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Review of the previous lecture
Advocates of active monetary and fiscal policy view the economy
as inherently unstable and believe policy can be used to offset
this inherent instability.
Critics of active policy emphasize that policy affects the
economy with a lag and our ability to forecast future economic
conditions is poor, both of which can lead to policy being
destabilizing.
Advocates of rules for monetary policy argue that discretionary
policy can suffer from incompetence, abuse of power, and time
inconsistency.
Critics of rules for monetary policy argue that discretionary
policy is more flexible in responding to economic
circumstances.
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Review of the previous lecture
Advocates of a zero-inflation target emphasize that inflation
has many costs and few if any benefits.
Critics of a zero-inflation target claim that moderate inflation
imposes only small costs on society, whereas the recession
necessary to reduce inflation is quite costly.
Advocates of reducing the government debt argue that the debt
imposes a burden on future generations by raising their taxes and
lowering their incomes.
Critics of reducing the government debt argue that the debt is
only one small piece of fiscal policy.
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Review of the previous lecture
Advocates of tax incentives for saving point out that our
society discourages saving in many ways such as taxing income from
capital and reducing benefits for those who have accumulated
wealth.
Critics of tax incentives argue that many proposed changes to
stimulate saving would primarily benefit the wealthy and also might
have only a small effect on private saving.
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Lecture 29
Overview of Pakistan EconomyInstructor: Prof.Dr.Qaisar
AbbasCourse code: ECO 400
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Lecture Outline
Economic eras
Structural Changes In Pakistan
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65 years of developmentLaying the Foundations:1947-1958
Features
Predominantly agrarian, undeveloped and newly independent
nation
Little industry, few services and no infrastructure
Adverse international conditions and precarious domestic
situation
Attempts of bureaucracy to keep Pakistan on its feet
Lack of capital
Trade surplus
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The Decade of Development:1958-1968Achievements
Considerable economic growth and development
Significant leaps were made in industrial and agriculture
production
Model Capitalist Economy
High growth rate in manufacturing sector
Increase in exports
Progress in agriculture sector
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Policy Failures
Increased disparities in incomes
Concentration of economic prosperity
Social sectors were neglected
Little or no increase in real wages
Trade was highly controlled and closed
Distortion of local markets b/c of overvaluation of exchange
rate
The Decade of Development:1958-1968
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The bad Luck Years:1971-1977Achievements
Foundations for future growth and development
Basic industries were setup
Base for a capital goods industry
Middle East boom
Illiberal economic policies
Foreign exchange earnings doubled because of devaluation
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FailuresEvents beyond control affected economic program of this
era
Downward trend in growth
Nationalization
Cotton crops failure and floods affected Pakistans exports
Crisis in balance of payments
Devaluation of Pakistani rupee
The bad Luck Years:1971-1977
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The second Military Government 1977-1988Achievements
Liberal economic policies
Higher industrial growth
Second economic revolution because of remittances from the
Middle East and aid from abroad
Emergence of middle class
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Policy Failures
Martial rule inflicted deep rooted damage to Pakistani
society
Drugs and arms culture in Pakistan
Confusion of policies
Underutilization of resources (foreign aid and remittances)The
second Military Government 1977-1988
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The Era of Structural Adjustment:1988-1998Achievements
Return of democracy
Era of structural adjustment
Economic liberalization and stabilization
Privatization
Reduction in tariff rates to increase exports
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Policy FailuresMacro economic crisis
High taxation
Low spending in social sectors
Trade reforms resulted in deindustrialization
Continuous devaluation in the Pakistani rupee
Increased in the administrated prices of utilities
High inflation rate
Unemployment
Privatization without proper policy
Loss of sovereignty for the Pakistani state and its people
The Era of Structural Adjustment:1988-1998
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Economic Situation:1998-2004FeaturesAcceleration in economic
growth
Increase in industrial production
Rise in exports earnings
Strong upsurge in investment
Pre-payment of high cost external debt
Increase in foreign exchange reserve
Strategic re-entry into the international capital markets
Increase in spending on Education
Increase in FDI
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2005-2007The economy picked up further in FY2005,
-with GDP growth coming in at over 8.4% for the first time in 8
years. -With sound macroeconomic fundamentals achieved and key
sectors strengthened by reforms implemented in the 4-5 years, -the
economy was well positioned to sustain 7% or more growth in the
medium term.
ADBs Asian Development Outlook 2005
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Sect oral Contribution to the GDP growth (%points)
Sector2006-072007-082008-092009-102010-11Agriculture0.920.230.860.130.26Industry2.280.38-0.032.09-0.02Manufacturing1.550.92-0.691.010.55Services3.613.080.891.542.15Real
GDP (FC)6.813.681.723.762.39
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Structural Changes In PakistanStructural Change
Modern economics has given clear evidence that changes in levels
of some basic magnitudes are generally associated with changes in
composition, which imply STRUCTURAL CHANGE
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Reasons of Structural ChangesTo modernize the economy
To industrialize the economy
To pace capital accumulation in the economy
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Main Sources of Structural Changes
Growth of population (natural or immigrant)
Application of technical and mechanized processes of production
which change quantity of output per unit of input
Technical progress which generates a continuous growth of real
per capita incomes which implies a growth of demand for goods and
services
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Structural Changes Pakistan today is less than half of the
country it was in 1947. The contribution made by East Pakistan to
Pakistans society and economy was huge.
Pakistan is basically an agricultural country is no longer true.
The services sector has replaced agriculture as the dominant sector
of the economy, contributing almost half of GDP.
Process and extent of UrbanizationIn 1951 only 17% of West
Pakistan lived in areas designated as Urban; today estimate suggest
that above 40* live in cities and towns.
Emergence and consolidation of middle class
The nature of exports from Pakistan has also changed
dramatically.
Feudalism in Pakistan died a very long time ago.
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Pakistan: basic indicators,1947-2011
195119972011Population (millions)33.78140180.72Contribution to
GDP by
sector(%)Agriculture53.224.221Manufacturing7.826.412Others39.049.467
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An Economic and Social Agenda For Improvement
Restore confidence
Initiate and sustain technological change
Foster stability and trust in social and cultural
relationship
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Recommended BooksIshrat Husain, Pakistan: The economy of an
elitist state, Oxford University Press.
Zaidi, S. Akbar,(1999),Issues in Pakistan Economy, Oxford
University Press.
Saeed, K. Amjad,(2007)Economy of Pakistan, Institute of Business
Management, Lahore.
Economics Survey of Pakistan (Latest Issues), Economic Advisors
Wing, Ministry of Finance, Government of Pakistan