From Inward to Outward Changing the orientation of our economy Dr. - PowerPoint PPT Presentation

From Inward to Outward Changing the orientation of our economy Dr. Reza Baqir Governor State Bank of Pakistan Firms and Growth Seminar January 13, 2020

Part I Why do we need a renewed emphasis on export-oriented growth?

Except for brief episodes (e.g. 2000-2006), Pakistan’s growth has been driven by domestic consumption Pakistan: GDP Growth and its drivers Growth in %, contribution in ppt. 14.0 14.0 Consumption Investment Exports (G&S) Imports (G&S) GDP 12.0 12.0 10.0 10.0 8.0 8.0 6.0 6.0 4.0 4.0 2.0 2.0 0.0 0.0 -2.0 -2.0 -4.0 -4.0 -6.0 -6.0 FY92 FY93 FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 3 Source: PBS

Contribution of exports to growth has lagged comparator groups through 2018 GDP Growth and its drivers Average growth in %, contribution in ppt. 8.0 8.0 Exports (G&S) Other Demand-side Components GDP 7.0 7.0 6.0 6.0 5.0 5.0 4.0 4.0 3.0 3.0 2.0 2.0 1.0 1.0 0.0 0.0 1980s 1990s 2000s 2010-18 1980s 1990s 2000s 2010-18 1980s 1990s 2000s 2010-18 1980s 1990s 2000s 2010-18 Pakistan South Asia East Asia Lower middle income Note: Other demand-side components include public and private consumption/investment and imports (G&S). Source: World Bank 4

Growing at the same rate as the top 25% of emerging markets will require much higher export growth Contribution of Exports and other factors in GDP growth Averages over 2001-2018, real growth in %, contribution in ppt. 8.0 8.0 Export contribution to growth Contribution from other demand-side factors to growth 7.0 7.0 GDP growth 6.0 6.0 5.0 5.0 4.0 4.0 3.0 3.0 2.0 2.0 1.0 1.0 0.0 0.0 Pakistan Top quartile countries Notes: 1. Top quartile of countries selected w.r.t. GDP growth form 98 countries over the period of 2001-2018. 2. Beside others, these countries include Pakistan’s textile competitors like India, Bangladesh, Vietnam, and Cambodia. 3. Other demand-side factors include public and private consumption/investment and imports (G&S). 5 Source: World Bank

Part II What are the determinants of our export performance?

Literature on Determinants of Exports in Pakistan…(1) Paper Title Author(s) Year Journal Data Determinants Technique Income effect at destination countries and real devaluation of currency. Pakistan’s Trade Sajjad Akhtar and Fauzia The Pakistan Three-stage Least Performance vis-à-vis Its Malik 2000 1982-1996 Development Review Concessionary export Square technique Major Trading Partners (Cited by 53) financing and customs rebates (only significant for some destinations) The Long-run and Short- run Impact of Exchange Zehra Aftab and The Pakistan Real devaluation of currency (Only for long Johansen's Rate Devaluation on Aurangzeb 2002 1980-2000 Development Review run) cointegration Pakistan's Trade (Cited by 37) Performance The Supply and Demand world economic activity, business cycles of for Exports of Pakistan: Zeshan Atique and trade partners, level of domestic The Pakistan The Polynomial Mohsin Hasnain Ahmad 2003 1972–2000 production, real Almon approach Development Review Distributed Lag Model (Cited by 32) effective exchange rate (only for short (PDL) Approach run), labor cost (long run). Estimation of import and Jahanzaib Haider, export demand functions Muhammad Afzal, Farah Business and Income of trading partners, Exchange rate OLS and Johnson co- 2011 1973-2008 using bilateral trade data: Riaz Economic Horizons integration The case of Pakistan (Cited by 26) Pakistan's agricultural Rao muhammad Atif, Liu The Journal of Bilateral Exchange rate, Bilateral tariffs, exports, determinants and Haiyun and Haider International Trade & Bilateral trade agreements & lack of Stochastic frontier its potential: an 2016 1995 to 2014 Mehmood Economic regional trade, cultural seminaries gravity model application of stochastic (Cited by 23) Development between trading partners frontier gravity model 7

Literature on Determinants of Exports in Pakistan…(2) Paper Title Author(s) Year Journal Data Determinants Technique Determinants of Exports Naseeb Zada, Malik Quantity of Export demanded, Real The Pakistan of Pakistan: A Country- Muhammad and Khan Exchange Rate, GDP of Trading Partners, 2011 Development 1975-2008 GMM, Bayesian wise Disaggregated Bahadar Dummy for Kuwait-Iraq war and US led Review Analysis (Cited by 22) Afghan war Estimating Long-run Mohammad Afzal and The Pakistan Exchange rate depriciation in a Trade Elasticities in johanson co- Imtiaz Ahmad 2004 Development 1960–2003 compbination of rise in saving relative to Pakistan: A Cointegration integration (Cited by 18) Review investment Approach Weaknesses in physical infrastructure, lack of modern technology, lack of human resource development, shortage of Rashid Amjad, Ejaz Ghani, Export Barriers in required skills, lack of quality certifications Musleh ud Din and Tariq The Lahore Journal Purposive sampling Pakistan: Results of a 2012 2010 to 2012 (as per international standards), Lack of Mahmood of Economics approach for survey Firm-Level Survey FDI, High cost of doing business, lack of (Cited by 14) regional economic integrations, High domestic absorption leading to lack of exportable surplus Demand and Supply of Relative prices (mainly forr primary Mohammad Afzal The Lahore Journal Two Stage Least Exports in Pakistan __ A 2005 1972 -2003 exports) & domestic production conditions (Cited by 8) of Economics Square Disequilibrium Model represented by real GDP Determinants of Export Governeance, Business envoirnment, high Growth at the Extensive concentration of exports in the hands of a Jose Guilherme Reis and and Intensive Margins: limited number of large exporters,Low Daria Taglioni 2016 World Bank - Evidence from Product rates of product innovation, low ability of (Cited by 7) and Firm-Level Data for the export sector to enter into new higher Pakistan growth sectors Pakistan’s Exports World Imports, Unit Value of Export, Fayyaz Hussain SBP Research Demand: A Disaggregated 2010 1988-2009 Competitors Price, ER Index, Weighted GMM (Cited by 7) Bulletin Analysis Average Index of for Competitors 8

Literature on Determinants of Exports in Pakistan…(3) Paper Title Author(s) Year Journal Data Determinants Technique Cost of Doing Business, Energy Availability, Women Participation in Labor Export Performance of Asif Mahmood and Waqas 1984-2016 Force, FDI and Technological Pakistan: Role of Ahmed 2017 SBP Staff Notes Non Empirical Study (indicative) Advancement, Education and Research, Structural Factors (Cited by 5) tariffs, Market and Product Diversification, Access to Finance Towards Measurement and Determinants of Pakistan Journal Naima Mubeen Geographic concentration of exports, FDI, Export Diversification: An 2016 of Commerce and 1980-2015 ARDL (Cited by 4) REER, Trade Openness, World GDP Empirical Analysis of Social Sciences Pakistan An investigation into Productive capacity, Relative export prices, Aleena Sajjad and Zafar export supply NUST (working trade openess, curruption & simplification Panel Fully Modified Mehmood 2014 1984-2012 determinants of selected paper series) of trade procedures, energy supplies and Ordinary Least Square (Cited by 3) South Asian economies FDI Sajid Gul, Muhammad Factors Affecting the Research Journal Faisal Siddiqui, Fakhra Two Stage Least Demand Side of Exports: 2013 of Finance and 1990 to 2010 Real Exchange rate & World growth Malik and Nasir Razzaq Square (2SLS) Method Pakistan Evidence Accounting (Cited by 2) Regional economic integration, competency in more labour intensive An Assessment of Afia Malik, Ejaz Ghani & components of complex products Pakistan’s Export Musleh ud Din 2017 PIDE 2003-2015 gradually advancing to more skill and - Performance and the Way (Cited by 1) technology intensive activities, technology Forward upgradation, business climate and institutional quality Pakistan’s international Policy barriers (leading to lower level of trade;The potential for Ehsan Choudhri, Antonio International trades with regional countries), Lack of 2017 2004 to 2013 Gravity model expansion towards East Marasco and Ijaz Nabi growth centre infrastructure for trade via roads, Private and West FDI to be a key determinant 9