Special Edition ISSN 1811-5438
THE LAHORE JOURNAL
Lahore School of Economics
Papers presented at
The Fourth Annual Conference on
Management of the Pakistan Economy
Ensuring Stable and Inclusive Growth
thth24 to 25 April, 2008
Editors’ Introduction Theresa Thompson Chaudhry
and Azam Amjad Chaudhry Shahid Amjad Chaudhry The Effects of Rising Food and Ensuring Stable and Inclusive Fuel Costs on Poverty in Growth in Pakistan Pakistan
Sakib Sherani Rashid Amjad, G. M. Arif and Pakistan’s Macroeconomic Usman Mustafa Situation Does the Labor Market
Structure Explain Differences Shahid Javed Burki
in Poverty in Rural Punjab? Industrial Policy: Domestic
Challenges, Global Imperatives,
Ali Cheema, Lyyla Khalid and and Pakistan’s Choices
Hafeez Sheikh The Geography of Poverty: Unfinished Agenda of Reforms Evidence from the Punjab
Naved Hamid Sohail Jehangir Malik Rethinking Pakistan’s Rethinking Development Development Strategy Strategy – The Importance of
the Rural Non Farm Economy Riaz Riazuddin in Growth and Poverty An Exploratory Analysis of Reduction in Pakistan Inflation Episodes in Pakistan
Sajjad Akhtar Ijaz Nabi
Trends in Regional Inequalities Public Policy Fundamentals for
in Pakistan: Evidence Since Sustainable and Inclusive
Lahore School of Economics, Lahore, Pakistan.
THE LAHORE JOURNAL
Dr. Azam Chaudhry, Editor
Dr. Theresa Thompson Chaudhry, Editor
Ms. Nina Gera, Associate Editor
Ms. Ayesha Khanum, Assistant Editor
Editorial Advisory Board Dr. A. Mushfiq Mobarak Dr. Javier Arze del Dr. Rashid Amjad
Dr. Ahmed Kaleem Granado Dr. Saleem Khan
Dr. Ahmed Kamaly Dr. Kaiser Bengali Dr. Salman Ahmad
Dr. Ahmed M. Khalid Dr. Kamal Munir Dr. Sarfraz Qureshi
Dr. Ajaz Hussain Dr. Khalid Aftab Dr. Sarwat Jahan
Dr. Akmal Husain Dr. Khalid Nadvi Dr. Sean Corcoran
Dr. Anwar Shah Dr. Lennart Erickson Dr. Sebastian Eckardt
Dr. Ashish Narain Dr. Mathew Andrews Dr. Serkan Bahceci
Dr. Aslam Chaudhry Dr. Michal Jerzmanowski Dr. Shahid Amjad Chaudhry
Dr. Baoyun Qiao Dr. Moazam Mehmood Dr. Shahrukh Rafi Khan
Dr. Gwendolyn A. Dr. Munir Ahmad Dr. Sohail Zafar
Tedeschi Dr. Nasim Hasan Shah Dr. Tariq Siddiqui
Dr. Inayat Ullah Mangla Dr. Naved Hamid Dr. Umar Serajuddin
Dr. Irfan ul Haque Dr. Nuzhat Ahmad Prof. Robert Neild
Dr. Jamshed Y. Uppal Dr. Pervez Tahir Prof. Viqar Ahmed
Dr. Jan Warner Dr. Phillip Garner
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THE LAHORE JOURNAL OF ECONOMICS
Contents Special Edition 2008
Editors‘ Introduction i
Ensuring Stable and Inclusive Growth in Pakistan
Shahid Amjad Chaudhry 1
Pakistan‘s Macroeconomic Situation
Sakib Sherani 5
Industrial Policy: Domestic Challenges, Global Imperatives, and Pakistan‘s Choices
Shahid Javed Burki 23
Unfinished Agenda of Reforms
Hafeez Sheikh 35
Rethinking Pakistan‘s Development Strategy
Naved Hamid 47
An Exploratory Analysis of Inflation Episodes in Pakistan
Riaz Riazuddin 63
Public Policy Fundamentals for Sustainable and Inclusive Growth
Ijaz Nabi 95
The Effects of Rising Food and Fuel Costs on Poverty in Pakistan
Theresa Thompson Chaudhry and Azam Amjad Chaudhry 117
Does the Labor Market Structure Explain
Differences in Poverty in Rural Punjab?
Rashid Amjad, G.M Arif and Usman Mustafa 139
The Geography of Poverty: Evidence from the Punjab
Ali Cheema, Lyyla Khalid and Manasa Patnam 163
Rethinking Development Strategy –The Importance of the
Rural Non Farm Economy in Growth and Poverty Reduction in Pakistan
Sohail Jehangir Malik 189
Trends in Regional Inequalities in Pakistan: Evidence Since 1998
Sajjad Akhtar 205
In April 2008, the Centre for Research in Economics and Business (CREB) at the Lahore School of Economics hosted the Fourth Annual Conference on the Management of the Pakistan Economy on the theme, ―Ensuring Stable and Inclusive Growth.‖ The Centre‘s director, Naved
Hamid, invited a number of prominent speakers including academics, economists, current and former government officials, and other experts to present a combination of research and policy papers, which can be broadly grouped under two major headings: i) Pakistan‘s macroeconomy and ii)
Poverty and inequality in Pakistan. These topics were selected because of their timeliness, given the increasing macroeconomic pressures facing the country, in particular those coming from the exchange rate and inflation, and the impacts on poverty that could result. The papers presented at the conference are summarized below:
i) Pakistan’s Macroeconomy
Shahid Amjad Chaudhry‘s piece opens the Special Edition with a brief review of the macroeconomy over the last few years, and lays out the major sectoral issues that remain to be tackled, including education, healthcare, energy, poverty, and public investment.
Next, Sakib Sherani‘s paper appeals to the new government to
restore fiscal order, because without macroeconomic stability, the government will be limited in its ability to carry out appropriate monetary and fiscal policy. While Mr. Sherani cautions against the type of short term ―relief‖ policies that can damage the macroeconomy further, he argues that macro stability and pro-poor policies can go hand-in-hand, via a broadening of the tax base and rationalization of public expenditures.
Shahid Javed Burki‘s paper offers policy advice, with an emphasis
on industrial competitiveness, basing his assessment of the history of industrial policy, and keeping in mind the challenges faced by the country due to the current macroeconomic situation and the globalized economy. He emphasizes the importance of decentralized industrial policy making for the future success of Pakistani industry.
Hafeez Sheikh‘s paper critically examines economic policies of the last government, and their impacts on economic growth over the past decades. The analysis emphasizes the advantages of privatization and inefficiency caused by unchecked state dominance across all sectors in Pakistan. This paper gives proposals aimed at achieving economic prosperity and growth.
Naved Hamid‘s paper provides a brief outline of a development strategy for Pakistan that can achieve sustained growth. Based on the current economic conditions the paper analyzes the new drivers of growth and discusses how development strategy today must position itself to take advantage of the changes taking place globally.
Riaz Riazuddin‘s paper uses a unique method to look at money
supply, inflation, and growth. By calculating conditional probabilities, he finds that, first, inflation is a monetary phenomenon, and secondly, there is no trade-off between inflation and growth.
Finally, Ijaz Nabi‘s paper emphasizes the role of the government
budget in economic growth, and the particular mechanisms that should be implemented in order to make the budget more effective. These include monitoring and evaluation, public information, public-private partnerships, and a streamlined budget cycle.
ii) Poverty and Inequality in Pakistan
Theresa Thompson Chaudhry and Azam Amjad Chaudhry‘s paper
use the PSLM (Pakistan-wide) and MICS (Punjab provincial) data sets to simulate the impact of food and energy price shocks on real incomes, in order to asses the possible impact on poverty levels in Pakistan. They find that food prices have the greatest potential to increase poverty levels, given their importance in household budgets.
Rashid Amjad, G. M. Arif and Usman Mustafa‘s paper closely
examine poverty in rural Punjab, using a new data set. Their analysis divides the rural areas into various agro-climactic zones in order to determine the major factors driving poverty in each area. They find the critical factors in poverty inequality to be urbanization, overseas migration and the labor market structure.
Ali Cheema, Lyyla Khalid and Manasa Patnam‘s paper use the MICS
to study the geography of poverty at the district level in the Punjab. They find a wide variation in the incidence of poverty across the province, with high levels of poverty in the south, the west, and some central districts. The north has, on average, lower poverty; however the peri-urban areas of Lahore are characterized by both a high level and severity of poverty.
Sohail Jehangir Malik‘s paper returns to the problem of rural poverty
and looks at the oft-neglected non-farm sector. In fact, workers in non-agricultural sectors make up over half of the rural poor. Following a detailed description of rural enterprises, he suggests that better access to credit and