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.