Agglomeration Economies and Manufacturing Practices

Bloom, N. et. al. (ongoing). Manufacturing Practices in the Manufacturing Sector in Pakistan. International Growth Centre.
Recent literature shows surprising differences between and within developing and developed countries in firm level performance. Poor management practices are an important factor behind lower levels of development in Asia, Africa and Latin America, hampering the manufacturing sector’s ability to innovate, exploit new technologies and react to the challenges and opportunities of globalization. In partnership with the State Bank of Pakistan and the Pakistan Bureau of Statistics, the project undertakes the first rigorous empirical analysis of the determinants of management practices in a developing country by extending the large scale US Census Bureau Management and Organizational Practices Survey (Bloom, Brynjolfsson, Foster, Jarmin, Saporta-Eksten, and Van Reenen 2013) to Pakistan. The study aims to collect management data in 2,000 firms in Punjab, Pakistan. The focus is to document how firms are managed in Pakistan and whether their management practices vary with size, industry type, financials particulars and performance indicators. An analysis of firms in Pakistan will (1) identify the strengths and weaknesses in management practices in Punjab and explore ways in which firms in Pakistan can potentially emulate the development paths of firms in other Asian middle income countries, and (2) understand the mechanisms of firm upgrading through improved management quality and suggest stronger research and policy recommendations for stimulating growth.

Burki, A. A., & Khan, M. A. (2013). Agglomeration Economies and their Effects on Technical Inefficiency of Manufacturing Firms: Evidence from Pakistan. International Growth Centre.
The researchers suggest that different sectors respond differently to agglomeration economies. The textile and leather industries benefited from localization economies (that is, learning from other local firms in their own industry, also known as intra-industry spillovers), other sectors including food, beverage, tobacco, chemical, rubber and plastics were much more likely to benefit from urbanization economies (that is, learning from all firms in a district, regardless of sector, also known as inter-industry spillovers). Inter-industry learning includes information transfers, availability of infrastructure, and access to specialized business, information technology or financial services. The findings suggest that localization economies had previously been more prevalent in Pakistan, suggesting that firms did not adequately value the importance of technology spillovers and inter-industry learning, this pattern was changing. Over time a decrease in the value of localization economies was observed. The research uses the translog stochastic frontier and technical inefficiency effects model combined with cross-section data from Pakistan’s Census of Manufacturing Industries for 1995-96, 2000-01 and 2005-06 and provides evidence for industry agglomeration significantly benefiting firms. The research finds that 73.5% of industries in Pakistan are either highly or moderately agglomerated. The most highly concentrated industry is the ship-breaking industry, with the second most highly concentrated industry being the sports and athletic goods industry.

Gardezi, N. Z. (2013). Labor Pooling as a Determinant of Industrial Agglomeration. Center for Research in Economics and Business. Paper Series No. 04-13 Complete.pdf
This paper analyzes the agglomeration behavior exhibited by manufacturing firms and examines the sources of differences in Punjab, Pakistan. Drawing on an extensive and unique dataset comprising information on the location of manufacturing firms in Punjab, the authors construct an industry-specific measure of agglomeration by computing the geographical distance between pairs of firms. Such a distance-based framework has not been used in Pakistan and the recent literature confirms its superiority over measures based on discrete spatial units. The M-function computed in this study is based on the theoretical model proposed by Marcon and Puech (2009), and provides empirical evidence on the extent of agglomeration exhibited by each industry. The M function—the industry-level measure of concentration—is regressed on a number of industry characteristics that measure the presence of positive externalities. As a preliminary contribution, this paper provides evidence on the location pattern of industries in the Punjab. Using data on the names and addresses of all manufacturing firms in the 32 districts of Punjab, the authors compute the geographical coordinates of each firm. This allows them to map the firms in an industry and thus show cross-industry variations in the level of agglomeration or dispersion. In particular, a measure of each industry’s potential for labor pooling is used to determine whether firms that experience greater fluctuations in employment are likely to be more concentrated. The results provide evidence of the importance of labor pooling in explaining the high level of concentration within industries

Haroon, M. (2013). The Effects of Agglomeration on the Formation and Scale of Operation of New Firms. Center for Research in Economics and Business.
The formation of new firms is an important determinant of economic and regional development. The literature on industrial organization highlights agglomeration as one of the main factors enhancing the formation and scale of operation of new firms. The study’s aim is to analyze, first, whether the presence of similar manufacturing activity in a district fosters new firm formation; and, second, whether a concentration of different industries leads to the entry of new firms into a particular district. Using data from the Directory of Industries, this study estimates a model that determines the effect of local conditions on new firms’ formation and scale of operation in the manufacturing sector in Punjab, Pakistan. The findings indicate that firms derive benefits by locating in agglomerated regions, which induces firm entry to gain the benefits of agglomeration. Localization has a significant and positive impact on new firm formation, and this holds at all levels of localization. Additionally, new firm formation is higher in areas of medium-scale urbanization. The scale of operations of new entrants increases where large- or medium-scale firms belonging to the same industry are present. The scale of operations also tends to increase in areas of medium-scale urbanization. The authors find that average income has a significant and positive impact on arrival as well as on the scale of operations.

Nasir, M. (2013). Agglomeration and Firm Turnover. Center for Research in Economics and Business.
The geographic and industrial concentration of firms affects firm turnover, as highlighted in research on industrial organization. This study conducts a firm-level analysis to determine the impact of agglomeration on firm entry and exit in domestic industries in Punjab, Pakistan for the year 2005-06. The authors use data from the Punjab Directory of Industries (available for 2002, 2006, and 2010) to analyze firms’ entry and exit rates. The study thus aims to contribute to the existing literature on industrial organization in Pakistan by assessing the impact of spatial and industrial concentration on the entry and exit rates of manufacturing firms in Punjab. The results conform to the existing literature, which finds that firm entry and exit is higher in more agglomerated industries, ceteris paribus. The study also illustrates how some industries exist in clusters while others are highly dispersed.


Field, E. & Vyborny, K. (ongoing). Women’s Mobility. Center for Economic Research in Pakistan.
Women’s mobility outside the home in Pakistan is restricted both by social norms and security concerns. This restricts women’s choices to participate in the labor force, continue their education, and engage in other independent activities. Public transport interventions targeted for women have been extremely successful in many contexts in other countries. Similar approaches have been tried on a very limited scale in Pakistan and their impact on women’s mobility, labor force participation and empowerment has not been rigorously evaluated. This project aims to use a randomized controlled trial of women’s-only transport and transport vouchers in Lahore, Pakistan to test rigorously whether a simple intervention can give women expanded choices. The methodology will allow the authors to quantify the benefit of a reduction in cost, an improvement in safety and social acceptability, and the two combined, on women’s mobility, labor force participation, other activities outside the home, and empowerment. The results of this research will inform policy on how transport services can best be designed, adapted and expanded to improve women’s mobility and empowerment.

Naeem, S., & Zaman, A. (2013). For Love or Money? Motivating Workers (No. 2013: 90). Pakistan Institute of Development Economics. Paper/WorkingPaper-90.pdf
The authors conducted a field experiment. They tested how employers can use socioemotional resources, such as appreciation and recognition, in order to signal intentions and create positive reciprocal relationships with employees. Results showed that these resources led to a significant gain in productivity. The study was extended to account for relative wage concerns both with and without appreciation treatment. Efficiency gains with appreciation appeared to be robust even after including information regarding relatively disadvantageous wage discrimination. However, workers’ without socioemotional resources exhibited strong resentment toward relatively lower wages by showing a significant systematic decrease in their labour supply. Our results suggest that workers not only compare their wages, as pointed out in previous literature, but also compare the socioemotional resources provided by their employer. This provides important evidence against one-dimensional comparisons of relative wages relevant to worker productivity.

Woodruff, C., Chaudhry, T. (2013). Incentives and productivity: Work groups vs. production lines. International Growth Centre.
The project focuses on the organization of production in a fan factory. The authors worked with one of the largest producers of fans in Pakistan on the role of incentives in workers performance. The factory was using batch production (separate team of workers build different components) however the factory owners noted that similar size producers in China use an assembly line that results in lower levels of in-process inventories. An earlier attempt to switch to assembly line was met with failure. The two factors inhabiting the switch from batch production to assembly line were; assembly line production is less tolerant to absenteeism and workers resist changes in production techniques proposed by management. Hence the owners felt it was imperative to reduce absenteeism for the switch to work. The study tests the impact of short-term financial incentives to decrease absenteeism and the transition to assembly lines. The authors test both individual and group incentives in a sample of 8 production teams. A combination of survey, observational, and administrative data has been used to gain an understanding of the nature of worker responses to these shifts in production. A worker-level survey was conducted to gather information on their backgrounds and attitudes (especially team orientation, cooperation, and flexibility). The use of a control group and data collection on other characteristics of workers will enable the researchers to understand intra-team interactions and worker- level characteristics correlated with successful transitions between production techniques.

Asghar Ali, Muhammad Naseem Akram, D. (2012). Impact Of Financial Rewards On Employee’s Motivation And Satisfaction In Pharmaceutical Industry, Pakistan. Global Journal Of Management And Business Research, 12(17).
In this research article, data of 186 employees working in Pharmaceutical industry is analyzed. The results indicated gender-wise and age-wise comparison of motivation and satisfaction of employees with respect to salary and position. Hypotheses were developed to find relationship between financial rewards, motivation and satisfaction of employees. A positive relationship has been found between financial rewards, motivation and satisfaction. Overall results indicate employees working in pharmaceutical industry are being offered good financial rewards. They are motivated in performing their duties and satisfied with their salary and job position.

Khan, S. U. K. (2005). Macro determinants of total factor productivity in Pakistan. SBP Working Paper Series.
This study estimates the Total Factor Productivity (TFP) in Pakistan using conventional growth accounting process and then establishes its macro determinants. The growth accounting process helps segregate TFP from other sources of economic growth. The fundamental sources of growth namely labor, capital and productivity are calculated and TFP is highlighted as the most important source of growth in the paper. The data used in this study ranges from 1960 to 2003. The determinants are identified on the basis of a simple regression approach. The results of the regression are significant establishing the impact of a number of factors with TFP. The study confirms that macroeconomic stability, foreign direct investment, and financial sector development play an important role in the increase of TFP. However, education expenditures (insignificant) and openness to trade turn out to have negative association with TFP. The positive results of the financial sector development imply that financial sector may influence TFP through two channels that are known as quantity channel and quality channel. Easy access to credit enhances economic growth and the productivity of firm level and contributes to TFP of the overall economy.

Multinationals, Imports and Exports

Chaudhry, A., & Andaman, G. (2014). The Need for an Industrial Policy to Boost Pakistani Exports: Lessons from Asia. The Lahore Journal of Economics, 19.
This paper focuses on a group of Asian countries that have successfully increased exports and found a common industrial strategy. Several key factors emerge from this study. First, countries that have managed to increase their exports focused on doing so in sectors in which they had expertise while slowly developing new export sectors at the same time. Second, high-growth Asian economies have developed their export sectors by making a significant move up the quality ladder and, in particular, moving away from low value-added to higher value-added exports. Third, there is no single economic policy that has worked across Asia; rather, successful exporters have used two or three policies in tandem to boost exports. Fourth, industrial policy has been coordinated with education and training policies to develop both the entrepreneurs and the workforce needed to produce high value-added exports. Finally, the only consistent factor that has an impact on high value-added export growth is domestic credit to the private sector. These results point to the urgent need for a coherent industrial strategy to boost Pakistan’s exports (preferably before future trade agreements are signed, which could otherwise damage potential export sectors).

Chaudhry, T., & Haseeb, M. (2014). Exporters in Pakistan and firms who do not export: what’s the big difference? The Lahore Journal of Economics, 19.
There are a variety of stylized facts about exporters that have been noted in the new literature on international trade based on firm-level data. These include low levels export participation among firms, small shares of export sales in firm revenue, larger firm size and higher levels of productivity, skill, and capital intensity among exporters. In this paper, the authors seek to see the extent to which these stylized facts fit the experience of firms in Pakistan using two cross-sections of firm level data, that is the Census of Manufacturing Industries (CMI) 2000-01 for Punjab and the World Bank Enterprise Survey data (2006-07) for all Pakistan. They find similar levels of export market participation but very large shares of export sales in firm revenue for those who do, as compared to the U.S. sample studied by Bernard et al (2007). They also find support, like many other studies, that exporters exhibit significantly higher total factor productivity and are larger in terms of employment than non-exporters. Looking individually at the eight largest sectors comprising more than 80 percent of the CMI-Punjab, with few exceptions exporters have higher labor productivity and offer higher compensation to workers, but use more capital per worker and more imported inputs.

Gul, A. (2014). Analyzing Pakistan’s Trade Opportunity with Turkey. The Lahore Journal of Economics, 18, 349-370. Asha Gul Final.pdf?sequence=1&isAllowed=y
Growing economic cooperation between the Pakistani and Turkish governments—manifested in the recently proposed preferential trade agreement (PTA)—has served to strengthen the historically good relations between both countries. This paper explores the trade relationship between Pakistan and Turkey in an attempt to analyze the potential gains for Pakistan under the proposed PTA. The authors evaluate potential trade opportunities using descriptive statistics and three trade indices: a trade complementarity index, export similarity index, and intra- industry index. The findings suggest that Pakistan’s trade surplus with Turkey, strong export similarities, and intra-industry trade would allow greater opportunities for firm synergies between the two countries. This, in turn, would help Pakistan achieve greater value addition and a broader market base for its exports. The authors suggest that Government of Pakistan should, therefore, lobby strongly for the proposed PTA (which might later evolve into a free trade agreement) and leverage the agreement in such a way that Pakistan can maximize its potential benefits.

Hamid, N., Nabi, I., Zafar, Rafia. (2014). Pakistani Textiles: A Case for Moving up the Value Chain. The Lahore Journal of Economics, 19.
This paper argues that for the sector to fully realize its potential, government policies that shape the incentive structure faced by the industry need to be re-aligned. In this regard, the most important is Pakistan’s import policies and customs procedures that discourage the import of materials such as synthetic yarn and fabric, technical textiles and specialized trimmings and accessories needed by exporters to move up the value chain, and a significant bump up in the growth trajectory will only take place if import policy and custom procedures are substantially reformed. This paper focuses on the following themes: First, structural changes and trends in T&G exports; second, the associated constraints to growth of the garments sector; and third, to highlight some of the steps taken by the industry leaders in terms of policy reforms and by firms, particularly with regards to managing resources to enhance competitiveness.

Haque, I. (2014). Toward a Competitive Pakistan: The Role of Industrial Policy. Lahore Journal of Economics, 19, 61-90.
This paper’s basic premise is that an improvement in Pakistan’s export performance is crucial to raising economic growth. After examining the reasons generally given for Pakistan’s poor export performance, the authors conclude that the country’s very slow productivity growth was the single most important factor that hurt competitiveness. They argue that a coherent and articulated industrial policy is required to overcome this disadvantage. While the experience of the East Asian economies offers useful lessons, Pakistan’s policy must accord with its own conditions, which are, in many ways, different. The formulation of industrial policy should involve key stakeholders, particularly the private sector. The paper identifies certain factors that should underpin the new industrial policy, notably the changed basis of international specialization and rules governing world trade.

McCartney, M. (2014). The Political Economy of Industrial Policy: A Comparative Study of the Textiles Industry in Pakistan.Lahore Journal of Economics
This paper makes a case for a particular and targeted form of industrial policy that would help the textiles sector learn and upgrade. It argues that those factors commonly seen as constraints to industrial policy—the “China effect,” the global rules of globalization, global value chains, and the problems of energy and education in Pakistan—do need careful consideration, but they are not insurmountable obstacles to industrial upgrading. The key market failure is the risk and uncertainty associated with acquiring and learning to use new technology. The paper explores a number of policy options, reviewing the lessons that cannot be learned from the Republic of Korea and India and one that can from Bangladesh. The latter shows that rapid and sustainable export growth in textiles can be achieved, even in an economy with a weak, corrupt, and unstable form of governance.

Akram, A. (2013). Pak-SAARC Intra-industry Trade (No. 2013: 93). Pakistan Institute of Development Economics. Paper/WorkingPaper-93.pdf
This paper analyses country-specific and industry-specific determinants of intra-industry trade (IIT) between Pakistan and other SAARC countries using panel data techniques. This paper also disentangles total IIT into horizontal and vertical IIT. Vertical IIT is further divided into high-quality and low quality IIT. This paper finds that country-specific variables are more important in explaining IIT relative to industry-specific variables. Decomposition of IIT shows that in the SAARC region Pakistan’s IIT is mostly comprised of the vertical IIT and to a lesser extent is horizontal IIT. The paper offers specific policy recommendations for the promotion of IIT in the SAARC region.

Latif, R., & Javid, A. Y. (2013). Determinants for the Demand and Supply of Textile Exports of Pakistan (No. 2013: 95).Pakistan Institute of Development Economics. Paper/Working-Paper-95.pdf
This study analyses the demand and supply side determinants of textile and garments’ exports of Pakistan using time series data for the period 1972– 2010. Eight trading partners (US, UK, Canada, Italy, France, Japan, Spain and UAE) contributing major share in this trade have been selected for analysis. The demand and supply side factors have been examined using the simultaneous equation approach and the Generalized Method of Moment to handle the simultaneous equation bias. The results reveal that the income of the trading partners has an important and significant role in determining performance of textile and clothing exports of Pakistan. The relevance of devaluation policy in accelerating demand for this export has been found to be comparatively small. On the supply side, the relative prices and the capacity variable are important. The results of the exports supply equation show that the removal of quantitative restrictions does not provide any incentive to the suppliers. However, the real wages in the textile sector have a significant but small effect on the supply. The demand for textile and clothing products of Pakistan is relatively high in UK, UAE, Italy and USA (as indicated by high income elasticities), therefore, factors that help in the expansion of textile and clothing products in the local market and the marked countries should receive special attention of the policy makers.

Ullah, A., Ghani, E., & Javed, A. Y. (2013). Market Power and Industrial Performance in Pakistan (No. 2013: 88).Pakistan Institute of Development Economics.
Using a panel of eight Pakistani manufacturing industries, the authors have examined the changes in price-cost margin (gross profitability) during 1998- 2009. In this study the traditional industrial organization approach of Structure- Performance has been applied to analyse the effects of concentration and import intensity on price-cost margins. It has been found that market concentration measured by four-firm concentration leads to high price-cost margin. Imports have the tendency to make the domestic firms more competitive, but their effect on more-concentrated firms is smaller as compared to non-concentrated firms. The minimum efficient scale and assets of industry have positive effects on margins while capital intensity has been found to reduce gross profitability.

Amjad, R., Ghani, E., Din, M. U., & Tariq, M. (2012). Export Barriers in Pakistan: Results of a Firm-Level Survey. The Lahore Journal of Economics, 17, 103-134.
This study attempts to evaluate exporters’ perceptions of the problems they face in exploiting their full competitive potential in the international market. This analysis is based on a survey of exporters based in Lahore, complemented by a study of the determinants of export performance at the macro level. The Lahore Chamber of Commerce and Industry and the Pakistan Institute of Development Economics jointly prepared it. Using firm-level survey data for 40 firms, the authors find that a shortage of skilled labor, the energy crisis, institutional rigidities, market imperfections, and weaknesses in physical infrastructure are the key impediments to achieving export competitiveness. Policies geared toward improving the quality of skilled labor, resolving the energy crisis, and reducing transaction costs by improving the institutional and physical infrastructure are key to expanding Pakistan’s exports on a sustained basis. The quality certification and adherence to health, labor, and environment standards is still a problem for exporters. There is an urgent need to increase awareness of these standards, and to simplify procedures to avail the facilities provided in this regard.

Hamid, N., & Hayat, S. (2012). The Opportunities and Pitfalls of Pakistan’s Trade with China and Other Neighbors. The Lahore Journal of Economics. 17, 271-292.
While Pakistani trade with India could give a boost to Pakistan’s economy, there are other neighbors with whom trade could be equally important. The authors look at this aspect of regional trade and show that promoting trade with the rest of Pakistan’s neighbors could have a significant positive impact on the country’s growth. The findings show that Pakistan’s trade with these neighbors has grown rapidly over the last 10 years and at present they constitute the largest market for Pakistani exports. They also explain how these exports are not only important in terms of absolute value, they have also contributed to the development of new export products. The overall impact on Pakistan’s economy could well be to raise the trend growth rate for the next decade or so by 2 to 3 percentage points above the historical trend growth rate of 5 percent per annum. The findings suggest that Pakistan needs to shift from exporting primary commodities and simple manufactures to higher-value-added products, if export growth is to be sustained and exports are to contribute to expanding employment and GDP in the country.

Fatima, S., Rehman, F. U., & Ali, M. (2011). Formation And Internationalization Of It Firms Of Pakistan: A Resource Based View. Business & Management Review, 1(10).
The purpose of this study is to explore the issues regarding formation and internationalization of IT firms in Pakistan. The context of the study is resource-based view (RBV) approach to internalization. The research part is inductive, qualitative and based on a case study. The study’s findings illustrate that various resources intervene with entrepreneur’s surroundings to formulate a firm and grow internationally. The resources range from entrepreneurial to human to social to financial capital. Important findings of the paper are that a firm cannot be successful till the time they achieve a perfect blend of resources, no single resource proved significant in isolation to boost up the process of formation and internationalization.

Mahmood, Z., Hussain, J. & Malik, S. J. (2010). Performance of Local and Foreign Firms in Pakistan: A Comparison. The Pakistan Development Review. 30 (4), 837-847.
It is essential to take into account differences between capital intensive and skill intensive firms and control the size and products of firms. This paper examines the labor productivity differences between foreign and local firms based on the date from 32 large-scale manufacturing firms in Pakistan. The data is drawn from a PIDE survey conducted in 1981. Out of the 90 manufacturing industries covered in the PIDE survey, 25 industries have been selected because for the remaining 65 industries either foreign firms are non-existent or lack matched local firms. Data on employment of production and non-production workers, value of fixed capital, gross value of production and value added has been used. In particular this paper examines whether capital intensity, skill intensity and economies of scale explain all the labor productivity differences between foreign and local firms, or whether foreign firms enjoy some ownership specific advantages such as proprietary technology and management expertise, etc. It can be concluded that foreign firms are more capital and skills intensive. It has been suggested that local firms should strive for modern technology and improve their managerial skills.

Din, M. U., Ghani, E. & Mahmood, T. (2009). Determinants of Export Performance of Pakistan: Evidence from the Firm-Level Data. The Pakistan Development Review. 48 (3), 227-240.
In order to understand why Pakistan’s exports have failed to pick up despite favorable export policies, this paper explores the determinants of export performance for firms in terms of their specific characteristics and supply side constraints. The analysis is based on a survey of export-oriented firms in four major sectors of Pakistan namely textiles and apparel, leather products, agro-food, and fisheries. The Pakistan Institute of Development Economics (PIDE) with the collaboration of United Nations Industrial Development Organizations (UNIDO) has conducted this survey of export-oriented firms. The results of the study indicate a relationship between the better performance of foreign- owned firms to their better know how and resources compared to domestically owned firms. The level of investment in market/ client oriented technologies positively affects export performance. Lack of certification of product and process standards is the main supply side constraint adversely affecting the firms’ export performance. Facilitation measures like export processing zones, internationally recognized testing labs, and industrial clusters would be helpful in improving the export performance of firms.

Performance Management and Marketing

Woodruff, C. & Macchiavello, R. (ongoing). Measuring Productivity in Multi- Product Firms: Comparing Ready- Made Garments Across IGC Countries. International Growth Centre.
Sustained increases in income are not possible without increases in productivity. This study compares the efficiency of production lines in hundred of firms which make ready made garments. A total of ten countries are being studied to help gain insight into which factors affect productivity in developing countries including five IGC countries: Bangladesh, Myanmar, Pakistan, India- Central and Ethiopia. The study analyzes productivity by looking at sewing sections in garment factories and measuring efficiency in terms of time taken to sew a specific piece of garment. The study aims to compare the productivity of lower income countries such as Bangladesh and Myanmar against the performance of countries such as Sri Lanka, China and Indonesia that are perceived to have higher productivity. The study aims to collect data, which though a large and complicated exercise will provide the most comprehensive data ever collected on the manufacturing sectors in low-income countries. For an idea of scale, a typical factory with 20 production lines results in about 300,000 pieces of data each year. Dissemination events with factory owners and workers will track the impact of findings. The data will be made available freely through a dedicated website.

Mian, A. Z., Rauf, A. & Sarwar, A. (2013). An Empirical Investigation of Learning Orientation in the Context of Textile Sector of Pakistan. International Journal of Commerce and Management, 23 (1), 38-55.
The purpose of this study is to investigate learning oriented organizations in the textile sector of Pakistan. The study has been based on Garvin’s three building blocks. Data has been collected through a questionnaire from eight organizations. Top and middle level management were included in the sample. All three building blocks have been considered that include fifty-eight variables. Individual mean scores along with cumulative mean scores are used to analyze organizations. Results show that openness to new ideas needs improvement and serious attention by the top-level management.

Sheikh, N. A., Wang, Z., & Khan, S. (2013). The impact of internal attributes of corporate governance on firm performance: Evidence from Pakistan. International Journal of Commerce and Management, 23(1), 38-55.
The purpose of this paper is to investigate whether internal attributes of corporate governance such as board size, outside directors, CEO duality, managerial ownership, and ownership concentration affect the performance of Pakistani firms. Pooled Ordinary Least Squares is used to estimate the relationship between internal governance mechanisms and performance measures using data of non-financial firms listed on the Karachi Stock Exchange for 2004 to 2008. The results indicate that board size is positively, whereas outside directors and managerial ownership are negatively related to earnings per share only. Leverage is negatively related to Return on Assets, Return on Equity and Earnings per share while firm size is positively related to all measures of performance. Empirical results indicate that internal governance mechanisms have material effects on firm performance.

Arifeen, S. R. (2012). Frozen Food Products Marketing and Distribution Challenges in a Developing Country. International Growth Centre.
The study aims to understand the challenges the frozen food industry in Pakistan has faced in the past, and is currently facing. The study reveals that firms in the frozen food industry have spent resources on developing the transportation system, distribution system and the capacity of the retailers. The producers have invested heavily in setting up an infrastructure, both at retail and distribution level, which in a developed country would not have been required of them. The future shows much potential as third party companies tentatively step into the domain of cold chain warehousing and distribution, taking the burden of this activity away from the manufacturers and the retail segment moves towards a change in methods of doing business as retail outlets copy the modern trade and invest in their own infrastructure (freezers). These two developments are leaving the manufactures to focus on their core business: manufacturing. However, manufacturing is now at a crisis due to the electricity crises. The manufacturers could possibly shift their resources to generate their own electricity in the future.

Ali, I., Rehman, K. U., Yilmaz, A. K., Nazir, S., & Ali, J. F. (2010). Effects of corporate social responsibility on consumer retention in cellular industry of Pakistan. African Journal of Business Management, 4(4), 475-485.
Conflicting results have been found regarding the impact of corporate social responsibility on consumer behavior. This research paper has investigated the impact of product/service quality and consumer satisfaction along with corporate social responsibility actions on consumer purchase intentions and further on consumer loyalty. This was an exploratory research based on primary and secondary data with some experimentation to manipulate respondents’ attitude towards organization and its corporate social responsibility actions. The primary data has been collected from university students, whereas secondary data was collected from newspapers and website of corporation. The data has been analyzed using structural equation modeling through AMOS. The study found no relationship between awareness of corporate social responsibility activities and consumer purchase intention. However, significant relationship was observed between service quality and customer satisfaction. Moreover, the study noted no relationship between consumer satisfaction and purchase intentions and purchase intention and consumer retention for cellular industry of Pakistan. The findings of this study are important for corporations and future researchers on corporate social responsibility and consumer behavior.

Aslam, H. D., & Sarwar, S. (2010). Improving performance management practices in IT firms of Pakistan. Journal of Management Research, 2(2).
Authors analyze performance management issues such as job dissatisfaction and high job turnover rates faced by the IT firms in Pakistan and suggest the solutions with their implications. The authors aim to identify the problem areas and challenges faced by IT firms while implementing best practice of performance management. This study also explores practical implications and adoption of practices for effective performance management system. Qualitative research methodology has been adopted in which qualitative technique is applied to collect and interpret and data. Semi structured interviews were conducted with directors and middle management to identify various performance management issues. Results of the study indicate that by implementing steps of performance management processes e.g. setting objectives, training, performance agreement, performance review and reward system “We Care” firms may resolve performance related issues like job dissatisfaction, high job turn over and the rigid environment.

Afzal, S. (2009). Marketing capability, strategy and business performance in emerging markets of Pakistan. IUB Journal of Social Sciences and Humanities, 7 (2), 88-102.

In this project an attempt has been made to demonstrate a positive relationship between marketing capabilities and strategy using Porters framework and corporate performance in an emerging/developing market of Pakistan. This paper reports a study that marketing practice regulates the relationship between marketing capabilities & Strategy using Porters framework and business performance. In turn, the market served moderates the type of marketing practice adopted. Various studies have suggested that marketing capabilities & Strategy using Porters framework influences business performance. In the first stage, run descriptive statistics to gain initial insights. After this Regression Analysis was used to test the hypothesis that Marketing Capabilities and Strategy Frame and Firm’s Performance are associated and also determine relative impact. A theoretical model and a series of theoretical propositions summarize these discussions. The authors measure performance using six variables:
Over all business performance; Market share; Sales Growth; Customer satisfaction; Profitability; Return on Investment. The results suggest that Marketing Capabilities and Strategy frame exist in the business environment of Pakistan but there is a weak relationship with firm performance.

Nauman, A. B., Aziz, R. ; Ishaq, A.F.M. ; Mohsin, M. (2004). An analysis of capabilities of Pakistan as an offshore IT services outsourcing destination. Multitopic Conference, 2004. Proceedings of INMIC 2004. 8th International. 24-26 Dec. 2004. 403-408.
Developed economies view outsourcing as a viable option for attaining competitive market position. Many of the emerging economies have succeeded in capturing and increasing their share in the global outsourcing market. In this paper the authors review the factors that helped some of the emerging economies to attain the current successful position. Using the country selection framework they have analyzed and evaluated the potential of Pakistan for offshore outsourcing. The SWOT analysis identifies the problem areas for Pakistan in this regard and it also indicates a number of areas upon which it can build to capture the existing opportunities. The authors also suggest increasing industrial and educational collaborations with India to take advantage of lower costs and to implement common policies. The lack of a fully operational law or act for information security or software copyrights is a deterrent in IT growth and should be addressed.

Small and Medium Sized Enterprises

Afraz, N., Hussain, S. T., Khan, U. (2014). Barriers to Growth of Small Firms in Pakistan: A Qualitative Assessment of Selected Light Engineering Industries. International Growth Centre.

This report explores the impediments faced by Small and Medium Enterprise sector in Pakistan. It is a focal point for industry growth in Pakistan and improvements in the SME sector will have important repercussions for growth and unemployment. The growth of the manufacturing sector has remained fairly stagnant in the recent past and it has been unable to increase its share over the years implying that the sector with the highest value addition has the lowest share in terms of employment. The report synthesizes existing literature explaining key barriers to firm growth and augments this analysis with more insightful evidence built through primary information from two pilot industrial sectors. The report also develops case studies on the fan and sports goods industries of Pakistan; both of which fall in the light engineering sector. Authors conducted detailed semi-structured interviews with a small representative sample of firms in the light engineering sectors. This allowed a greater depth of analysis, complementing the less detailed but large, cross sectional studies already available. The study concludes that the foremost impediment to growth is the lack of ability to innovate and diversify. Better managerial skills and succession planning is also termed as important for businesses. Public sector interventions in the sector to promote innovation and technology have been unsuccessful while Sialkot is a great example of private sector coordination and cooperation in the provision of infrastructure for example.

Ahmed, Y., Pirzada, M.D.S, Khan, M.T. (2013). Strategic Orientation of Small to Medium Scale Manufacturing Firms in Developing Country: A Case of Auto Parts Manufacturing Small to Medium Enterprises (SMEs) in Pakistan. Life Science Journal, 10(3), 517-527.

In today’s industrial world, SMEs contribute significantly in almost all the sectors especially manufacturing. Business and functional strategies of these SMEs are important research areas. In this qualitative research, multiple case study method has been utilized to explore the business strategies of SMEs operating in auto parts manufacturing sector of Pakistan. Business strategies of SMEs are analyzed as prospectors, analyzers, defenders and reactors utilizing Miles and Snow typology (1978). The researchers investigate that how this business strategy is linked to functional strategies of SMEs operating in business environment marked with limited domestic market and low export orientation. Though operating in same business environment, SMEs vary in their competitive priorities and methods to achieve organizational goal in not so thriving auto parts sector. Manufacturing, Human Resource Management (HRM) and marketing being important functional strategies are explored to find the differences and similarities even when SMEs follow the similar strategic posture. The use of multiple methods for finding the business strategies of SMEs has been resorted to understand the implicit and explicit ways of conducting business.

Ghouri, A. M. (2013). Marketing Capabilities in SMES of Pakistan: An Empirical Approach. Ghouri, AM (2013). Marketing Capabilities in SMEs of Pakistan: An Empirical Approach. International Journal of Marketing Practices, 1(1), 52-56.

The role of marketing capabilities in driving superior firm performance has long been of interest to marketing scholars. This study was initiated to discover the relationship of marketing capabilities with firm performance in the SMEs of Pakistan. The survey questionnaire was adopted from the previous researches. The initial data for the study was collected from 36 owners/ managers of the SMEs firms in Karachi, Pakistan for pilot testing. All assumptions made by the authors were authenticated before applied multiple regression to find the variance in firm performance by applying (six) marketing capabilities variables. The findings of the multiple regression suggested that marketing research, pricing, service development, distribution, communication, and marketing management account for 30.8 percent of the variance in firm performance. It was also confirmed that pricing, distribution, and communication are positively significant with firm performance, while marketing research, service development, and marketing management are non significant.

Abro, Q. M. M., Memon, N. A. & Arshdi, P. I. S. (2011). Dynamic Capabilities and Firm Performance: A Case of Two SMEs in Pakistan. Mehran University Research Journal of Engineering and Technology, 30(3), 521-530.

This paper investigates the inter-relationship among entrepreneurship, dynamic capabilities and innovation. Entrepreneur’s foresights and insights of ICT (Information and Communication Technologies) tend to affect their choices of resources and development of dynamic capabilities, leading to different results of innovation. Based on the literature of business innovation and dynamic capabilities, this paper provides a model addressing the links between leadership, with insights and foresights for technology exploration and exploitation, and organizational capabilities of resource integration, learning and transformation to accelerate innovation. A comparative analysis of the two textile manufacturers in Pakistan revealed a cyclical process between the leadership decisions and dynamic capabilities of leveraging ICT for sustained competitiveness in these two SMEs (Small and Medium Sized Enterprises). The result suggests that to build strong capabilities for continuous innovation in today’s dynamic business environment, firms need to have leadership with both the attitude and behavior of entrepreneurship, combining the foresight to capture opportunities through ICT and the insight to guide and manage internal resources to achieve ICT-enabled innovation. This study is conducted on only two textile manufacturers in Pakistan and should be conducted at a larger scale to gather analysis of different sectors.

Gulzar, S. et. al. (2011). Dairy Hub: A Dairy Farmer Capacity Building Project by Tetra Pak. International Growth Centre.

Pakistan is the fourth largest milk producer in the world with an annual production of over 33 billion litres of milk, yet the sector faces numerous issues. One of the major challenges facing the dairy sector is the growing gap between milk supply and demand that is expected to increase to 3.6 billion litres by 2015. Smallholders who had little ownership of land to manage them own more than 92 percent of the animals. The small farmers do not have sufficient resources and lack training in animal husbandry that leads to poor animal health and low milk yield. Furthermore, the small farmers lack knowledge of modern breeding practices. This case study aimed to unpack these challenges, and provide some more context as to the dairy sector in Pakistan. The authors discuss the community development projects currently in place including Engro Model Village Program, Engro Khushaal Livestock Program, Small Entrepreneur Development Project, Model Farm Programme, Cooling Tank Programme and Tamkeen Project. A better understanding of dairy hub operations and its sustainability can provide the government grounds for developing the dairy hubs all over Pakistan and for starting other similar development projects in the sector. The study reveals that they allow improvement in quality and quantity and enable documentation of the rural economy. Dairy Hubs consist of a central building with instant cooling, milk testing equipment, quality control, data recording from all registered producers, veterinarian and training facilities. Veterinary hospitals are established along with mobile clinics and vaccination camps. Furthermore, trainings are a key component of the program. The authors recommend that the government’s full-fledged involvement in establishment of dairy hubs and other developments in dairy sector may help in improving average farmer productivity and as a result milk collection for processors. This case study is part of IGC Pakistan’s work on Firms with support from Secretary, Department of Industries, Punjab.

Ahmed, I., Shahzad, A., Umar,M. & Khilji, B. A. (2010). Information Technology and SMEs in Pakistan. International Business Research, 3 (4), 237-240.

Recent, spectacular technological advances have made the use of modern information technology an important competitive business tool. This study explores the use of IT by SMEs and their degree of satisfaction in using software and hardware. Results show that the use of Microsoft Office including Microsoft Word and Microsoft Excel is comparatively high. However, the use of communication software is very low. There is a greater dissatisfaction amongst respondents with software compared to hardware. One main reason is a lack of proper training. Informal training methods should be adopted.

Bhutta, M. K. S., Rana, A. I., Asad, U. (2008). Owner characteristics and health of SMEs in Pakistan. Journal of Small Business and Enterprise Development, 15(1), 130-149.

A survey from 651 SMEs from the manufacturing sector of Pakistan was conducted in 2003 and statistical analysis was carried out to analyze the data. This paper focuses on the relationship between the health indicators namely, sales/ employee, increase/ decrease in sales, and investment plans and different personal characteristics of the owner. This analysis suggests that education, generation setting up the business and number of partners have a significant relationship with the health of SMEs. Health of the firm is also dependent on owner habits like watching television, reading newspapers and using computers for office work. Other factors like caste of the owner and occupation of the owner’s relatives were also analyzed, but no significant relationship with the health of an SME was observed. This is the only study of its kind in Pakistan.

Innovation, Research and Development

Verhoogen, E., Chaudhry, A. (ongoing). Spillovers in Technology Adoption: Evidence from a Randomized Experiment in Pakistan. International Growth Centre.

There are two key challenges that researchers confront when analyzing technology spillovers. Firstly, researchers rarely have direct measures of firms’ technology use. Secondly, if one observes two firms adopting similar technologies, it is difficult to know whether the first firm is having an effect on the second, the second firm is having an effect on the first, or both are being affected by some unobserved factor. This paper resolves both of these issues and provides rigorous, experimental evidence on the presence (or absence) of technology spillovers between manufacturing firms. The setting of the research is the soccer-ball sector in Sialkot, Pakistan, which manufactures 60 million hand-stitched soccer balls each year and accounts for about 70 percent of global production. A new cutting technology has been designed that enables firms to reduce the amount of raw materials required to produce a soccer ball. The authors’ estimates suggest that the technology will save about 2% of the unit costs. The project is still ongoing and should be completed this year.

Ehsan, S. &, Khanum, A. (2014). Global Quality Requirements and their Compliance and Gaps within Pakistan’s Export Sector. The Lahore Journal of Economics, 19. 19, SE/10 Ehsan and Khanum Final.pdf

This paper aims to give a descriptive overview of the quality and compliance of Pakistan’s top export product categories. Due to high competition, innovations in technology and strict measures of quality requirements, the authors suggest that the time has come for Pakistan to build a holistic approach in a systematic manner for its industry in order to not just meet but exceed the international quality standards and certifications for its exports. This paper focuses on Pakistan’s exports in textiles (specifically Cotton Cloth, Knitwear, Cotton Yarn, Ready Made Garments and Towels) and Rice and their compliance with the global standards and the gaps which needs to be filled in order to have a sustainable growth of high quality exports to major global markets. The paper begins with the introduction, top export categories, key dimensions of international quality standards, specific standards and requirements for textiles and rice, quality assurance infrastructure in Pakistan, identification of major gaps, and policy recommendations in order to improve the state of affairs.

Khawar, H., Gilani, A. T., Rana, M. A. (2013). Exploring Dynamics of the Cotton Seed Provision System in Sindh Province- Reducing Barriers to Entry in Cotton Seed Market. International Growth Centre, Pakistan.

Cotton production is critical to Pakistan’s economy. Despite substantial improvement during the last few decades in productivity per unit of land, the average yield in Pakistan is lower than the world average. This is due to a number of factors, such as pests and diseases, water shortages, high temperatures, etc. The effect of these constraints is confounded by the absence of an effective seed provision system. Currently, cottonseed is provided to the farmer by a mix of public and private sectors in a poorly regulated and documented environment. Consequently, it is common for the farmer to have to deal with poor quality seed. There is limited knowledge about the sources of seed provision, their respective shares in the market and the dynamics in each case. The situation warrants rigorous research to explore the nature and dimensions of the cottonseed provision system in Pakistan. The study aims to generate data and analysis for use by public and private sectors. The study focuses exclusively on Sindh province, which contributes about 20% in cotton cultivation every year. The province was selected for this study because its seed industry is less developed as compared with the industry in Punjab. Findings reported in the study are based on fieldwork carried during October- November 2012 in five districts of Sindh. A draft questionnaire and an interview guide were prepared to collect information from respondents. A focus group discussion was also carried out to nuance the understanding of seed provisioning at the farmer level and identify seed sources.

Malik, O. R., & Kotabe, M. (2009). Dynamic capabilities, government policies, and performance in firms from emerging economies: Evidence from India and Pakistan. Journal of Management Studies, 46(3), 421-450.

The authors develop a model of the dynamic capability development mechanisms in Emerging Market Manufacturing Firms (EMF) based on three dynamic capability development mechanisms: organizational learning, reverse engineering, and manufacturing flexibility. These mechanisms are linked with firm performance. They also model the role played by managerial use of two types of government policies: input supporting policies and marketing supporting policies. The sample for the study includes Indian and Pakistani manufacturing firms. Personal interviews of managers were considered a suitable means for data collection. They had been directly involved in selecting and implementing new technologies, and were in a position to engage in higher order reflective thinking about the focal phenomena for this study. Results of the study show that organizational learning, reverse engineering and manufacturing flexibility have had significant impacts on Emerging Market Manufacturing Firms (EMF) performance. Additionally, organizational learning combined with input supporting government policies enhanced performance, and the combination of manufacturing flexibility and marketing supporting government policies had an insignificant influence on performance.

Muneer, T., Maubleu, S., & Asif, M. (2006). Prospects of solar water heating for textile industry in Pakistan. Renewable and Sustainable Energy Reviews, 10(1), 1-23.

The biggest challenge Pakistani textile industry is facing today is on cutting down its environmental burdens to cope with the international standards on the issue. Water heating system as required for dying process is one of the major energy consuming areas in fossil fuel-run Pakistani textile industry. Water heating system therefore has a significant contribution towards total environmental impacts associated with textile sector. This work presents an alternate, sustainable solution for water heating by means of fossil fuel. It has been shown herein that under Pakistan’s climate solar energy can contribute significantly towards this duty. In the present work two different designs of built-in storage water heater—plain and newly designed finned type—were constructed to compare their thermal performance. Three months of experimental data were collected for the two heaters. The solar fractions for this period were found to be 63 and 73%, respectively. The monetary and embodied energy payback periods for the two heaters were, respectively, found to be 6.7 and 6.1 years, and 185 and 169 days.

Bhutto, A. (2005). Managing inter industry differences through dynamic capabilities: The case study of Nokia. International Journal of Innovation and Technology Management, 2(03), 235-257.

This paper examines the case of Nokia as a player of the mobile communication industry and provider of mobile communication system: Mobile handsets (consumer goods) and mobile networks (CoPS). The paper aims to analyze the impact of strategic management and dynamic capability developed by a firm of an industry that supports the entire system and manages inter-industry differences of consumer goods and CoPS. Recent convergence among technologies has raised competition among firms. Achieving and sustaining competitive advantage in this converging market is therefore possible by identifying threats and then developing strategies and capabilities to resolve them. This article concludes by examining how the firm can achieve its competitive advantage.

Khattak, M. N., Baseer, M. A. & Bajwa, M. (no date) National Innovation System and the Need for an Up gradation Policy for Innovative and R&D Capabilities in Pakistan. Journal of Quality and Technology Management.

Pakistan’s indigenous technological capability (ITC) is very low mainly due to the fact, that as in most developing countries, Pakistan has not yet developed an effective national innovation system to facilitate the development of its innovative and R& D capabilities. National innovative systems are uncoordinated and fragmented and pose a serious problem in building the country’s technological capabilities. The authors shed light on the status of Pakistan’s innovation and R&DD capabilities using six different indicators. This paper explores the need to build Pakistan’s, innovative and R&D capabilities, and consequently establishes as one of its findings, the need for policy intervention to develop and strengthen the national innovation system, in order to facilitate the innovation capability building process. Moreover, the need for a supportive and fostering technology climate to act as an enabling environment for this entire process was also emphasized. A national innovative system will help Pakistan shift its focus from imitation towards innovation. The authors propose government intervention in the form of a new policy framework to channel the development of these capabilities in the context of a national innovative system.

Capital Structure and Industry Financing

Khan, A. G. (2012). The relationship of capital structure decisions with firm performance: A study of the engineering sector of Pakistan. International

Journal of Accounting and Financial Reporting, 2(1), Pages-245-262.

This paper aims to find the relationship of capital structure decision with the performance of firms in developing market economies like Pakistan. The authors apply Pooled Ordinary Least Square regression to 36 engineering sector firms in Pakistani market listed on the Karachi Stock Exchange (KSE) during the period 2003-09. The results show that financial leverage measured by short-term debt to total assets (STDTA) and total debt to total assets (TDTA) has a significantly negative relationship with the firm performance measured by Return on Assets (ROA), Gross Profit Margin (GM) and Tobin’s Q. The relationship between financial leverage and firm performance measured by the return on equity (ROE) is negative but insignificant. Asset size has an insignificant relationship with the firm performance measured by Return on Assets (ROA) but negative and significant relationship exists with Tobin’s Q. Firms in the engineering sector of Pakistan are largely dependent on short term debt but debts are attached with strong covenants which affect the performance of the firm. Loopholes in the implementation of accounting standards can be the basis for evading taxes and flow of dividends in an illegal way can be the reason for lower equity positions and increased leverage levels.

Umar, M., Tanveer, Z., Aslam, S., & Sajid, M. (2012). Impact of capital structure on firms’ financial performance: Evidence from Pakistan.

Research Journal of Finance and Accounting, 3(9), 1-12.

This research examines the impact of capital structure on firms’ financial performance in Pakistan of top 100 consecutive companies in Karachi Stock Exchange for a period of four years from 2006 to 2009. Exponential generalized least square regression is used to test the relationship between capital structure and firms’ financial performance. The results show that all the three variables of capital structure negatively impacts the Earnings before interest and tax (EBIT), Return on Assets (RoA), Earnings per share (EPS) and Net Profit Margin (NPM). Moreover, PE ratio shows a negative relationship with Current Liabilities (CL) to Total Assets (TA) and a positive relationship between Long Term Liabilities (LTL) and Total Assets (TA) where the relationship is insignificant with, Total Liabilities to Total Assets. These results, in general, lead to the conclusion that capital structure choice is an important determinant of financial performance of firms. The authors suggest that an increase in leverage negativity affects the performance of firms’. The study has limitations because it only focuses on only one emerging market.

Iyer, R., Khwaja, A. I., Luttmer, E. F., & Shue, K. (2009). Screening peers softly: Inferring the quality of small borrowers (No. w15242). National Bureau of Economic Research

The recent banking crisis highlights the challenges faced in credit intermediation. New online peer-to-peer lending markets offer opportunities to examine lending models and generate more types of information on which to screen. This paper evaluates screening in a peer-to-peer market where lenders observe both standard financial information and soft, or nonstandard, information about borrower quality. The authors observe a borrower’s exact credit score and find that lenders are able to predict default with 45% greater accuracy than what is achievable based on just the borrower’s credit score, the traditional measure of creditworthiness used by banks. The authors also find that lenders effectively use nonstandard or soft information and that such information is relatively more important when screening borrowers of lower credit quality. In addition to estimating the overall inference of creditworthiness, they also find that lenders infer a third of the variation in the dimension of creditworthiness that is captured by the credit score. This credit-score inference relies primarily upon standard hard information, but still draws relatively more from softer or less standard information when screening lower-quality borrowers. The results highlight the importance of screening mechanisms that rely on soft information, especially in settings targeted at smaller borrowers.

Ansari, M. S., & Riazuddin, R. (2006). An empirical investigation of cost efficiency in the banking sector of Pakistan. State Bank of Pakistan.

This study uses the distribution free approach to estimate levels of cost efficiency of individual banks operating in Pakistan. Furthermore, these levels of efficiency are analyzed under CAMELS indicators to provide micro insights of their financial standings to justify their prevailing positions. The results show that banks are significantly distinct at different efficiency levels ranging from 87 percent to 49 percent. Technology has played a significant role in reducing the cost of banking industry. However, the banking industry is still operating under diseconomies of scale. Moreover, non-performing loans have adversely impacted the cost structure of banking industry. CAMELS ratios indicate that the most efficient banks are those with lesser amount of non-performing loans, high capital adequacy, and lesser non-interest expenditure which leads to high profitability. Overall, there is great room in the banking industry to minimize cost by eliminating the inefficiency elements.

Khwaja, A. I., & Mian, A. (2005). Do lenders favor politically connected firms? Rent provision in an emerging financial market. The Quarterly Journal of Economics, 1371-1411.

Authors use a loan level data set of more than 90,000 firms that represents the universe of corporate lending in Pakistan between 1996-2002, they investigate rents to politically connected firms in banking. The authors have classified a firm as “political” if its director participates in an election, they examine the extent, nature and economic costs of political rent provision. The findings show that political firms borrow 45 percent more and have 50 percent higher default rates. Such preferential treatment occurs extensively in government banks- private banks provide no political favors. The study uses firm fixed effects and exploits variation for the same firm across lenders or over time allows for cleaner identification of the political preference result. They also find that political rents increase with the strength of the firm’s politician and whether he or his party is in power and fall with the degree of electoral participation in his constituency. They also provide direct evidence against alternative explanations such as socially motivated lending by government banks to politicians. The economy wide costs of the rents identified are estimated to be 0.3 to 1.9 percent of GDP every year.