Pakistan Economic and Social Review

Online ISSN: 2224-4174

Print ISSN: 1011-002X

Publisher: Department of Economics, University of the Punjab, Quaid-i-Azam Campus (New Campus), Lahore-54590, Pakistan
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Is Demand for Money Stable in Pakistan?


Sofia Anwar -- Nabila Asghar 

| Pages: 1-22
The effectiveness of monetary policy for overcoming economic fluctuations is the main objective of the policy makers and it calls for clear knowledge regarding what factors affect the demand for money. The present study is an attempt to analyze the long-run relationship between demand for money, real income, inflation rate and exchange rate using ARDL approach. The results of the study reveal that M2 monetary aggregate is cointegrated with its determinants and its long-run relationship with its determinants appears to be stable. The study suggests that monetary authorities and policy makers should focus only on long-run stabilization policy in Pakistan.

Public Debt Sustainability: Evidence from Developing Country


Tahir Mahmood -- Shahnaz A. Rauf

| Pages: 23-40
This paper examines the debt sustainability issue in Pakistan by using the present value of budget constraint approach. Empirical results indicate that the series of government expenditure, revenue and discounted debt are non-stationary. The necessary conditions for debt sustainability are not met and debt has remained unsustainable throughout the period from 1971-2011. The debt reduction achieved in the early period of 2000s seems to be transitory in nature. It is also shown that the problem of debt sustainability stems from persistent fiscal indiscipline. The paper concludes that debt profile of the country will remain under pressure if a major correction in fiscal policy is not made.

Exchange Rate, J Curve and Debt Burden of Pakistan


Atiq-ur-Rehman Iftikhar Hussain Adil -- Hafsa Anis

| Pages: 41-56
The exchange rate is used as a policy variable to control the balance of trade. The famous J curve theory states that depreciation of local currency will make the foreign goods expensive for the locals and local goods cheaper for the foreigners, which implies that the imports will decrease and the exports will increase, causing improvement in balance of trade. However, this study and many earlier studies found no evidence for existence of J curve for Pakistani trade data. The J curve theory will work only if the imports and exports are elastic enough to the movement of exchange rate. Major portion of Pakistani imports consists of necessities and shows no response to exchange rate movements. Therefore, the currency depreciation will cause a rise in the value of imports as well as increase the amount of external debt measured in local currency. Given the heavy amount of external debt payable, the currency depreciation will put heavy burden on economy of the country. Therefore, the net result of currency depreciation is simultaneous increase in import bill and the debt burden. We recommend that policy of stabilizing the exchange rate should be adopted in order to protect the country against the increase in debt burden.

Regional Disparities in Human Capital: The Case of Pakistan


M. Azhar Khan -- Hafeez ur Rehman 

| Pages: 57-69
This study provides a descriptive analysis of human capital in different regions of Pakistan. Three different categories of human capital like rural, urban and overall are formed for the four provinces of Pakistan. The study finds visible difference in human capital situation between rural and urban areas of Pakistan. The study suggests that skills of workforce can be boosted through investment in human capital that may result in an increase in the marginal productivity of capital. For this purpose, more funds may be allocated to health and education sectors, especially in the rural areas, for uplifting the level of human capital.

Industrial Clusters, Schumpeterian Innovations and Entrepreneursí Human and Social Capital: A Survey of Literature


Babur Wasim Arif

| Pages: 71-95
In developing countries, to achieve poverty alleviation, it is important to develop industrial clusters because they not only create substantial survival-type employment opportunities in the manufacturing sector but also seed-beds for further industrial development by creating economies of agglomeration. However, most of the industrial clusters in developing countries have performed poorly relative to what appears to be their growth potentials. In search of what are the decisive factors that affect the dynamic development of a cluster, this short article underscores the importance of Schumpeterian innovations and entrepreneur’s human and social capital for the cluster’s long-term survival, sustainability, and competitiveness. Further, this study suggests that by providing training to entrepreneurs of the existing clustered enterprises, rapid industrial development can be achieved in developing countries.