Is Pakistan’s Growth Rate Balance-of-Payments Constrained? Policies and Implications for Development and Growth

48 Pages Posted: 20 May 2010

See all articles by Jesus Felipe

Jesus Felipe

Asian Development Bank

John McCombie

University of Cambridge - Department of Land Economy

Naqvi Kaukab

affiliation not provided to SSRN

Date Written: May 1, 2009

Abstract

This paper examines the extent to which Pakistan’s growth has been, or is likely to be, limited or constrained by its balance-of-payments (BOP). The paper begins by briefly considering the BOP-constrained growth model in the context of demand and supply-oriented approaches to economic growth. Evidence presented suggests that Pakistan’s maximum growth rate consistent with equilibrium on the basic balance is approximately 5% per annum. This is below the long-term target rate of a growth of gross domestic product of 7-8% per annum. This BOP-constrained growth approach provides some important policy prescriptions for Pakistan’s development policy. Real exchange rate depreciations will not lead to an improvement of the current account. Pakistan must lift constraints that impede higher growth of exports. In particular, it must shift its export structure to products with a higher income elasticity of demand and sophistication.

Suggested Citation

Felipe, Jesus and McCombie, John S. L. and Kaukab, Naqvi, Is Pakistan’s Growth Rate Balance-of-Payments Constrained? Policies and Implications for Development and Growth (May 1, 2009). Asian Development Bank Economics Working Paper Series No. 160, Available at SSRN: https://ssrn.com/abstract=1611464 or http://dx.doi.org/10.2139/ssrn.1611464

Jesus Felipe (Contact Author)

Asian Development Bank ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

John S. L. McCombie

University of Cambridge - Department of Land Economy ( email )

19 Silver Street
Cambridge, CB3 9EP
United Kingdom

Naqvi Kaukab

affiliation not provided to SSRN ( email )

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