state l bank should also consider the impact of money supply on capital markets as has significant relationship with dynamic of equity returns. Efficient market hypothesis provides that capital markets respond to arrival of new information so macroeconomic policies should be designed keeping in view the response of the capital market.


Dynamic Modeling of Private Investment in Agricultural Sector of Pakistan
by Imtiaz Ahmad and Abdul Qayyum

The study attempts an empirical assessment of the effects of macroeconomic instability and public expenditures on private fixed investment in agriculture. We estimated the specified private fixed investment model. First applying ADF test for unit root analysis on individual series, and then examining cointegration relationship between private fixed investment in agriculture and its determinants using Johansen (1988) method. The stable short-run dynamic function for private fixed investment in agriculture is estimated. The result confirmed that public development expenditures enhance the private investment in agriculture sector. Macroeconomic instability and uncertainty depresses private investment for agriculture by creating uncertain current and future environment.


Edible Oil Deficit and its Impact on Food Expenditure in Pakistan
by Muhammad Ali, Manzoor Hussain Memon and Syed Arifullah

This study is an attempt to analyze the impact of Edible Oil Deficit on Food Expenditure in Pakistan. Edible oil deficit is one of the major concerns for the policy makers in Pakistan. Despite of having agriculture based economy; Pakistan is unable to fulfil her domestic demand of edible oil by local production. This situation forces the government to import edible oil and oil seeds from other countries. This import not only increases our balance of payment deficit but also it negatively affects the ability to finance the external debt repayments. Increase in food expenditure causes the purchasing power of household to decline due to which his social welfare declines. Autoregressive Distributed Lag Model has been used to analyse the long run relationship amongst the variables. Other important determinants of food expenditure along with edible oil deficit were also used in the model to check for their collective long run impact. It was found that long run relationship exists among edible oil deficit and food expenditure and hence the result derives the policy implication that there is a need to boost up the efforts in the agriculture sector to steadily increase the local production of oil seeds in the country. The relationship between the per capita GDP and food expenditure is found to be positive and significant with elasticity of 0.261 suggesting that 1 percent increase in per capita GDP will cause food expenditure to increase by 0.26 percent. The relationship between food subsidy and food expenditure is found to be insignificant suggesting that due to improper targeting and consumerís perception about quality and accessibility of subsidized food, Governmentís food support programs are not effective.


Impact of WTO's Trade Liberalization on Selected Food Crops in Pakistan
by Shahzad Sharif, M. Siddique Javed, and Azhar Abbas

The study intended to evaluate the impact of WTO on domestic prices, production and consumption of major food commodities like wheat and rice and ultimately their impact on the producerís and consumerís surpluses. The farm level impact was also evaluated to chalk out the eventual position at farm level with the purpose to identify necessary policies and actions to cope with the new world situation. The study tries to provide a useful guide to the likely impacts of agricultural liberalization. It was found that openness of the economy would affect the domestic demand, supply and consumption along with affecting the producer and consumer surpluses. Overall the impact of the increase in the international price of wheat would have resulted in a net loss to Pakistan of Rs. 1,875 million during 2004-05 while in case of rice it would have resulted in a gain of Rs. 1,215 million in 2004-05.


Agricultural Development in EU: Drivers, Challenges, and Prespectives
by Laura Giurca Vasilescu

The agricultural and food sector of the EU has shown great resilience and adaptability over the last decades to a changing technological, economic and social environment. This adjustment took place within a supportive policy setting which contributed to alter the pace of this long-term process. Whereas the agri-food sector still represents today an important component of the EU economy, it has also shown critical importance for the environment and landscape in contributing over the centuries to creating and maintaining a variety of valuable semi-natural habitats and in continuing today to shape the majority of EU's landscapes.
Although a growing number of rural areas are likely to become increasingly driven by factors outside agriculture, many rural areas (in particular, those which are depopulated or dependent on farming) are expected to face particular challenges as regards economic and social sustainability. The outlook for EU agricultural markets over the next years appears fairly favorable, most
notably for the arable crops and dairy sectors. However, these projections are particularly sensitive to critical assumptions regarding the economic environment, policy developments (notably for trade and biofuels) and remain subject to some uncertainties (e.g. potential impact of climate change). These positive market perspectives together with future demographic trends, macro-economic patterns and environmental conditions will have important implications for the medium-term prospects of EU rural areas.


Institutional Imperatives of Poverty Reductions
by Akmal Hussain

Ms. Bushra, a poor 30 year old woman, threw herself in front of a moving train in Lahore together with her two children, Saima, age 3 and Zubair, age 5. The mother is reported to have covered the eyes of her children before all three were crushed under the train. She left a suicide note written in the copy book of Zubair in the school satchel found near the site of the tragedy. In the suicide note Ms. Bushra stated poverty as the cause of her decision to commit suicide along with her children. [News Report in the daily Dawn, 13th April 2008].


Instinctive Behavior, Producer Surplus and Corporate Social Responsibility
by Naheed Zia Khan

This paper addresses a phenomenon that cuts across many disciplines of the formal tradition of learning. Out of numerous multifaceted academic disciplines involved in the argument, psychology, economics and business management stand out, as reflected in the title of the study. The research on the topic is carried out by adopting an inductive approach involving intangible aspects of psychology and tangible parameters of sociology centered around the disciplines of economics and business. The author maintains that the phenomenon of Corporate Social Responsibility (CSR) represents a challenge of finding the resolution to the paradox of selfish and altruistic human motives. It is argued that quality of that resolution will be determined by the quality of positive laws of sociology and the quality of intrapersonal regulation to help appreciate social responsibility in the presence of opportunities for maximizing self-interest. The review of the literature on CSR underpins factors of international political economy responsible for promotion of the phenomenon in North and South during the last century and in the new millennium respectively. The findings lead to the conclusion that rhetoric of CSR, contemporaneously prevalent in countries like Pakistan, merits the analysis of both its motives and fall out within a North-South divide.


Ownership Concentration, Corporate Governance and Firm Performance: Evidence from Pakistan
by Attiya Y. Javid and Robina Iqbal

The study investigates the determinants of ownership concentration, the effect of ownership concentration on the firmís performance with the sample of fifty representative firms from different manufacturing sectors of the Pakistanís economy during 2003 to 2008. The effect of ownership identity and block holding on ownership is examined after controlling for the endoginity of the ownership concentration through the use of firm level characteristics. The results reveal that in Pakistan corporations has more concentration of ownership which is the response of weak legal environment. The concentration of ownership seems to have positive effect on firmsí profitability and performance measures. There is negative association between corporate governance practices and disclosures and transparency with concentration of ownership. The identity of ownership matters more than the concentration of ownership. The family, foreign and director ownership has positive affect on firm performance. The results indicate that firm specific factors affect in concentration of ownership, that is more investment opportunities provides greater incentives for ownership concentration, however, size has opposite effect and leads to delusion of ownership. It results in diverse ownership to get wider access to funds and share ownership. The broad implication that emerges from this study is that ownership concentration is an endogenous response of poor legal protection of the investors and seems to have significant effect on firm performance. It requires implementation of corporate governance reforms at most at par with real sector and financial sector reforms.


Global Financial Crisis: A Tale of Moral Hazards
by M. Idrees Khawaja

We argue that while the decline in housing prices might have triggered the financial crisis but the moral hazards, to which the agents were exposed because of their perverse incentive structure, lie at the root of the crisis. Perverse incentives characterized the behavior of all the links in the securitization chain. These include: the investment banks and their staff, the rating agencies, the special purpose vehicles, the mutual funds, the pension funds and the monoline insurance companies that sold protection against default through Credit Default Swaps. Even the incentives of some borrowers who were not required to make any down payment were perverse. Upon default such borrowers were to loose only the house that they purchased against the mortgage, which in any case they could not have owned without the subprime mortgage. Thus they did not stand to loose much. The regulators could have checked the hazardous behavior but they chose to stand on the sidelines.


Estimating Total Factor Productivity and its Components: Evidence from Major Manufacturing Industries of Pakistan
by Abdul Raheman, Dr. Talat Afza, Dr. Abdul Qayyum and Dr. Mahmood Ahmed Bodla

This paper estimates the trend in total factor productivity growth for eleven major manufacturing sub sector/industries listed on Karachi Stock Exchange. 1998 to 2007 Malmquist total factor productivity growth indices have been calculated using non parametric Data Envelopment Analysis which also shows TFP growth sources including efficiency change and technical change. The results of this study are showing a mixed trend for all manufacturing sub sectors/industries in terms of TFP, technical efficiency change and technological change. Cement and oil and gas marketing sectors which relatively depicts stable position. Most of the manufacturing industries have gained in terms of technical efficiency but the technical change is putting a negative affect on the productivity growth except few industries.


Changing Revealed Comparative Advantage: a case study of Footwear Industry of Pakistan
by Naseem Akhtar, Nadia Zakir and Ejaz Ghani

The study looks at the issues facing the footwear industry regarding its competitiveness in the global perspective and its potential for growth. The methodology of Revealed Comparative Advantage (RCA) is used to analyze the comparative advantage at 2-digit and 4-digit levels of industrial classification. The paper highlights the problems faced by the footwear industry and identifies the role of entrepreneurship for the progress of the industry. The analysis shows that in recent years, specifically the period from 2003-06, the footwear industry has moved from disadvantage (as compared with China and India) position to comparative advantage. The study indicates that there is potential for higher growth of the industry and it can become a source of export earnings. The study suggests that in the rapidly changing global economic environment and in the face of increasing cost of doing business in Pakistan, there is a need to strengthen the competitiveness of the footwear industry in Pakistan.


Telecommunication Infrastructure Development and Economic Growth: A Panel Data Approach
by Ms. Kanwal Zahra, Dr Pervez Azim and Mr. Afzal Mahmood

The present study empirically investigate the dynamic relationship between telecommunication
infrastructure and economic growth, using data from twenty four low income, middle income and high income countries for a 18 years period, from 1985-2003. With a panel data set, this study uses dynamic fixed effect and random effect models for estimation, which allows us to test the relationship between countryís economic growth with initial economic condition, fixed investment, population growth, government consumption as well as telecommunication infrastructure. The results show that
telecommunication is both statistically significant and positively correlated to the real GDP per capita of these countries included in the study. The results are robust even after controlling for investment,
population growth, past level of GDP per capita and lagged growth. The results further indicate that the telecommunication investment is subject to increasing returns, suggesting thereby that countries gain more and more with the increase in telecommunication investment. The second test, Grangerís causality test confirms the causal relationship between telecommunication infrastructure and economic growth, but the relationship is significant from telecommunication to GDP per capita side but insignificant on GDP per capita to telecommunication development side.


Economic Growth and Income Inequality Relationship: Role of Credit Market Imperfection
by Amina Tabassum

This paper examines the empirical relationship between economic growth and income inequality both at aggregate and regional level using more comparable data set for 69 developing countries over the period 1965-2003. The study identifies credit market imperfection in low-income developing countries as the likely reason for a strong negative relationship between income inequality and economic growth. While in short run the relationship between growth and income inequality might be positive but over time more income inequalities reduces economic growth. Moreover, this paper finds evidence that more physical and human capital investment, Openness to trade and higher government spending have statistically significant impact on enhancing economic growth and reducing inequality.


Studentsí Attitude Towards Civil Service of Pakistan: A Perception Survey
by Faheem Jehangir Khan and Musleh-ud Din

Amid growing concerns on the popularity of the civil service among the students, the study reports the findings of a perception survey of enrolled university students. Contrary to common perceptions, the results suggest that the civil service still retains its allure among the potential entrants. Those who prefer the civil service as a career are more concerned with job security than those who prefer a job in the private sector. The Foreign Service of Pakistan appears to be the most favourite group whereas the Accounts Group is the least preferred. The District Management Group (DMG) seems to no longer enjoy a coveted position due perhaps to the implementation of the devolution plan which has stripped the group of its power and privileges.


Testing the Fiscal Theory of Price Level in Case of Pakistan
by Attiya Yasmin Javid, Ummaima Arif and Abdul Sattar

The study tests the fiscal theory of price determination for Pakistan investigating the interaction between fiscal surpluses, debt accumulation and price dynamics. The evidence is less clear cut to infer that authorities are following a certain type of regime, namely fiscal dominant or monetary dominant during the sample period 1970-2007. The liabilities responses negatively to the innovation in surpluses, that is in the subsequent period the liabilities decreases in face of increase in surplus. This characterizes monetary dominant regime, the events that give rise to surplus innovation are likely to persist causing the rise in the future surpluses and surpluses pay-off some of the debt causing the fall in the liabilities By analyzing the behavior of nominal GDP, an innovation in surplus reduces nominal income and decreases the level of debt in the subsequent periods, this analysis does not confirm the non-Ricardian analysis. On the other hand, the study finds that, as predicted by the fiscal theory of price determination, the occurrence of wealth effects of changes in nominal public debt may pass through to prices by increasing inflation variability in case of Pakistan. The implication that comes out of this study is that nominal public liabilities, as reflected either in money growth or in nominal public debt, matter for price stability in case of Pakistan. The authorities may be following different regimes for different time periods during the 1970-2007.


Provincial Finance Commission: Options for Fiscal Transfers
by Qazi Masood Ahmed and Akhtar Lodhi

The Provincial Finance Commissions were constituted in all four provinces of Pakistan in 2001. The Commissions were asked to formulate a formula for the distribution of resources among the districts in their respective province to ensure smooth functioning of the local governments and to minimize the poverty and income inequalities among the districts. This paper analyze to what extent the existing development transfers are based on the existing level of deprivation in the districts by looking at the Rank Correlation between them. This paper also runs different simulations to suggest different options for the provincial governments to improve the distribution formulas.


Whether Fiscal Stance or Monetary Policy Is Effective For Economic Growth In case of South Asian Countries?
by Shahid Ali, Somia Irum and Asghar Ali

The relative significance of fiscal and monetary policy has been one of the most debated and unsettled issues in economics. The choice of optimal policy mix in developing countries carries critical importance for their economic growth. Relevant literature shows that the study of the effectiveness of monetary and fiscal policy is equivalent to the study of the relative effectiveness of Keynesian economics and monetarism. Although fiscal and monetary policies are implemented by different authorities but change in one policy musty influences the significance of other. This study investigates the relative effectiveness of both types of policies in the context of modern time series econometrics in case of South Asian Countries during the period from 1990 to 2007 in order to test the Monetarist and Keynesian claims and to find out that whether the effective policy instruments have a significant relationship with economic growth. Im, Pesaran, and Shin and Levin, Lin, and Chu tests have been used to investigate the order of integration. For long run and short run relationship we utilized the advance modern econometrics techniques like Autoregressive distributed lag model ARDL a co integration (panel) test and ECM (Error Correction Method) respectively. The present study may provide better policy recommendations for South Asian countries that whether Fiscal stance or monetary policy is effective for economic growth.


Trends and Determinants of Rural Poverty: A Logistic Regression Analysis of Selected Districts of Punjab.
by Amara Amjad Hashmi and Maqbool.H. Sial

Poverty is widespread in the rural areas, where the people are in a state of human deprivation with regard to incomes, clothing, housing, health care, education, sanitary facilities and human rights. Nearly 61% of the countryís populations live in rural areas. In Pakistan poverty has been increased in rural areas and is higher than urban areas. Of the total rural population 65% are directly or indirectly linked with agriculture sector. In Pakistan more than 44.8% people generate their income from agriculture sector, and the higher rate of increase in poverty in the rural areas has provoked debate on growth and productivity trends in the agriculture sector. Therefore, it is the need of the hour to determine such factors which affect the poverty status of a rural household. Utilizing unique IFPRI (International Food and Policy Research Institute) panel data together with sub-sample of PRHS (Pakistan Rural Household Survey) for two districts of Punjab (Attock and Faisalabad) the present study aim at analyzing and estimating the rural poverty trends and determinants of rural poverty from the late 1980ís to 2002. The data was analyzed by using binary logistic model and head count measure. The results show that the chance of a household tripping to poverty increased due to increase in household size, dependency ratio, while, education, value of livestock, remittances and farming decreased the likelihood of being a poor. Moreover, the socio-economic opportunities as represented by the availability of infrastructure in the residential region also play a significant role in the level of poverty faced by a household. This study makes a modest contribution by attempting to analyze the need for focusing on anti-poverty policies, which can nip the evil in the bud.


Is there any role of technological inputs? A district wise analysis of output differential in crop sector
by Abdul Jalil Khan

An investigation is performed to analyze the impact of technological inputs accompanied with traditional inputs over different periods of time on the output differential of four major crops including Wheat, Rice, Cotton and Sugarcane. Data related to different districts of the Punjab province have been used to conduct the study. A multivariate statistical analysis is applied for
this purpose, in which principal component (factor) analyses is carried out as a first step to reduce the dimensionalities in the data and to obtain the ranking of districts in two phases of time i.e.,1971-75 and 2001-05. Further analysis is made by developing indices on the basis of few selected top and low ranked districts four each; along with one more as a special case due to pronounced improvement in ranking. Technological inputs showed consistency and significant contribution towards crop output over the time with some district wise differentials.


Determination of Credit Programme Participation and Socioeconomic Characteristics of Beneficiaries: Evidence from Sargodha
by Syeda Rizwana Shah, Amara Amjad Hashmi and Aqsa Tabassam Bukhari

In Pakistan about 65 percent population live in rural areas. The rural credit markets are segmented and imperfect. Micro-credit is considered as a valuable technique to deal with imperfections of credit markets. In this study, we analyzed rural credit market of
Pakistan to study the socio economic Characteristics of the beneficiaries and identify the determinants of participation in credit programme in the year 2004-2005. To analyze characteristic the descriptive analysis was used. For identifying the factors affecting household access to credit and participation in program, a binary Logistic regression model was employed. Results of both analyses showed that at household level, participation in credit programme was significantly related to household characteristics, where participants were indifferent to increase in rate of interest. More than 80 percent loan came from informal sector but the probability of participation significantly increased if there existed any financial institution.


Dimensions of Wellbeing and Millennium Development Goals
by Rashida Haq and Uzma Zia

Wellbeing and happiness, individually and collectively, is a main indicator of a good life. This paper attempts to implement empirically some of the multidimensional concepts of human wellbeing by using data from the ĎPakistan Living Standard Measurement Survey' 2006-07. Objective wellbeing index and subjective wellbeing index are constructed to study regional disparities in the quality of life. The results reveal that most of the top ranked districts are located in the provinces of Punjab which tends to indicate that Punjab is ahead of other provinces in terms of objective wellbeing. Sindh and NWFP districts are dominated in the category of lower medium wellbeing category. At the lower end of the distribution districts of Balochistan emerged in lowest category of wellbeing. It is observed that Punjab have highest share of population in top category of wellbeing while population of Balochistan gets major share in lowest category of wellbeing. It is important to note that those districts which have higher achievements in hard facts of wellbeing, acquire less subjective wellbeing in term of satisfaction. Districts of Balochistan, with least developed indicators, perception about the quality of life is evident in their lowest level of satisfaction. Since the underlying premise of the MDGs is still the concept of human development, so priorities is needed to concentrate on least developed districts for achieving the MDGs by 2015.


Sticky Floors and Occupational Segregation
by Dr. Ather Maqssod Ahmed and Dr. Asma Hyder

The paper uses the micro data from nationwide Pakistan Labor Force Survey 2005-06 to examine the hypothesis of glass ceilings and sticky floors, both in public and private sectors. The study explores the conditional gender wage distributions at different quantiles Ė a subject that so far has not attracted much attention in Pakistan The results support that the gender wage differentials monotonically increase as one moves towards the bottom floor of the conditional wage distribution, i.e., the evidence validates the sticky floor hypothesis. The second sub-theme of the paper has been to investigate those factors that encourage occupational segregation in the labor market. For this purpose, an index of occupational segregation has been calculated for each of the occupational group. The value of Duncanís D (Duncan Gender Occupational Dissimilarity Index) confirmed that 44.6% employees (both men and women) have to change their jobs for an identical male and female labor force distributions. As a final result it has been established that the female participation has been very low, particularly in high paid occupational categories like mangers, legislators and senior officials.


Pricing Policy Effectiveness is Domestic Water Demand Management
by Tamkinat Rauf and M.Wasif Siddiqi

This study examines the management of household water demand through a pricing policy for achieving the objectives of cost recovery, efficient water use, and equitable allocation of water resources. To this end, a demand function is estimated using household level data about water consumption and socio-economic characteristics of 156 households supplied by WASA, Lahore, in the period 2004-2006. The results show that domestic water demand is highly elastic to price at the existing tariff rates. An average increase of up to 30% in the consumption-based part of existing tariffs as well as an increasing non-volumetric rate based on property value or the size of dwelling is recommended.


Inter-City Variation in Prices
by Sonia Ahmad and Ahmed Gulzar

In this paper we have constructed a relative cost of living index for 32 cities/towns of Pakistan using latest available prices to understand the extent of current differences in cost of living across cities and also to compare changes in relative cost of living since 1999 (A.H. Pasha and A.G. Pasha 2002). The index values reveal significant differences in cost of living across Pakistan and
especially across provinces with prices significantly higher in Balochistan (overall) and NWFP (for wheat). When regressed against various explanatory variables, the variation in cost of living appears to be determined by the population in cubic form (reaching a minimum for a city size of 2.1 million) and the provincial affiliation of cities. The index also reveals that relative to 1999, the economy as a whole appears to have become less integrated as the difference in prices across cities is much greater than in 1999. However, cities in Sindh due to their close proximity to the port have become less expensive because of the increased share of imports in consumption. The findings of this paper have very important implications for public policy with respect to transfer payments to relieve poverty, urban development, inter-provincial trade and transport and allocation of development funds among provinces.


Monetary Policy Reaction Function in Pakistan
by Wasim Shahid Malik and Ather Maqsood Ahmed

During the last three decades the view has emerged that monetary policy can achieve only limited number of objectives and in an economy with rational economic agents, policy can achieve its objectives only by committing to consistent policy. Using Pakistani data, this study attempts to estimate Taylor-type reaction function and its slight modified version defined over inflation and real GDP growth. Our results indicate pro-cyclical response of SBP to economic fluctuations. Furthermore, instead of focusing on price stability along with output stabilization, economic growth has been given priority. The study also establishes that policy remained inconsistent as parameters in the reaction function show significant variation in recursive estimation.


A Small Open Economy DSGE Model for Pakistan
by Adnan Haider and Safdar Ullah Khan

This paper estimates a small open economy Dynamic Stochastic General Equilibrium (DSGE) model for Pakistan using Bayesian simulation approach. Model setup is based on new Keynesian framework, characterized by nominal rigidity in prices with habit formation in householdís consumption. The core objective is to study whether an estimated small open economy DSGE model provides a realistic behavior about the structure Pakistan economy with fully articulated description of the monetary policy transmission mechanism vis-a-vis domestic firmís price setting behavior. To do so, we analyze the impulse responses of key macro variables; domestic inflation, imported inflation, output, consumption, interest rate, exchange rate, term of trade to different structural/exogenous shocks. From several interesting results, few are; (a) high inflation in Pakistan do not hit domestic consumption significantly; (b) Central bank of Pakistan responds to high inflation by increasing the policy rate by 100 to 200 bps; (c) exchange rate appreciates in both the cases of high domestic and imported inflation; (d) tight monetary policy stance helps to curb domestic inflation as well as imported inflation but appreciates exchange rate significantly (f) pass through of exchange rate to domestic inflation is very low; finally parameter value of domestic price stickiness shows that around 24 percent domestic firms do not re-optimize their prices which implies averaged price contract is about two quarters.


Casual Nexus between Economic Growth, Export and External Debt Servicing: The Case of Pakistan
by Muhammad Afzal, Hafeez ur Rehman and Jamshaid ur Rehman

Little attention has been paid to the econometric analysis of the relationship between economic growth, exports and external debt servicing of Pakistan. The main purpose of the study is to empirically reexamine the export led growth hypothesis for Pakistan by testing causality between exports, economic growth with inclusion of third economic variable that is debt servicing. We use the vector error correction models (VECM) and augmented vector autoregressive (VAR) methodology for causality developed by Toda and Yamamoto (1995) that considered robust for the co-integration technique, followed by the new econometric tests such as unit root tests (ADF, Phillips Perron) and test of co-integration purposed by Johansen (1988). The empirical results suggest that both short run and long run steady state exist among three variables, while unidirectional Granger causality exist between (i) GDP and export that runs from GDP to export and support the growth-driven exports hypothesis.(ii) Debt servicing and GDP that runs from Debt servicing to GDP. The time span of the study is 1970-71 to 2007-08..

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