Trade Liberalisation and Regional Disparity in Pakistan

by Butt; Muhammad Shoaib

• ISBN13: 9780415465953
• ISBN10: 0415465958
• Edition: 1st
• Format: Hardcover
• Copyright: 2009-01-14
• Publisher: Routledge

Summary

This is the first study to distinguish possible link between trade liberalisation and regional disparities under dissimilar political regimes, such as autocracy and democracy. It uses Pakistan as a case study to draw broader lessons for other developing countries.Pakistans military, which has directly controlled the countrys affairs for more than one-half of its post-independence history and which often retained real political power even during periods of democratic rule, has played a major role in trade liberalisation. Regional disparities have increased steadily since the beginning of major trade liberalisation attempts in the 1980s, and at present, regional conflicts and the associated regional disparities are extremely high. The authors critically review the country's political economy of trade liberalisation and the story of regional disparities. Thereby, possible relations among political regimes, trade liberalisation and regional disparities are identified. Using the specifically developed computable general equilibrium (CGE) model, the effects of trade liberalisation on regional disparities are quantitatively examined, with an emphasis on the major export industries at the national level and on the relative output and employment growth at the regional level.This book will be of interest to academics and economists interested in development economics in general and South Asia in particular.

Table of Contents

List of figures	p. xvii
List of tables	p. xviii
Preface	p. xix
Acknowledgements	p. xxi
Acronyms and abbreviations	p. xxiii
Introduction	p. 1
Pakistan as a case study	p. 2
Recent developments in Pakistan	p. 4
Scope and objectives of book	p. 9
Outline of book	p. 11
Political economy of trade policy regimes in Pakistan	p. 13
Analytical review of trade policies under different political regimes	p. 15
Bureaucracy-led ad hoc trade policies: 1947-52	p. 15
Bureaucracy-controlled highly protected trade regime: 1952-8	p. 17
Trade policy under first military government: 1958-71	p. 18
Gradual trade liberalization during pre-war period: 1958-65	p. 20
Post-war stoppage of trade liberalization: 1965-71	p. 21
One-stage trade liberalization under Bhutto's democratic government: 1971-7	p. 21
Gradual trade liberalization under second military government: 1977-88	p. 22
Trade liberalization attempts by four democratic governments under structural adjustment programs: 1988-99	p. 25
Substantial trade liberalization programs under third military government: 1999 onwards	p. 29
Trade policy areas requiring further reform	p. 34
Conclusion	p. 35
Trade regimes, economic performance and structural changes in Pakistan	p. 37
Bureaucracy-led trade regime: 1947-52	p. 37
Bureaucracy-controlled trade regime: 1952-8	p. 38
First military regime: 1958-71	p. 45
Bhutto's democratic government: 1971-7	p. 48
Second military regime: 1977-88	p. 49
Return to democracy: 1988-99	p. 51
Third military regime: 1999 onward	p. 52
Conclusion	p. 55
Regional disparities and conflicts in Pakistan	p. 57
Regional disparities leading to secession of East Pakistan	p. 58
Overview of current regions of Pakistan	p. 59
Major regional conflicts	p. 61
Distribution of federal revenue	p. 63
Distribution of water and Kalabagh Dam	p. 64
Exploitation of natural resources of Balochistan	p. 65
Gwadar sea port	p. 66
Expansion of garrisons in Balochistan	p. 66
Issue of 'missing people'	p. 66
Dismissal of chief justice and assassination of Benazir Bhutto	p. 67
Analysis of regional socioeconomic conditions	p. 68
Poverty reduction strategy of Musharraf government	p. 72
Rationale for modelling trade liberalization and regional disparities	p. 73
Interactions between political and trade regimes and regional disparities	p. 74
Conclusion	p. 77
Methodology and data	p. 79
Justification for using CGE modelling approach	p. 79
CGE models versus econometric models	p. 80
CGE models versus I-O models	p. 81
CGE studies on Pakistan	p. 82
General characteristics of CGE studies on Pakistan	p. 82
Critical review of major CGE studies on Pakistan	p. 83
Absence of focus on regional disparities	p. 83
Usage of inadequate databases	p. 84
Highly aggregated industry and export results	p. 84
Inadequacy of available CGE models in analysing the effects of trade liberalization	p. 85
Little focus on sensitivity analysis	p. 86
Salient features of proposed CGE study in light of literature review	p. 86
Structure of core CGE model used in this study	p. 87
Dimensions of model	p. 88
Variables	p. 92
Coefficients	p. 92
Equations	p. 93
structure of production	p. 93
final demands for commodities	p. 93
demands for margin	p. 94
market-clearing equations	p. 94
price system enforcing zero pure profit conditions	p. 94
trade balance	p. 95
investment allocation	p. 95
labour market	p. 95
miscellaneous equations	p. 95
Structure of regional approach of PAKREG	p. 96
Selection of most appropriate regional modelling approach	p. 96
Top-down approach	p. 96
Bottom-up approach	p. 98
Selection of top-down approach	p. 100
Dimensions of regional extension	p. 101
Variables and coefficients	p. 101
Equations	p. 102
direct demands by each region	p. 103
demands for margin	p. 103
determining regional share variables	p. 103
three constraints	p. 104
regional wage bills and matrix of contributions	p. 104
regional advantage matrix	p. 104
Closure of model	p. 104
Short-run closure	p. 105
Long-run closure	p. 107
Database of PAKREG	p. 109
Structure of database of core model	p. 109
Structure of database of regional extension	p. 112
Development of database of PAKREG	p. 112
Conclusion	p. 113
Application of model	p. 114
Simulations and closures	p. 115
National results	p. 116
Macroeconomic results	p. 116
Short run	p. 116
Long run	p. 120
Industry results	p. 122
Impact of trade liberalization on imports	p. 123
Impact of trade liberalization on domestic industry costs	p. 128
Impact of trade liberalization on domestic industry output	p. 132
Impact of trade liberalization on domestic industry employment	p. 139
Regional results	p. 143
Macroeconomic results: short run and long run	p. 144
Determinants of regional output and employment growth in short run	p. 145
Determinants of regional output and employment growth in long run	p. 153
Systematic sensitivity analysis	p. 161
Conclusion	p. 165
Conclusion	p. 167
Summary of main findings	p. 167
Policy implications	p. 170
Lessons for other countries	p. 171
Limitations and future research	p. 172
	p. 175
	p. 182
	p. 186
	p. 194
Structure of production (industry inputs demands)	p. 194
Demands for primary factors	p. 194
Demands for intermediate inputs	p. 194
Top production nest	p. 195
Final demands for commodities	p. 195
Demands for capital creation	p. 195
Household demands	p. 195
Export demands	p. 196
Government and inventory demands	p. 197
Demands for margin	p. 197
Market clearing equations	p. 197
Domestic and imported commodities	p. 197
Primary factors	p. 198
Price system enforcing zero pure profit conditions	p. 198
Production	p. 198
Capital creation	p. 198
Households	p. 199
Exporting	p. 199
Importing	p. 199
Distribution	p. 199
Balance of trade	p. 199
Imports, exports and balance of trade	p. 199
Investment allocation	p. 200
Distribution of investment	p. 200
Investment budget constraints	p. 200
Labour market	p. 200
Wage setting equations	p. 200
Remaining equations	p. 200
Industry costs and the index of production costs	p. 201
Indirect tax	p. 201
Indirect tax revenue aggregates	p. 201
Factor incomes and GDP	p. 201
GDP expenditure aggregates	p. 202
Primary factor aggregates	p. 203
Decomposition of sales change by destination	p. 203
Decomposition of Fan	p. 203
GDP decomposition	p. 204
Other equations	p. 204
	p. 205
	p. 207
	p. 208
	p. 210
Direct demands by each region	p. 210
Demands for margin	p. 210
Determining regional share variables	p. 211
Three constraints	p. 211
Regional wage bills and matrix of contributions	p. 212
Regional advantage matrix	p. 212
	p. 214
Data matrices and parameters required for implementation of PAKREG	p. 214
Systematic construction of 36 I-O data matrices required for core model	p. 214
Elasticities and parameters needed for core model	p. 218
Estimates of Frisch parameter and other elasticities	p. 219
Construction of database of regional extension	p. 222
Allocation of commodities/industries to national and local groups	p. 222
Compilation of regional commodity/industry shares	p. 223
Notes	p. 224
Bibliography	p. 230
Index	p. 242
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