The Lahore Journal of Economics

Provides articles in economics and related fields.

Articles

Vol. 17, No. 2, Winter

The Impact of Public School Enrolment on Child Labor in Punjab, Pakistan
AbstractThis paper investigates the causal impact of public school enrolment on child labor. Our main hypothesis is as follows: Is school enrolment a substitute for child labor? Recognizing that schooling and work choices are jointly determined by parents...
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What Does Pakistan Have to Join the Inflation Targeters' Club-A Royal Flush or a Seven-Deuce Offsuit?
AbstractThe economic and institutional structure required to successfully adopt and implement an inflation targeting framework (ITF) is often lacking in emerging economies. This paper evaluates these structures both qualitatively and quantitatively for...
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The Harberger-Laursen-Metzler Effect: Evidence from Pakistan
AbstractAccording to the Harberger-Laursen-Metzler (HLM) effect, an exogenous temporary increase in the terms of trade leads to an improvement in the current account balance. This paper uses a recursive vector autoregression to investigate empirically...
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Human Capital and Multifaceted Innovation: Evidence from the Lahore Knitwear Cluster in Pakistan
AbstractClusters have the potential to grow, but their potential in Pakistan is rarely analyzed and examined. This study examines the knitwear cluster of Lahore in general and the performance of enterprises in particular. Most of the literature on clusters...
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A Benefit Incidence Analysis of Public Spending on Education in Pakistan Using PSLM Data
AbstractEducation is one of the most important means of economic development, and there is consensus among policymakers that it is better to be educated than not. The debate on education is not, therefore, whether it is good or bad, rather it centers...
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Poverty, Income Inequality, and Growth in Pakistan: A Pooled Regression Analysis
AbstractThis study estimates a set of fixed effects/random effects models to ascertain the long-run relationships between poverty, income inequality, and growth using pooled data from eight household income and expenditure surveys conducted between 1992/93...
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Pakistan - the Political Economy of Growth, Stagnation and the State, 1951-2009
McCartney, Mathew, Pakistan - The Political Economy of Growth, Stagnation and the State, 1951-2009, Routledge, London and New York, ISBN13: 978-0-415-57747-2 and ISBN13: 978-0-203-81476-5, 2011, pp. 241.This book is, one can assert without a doubt, sui...
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Vol. 17, No. 1, Summer

The Consequences of Easy Credit Policy, High Gearing, and Firms' Profitability in Pakistan's Textile Sector: A Panel Data Analysis
AbstractThis study uses panel data on 75 textile firms for the period 2000-09 to examine the consequences of an easy credit policy followed by high gearing, increased financing costs, and other determinants of corporate profitability. Five out of nine...
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Human Capital Convergence: Evidence from the Punjab
AbstractWhile the literature on economic growth provides mixed evidence on convergence across different countries and regions, a large number of studies point toward the widening income gap between rich and poor. In the development literature, a broader...
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A Decomposition Analysis of Capital Structure: Evidence from Pakistan's Manufacturing Sector
AbstractThis study investigates the determinants of the various components of debt-short- and long-term debt and their categories-in the case of nonfinancial listed firms in Pakistan for the period 2008-10. We make a significant distinction between these...
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Does Access to Modern Marketing Channels Improve Dairy Enterprises' Efficiency? A Case Study of Punjab, Pakistan
AbstractThe main objective of this study is to investigate how access to modern marketing channels impacts the efficiency of dairy enterprises. Using data on dairy farms in central Punjab (Sargodha), we carry out a nonparametric data envelopment analysis...
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The Impact of Gypsum Application on Groundnut Yield in Rainfed Pothwar: An Economic Perspective
AbstractThis study presents an economic analysis of experimental on-farm data on the yield effect of gypsum on groundnut production in Pakistan's Pothwar region. The data indicates that groundnut pod yield increases significantly with the application...
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The Determinants of Food Prices in Pakistan
AbstractControlling prices is one of the biggest tasks that macroeconomic policymakers face. The objective of this study is to analyze the demand- and supply-side factors that affect food prices in Pakistan. We analyze their long-run relationship using...
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Vol. 16, September

Editors' Introduction
The Center for Research in Economics and Business (CREB) of the Lahore School of Economics, hosted the Seventh Annual Conference on the Management of the Pakistan Economy from May 4th - May 6th, 2011 and the theme of this year's conference was 'Financial...
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Reconstructing the Performance of Pakistan's Political Economy: Another Paradigm
AbstractThis paper looks at the major factors limiting economic growth in Pakistan. The paper then analyzes the structural problems faced by Pakistan today and goes on to discuss the challenges facing monetary policy makers in Pakistan as well as the...
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Pakistan 2011: Policy Measures for the Economic Challenges Ahead
AbstractPakistan faces economic challenges in the summer of 2011 with regard to its balance of payments and its public finances, resulting primarily from the suspension of an ongoing International Monetary Fund (IMF) program, the associated cessation...
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Pakistan, Growth, Dependency, and Crisis
AbstractCompared to the historical and even contemporary experience of India, Pakistan has long been regarded as a "dependent" economy. Gross domestic product growth in Pakistan is typically argued to be contingent on external factors: trade, financial...
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Pakistan: Breaking out of Stagflation into Sustained Growth
AbstractThis paper proposes that the underlying cause of the macroeconomic problems facing Pakistan today are a series of supply shocks which have constrained output growth. It is argued that while the current debate has solely focused on government...
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A Qualitative Analysis of Pakistan's External and Internal Debt
AbstractThis paper discusses how poor debt management combined with the policies of donor agencies (particularly the IMF) have brought on the present domestic and foreign debt crises. The paper presents a qualitative account of the debt in Pakistan and...
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Government Budget Deficits and the Development of the Bond Market in Pakistan: Issues and Challenges
AbstractThis article examines how better discipline can be brought to fiscal policy, first, through enhanced institutional checks and balances, and second, through better market discipline. We examine the political institutions and budgetary processes...
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The Capital Account and Pakistani Rupee Convertibility: Macroeconomic Policy Challenges
AbstractPakistan embarked on the liberalization of its capital account more than two decades ago. Today, it is an economy with a capital account that is, by and large, free of restrictions, and a convertible currency. However, its actual integration...
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The Economics of Inflation, Issues in the Design of Monetary Policy Rule, and Monetary Policy Reaction Function in Pakistan
AbstractThe objective of this study is to estimate a monetary policy reaction function for Pakistan. To do this, we use data for the period 1992Q4-2010Q2. Our results show that the State Bank of Pakistan reacts to changes in the inflation rate and economic...
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Interest Margins and Banks' Asset-Liability Composition
AbstractThis article examines the determinants of banks' interest margins. The results suggest that short-term government bonds (floating debt) and the large share of interest-insensitive deposits held by banks are the key determinants of the interest...
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The Impact of Monetary Policy on Lending and Deposit Rates in Pakistan: Panel Data Analysis
AbstractThis study estimates the impact of monetary policy on lending and deposit rates in Pakistan, using bank data for the period November 2001 to March 2011. We find evidence of a long-run relationship between the lending and discount rate, but the...
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An Evaluation of Mutual Fund Performance in an Emerging Economy: The Case of Pakistan
AbstractThis article examines the performance of Pakistan's mutual fund industry during 2006-10, a period characterized both by bullish and bearish markets. An analysis of fund types reveals that Islamic funds have shown strong growth in spite of their...
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Norms of Cooperation, Trust, Altruism, and Fairness: Evidence from Lab Experiments on Pakistani Students
AbstractA rich area of economic research focuses on the role of controlled experiments to understand interactions between agents and agents' own deep-seeded preferences as they pertain to pro-social behavior. Four of the most common games-the prisoner's...
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Market Discipline in Commercial Banking: Evidence from the Market for Bank Equity
AbstractThis study presents empirical evidence of market discipline, using a panel dataset of listed banks on the Karachi Stock Exchange. We construct multiple risk-based measures from the stock prices between 2004 and 2009 to determine whether an increase...
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Financing Constraints: Determinants and Implications for Firm Growth in Pakistan
AbstractThis study has a twofold objective: (i) to investigate the determinants of firm growth, specifically the extent to which finance constrains enterprise growth; and (ii) to explore the determinants of external financial access in Pakistan. External...
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The Impact of Bank Governance on Bank Performance in Pakistan
AbstractThis study attempts to investigate the impact of changes in bank governance on bank performance in Pakistan. Governance changes entail the privatization and restructuring of state-owned banks, and the merger and acquisition of private and foreign...
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Vol. 16, No. 1, Summer

Prospects for Cooperative Marketing among Surgical Instrument Producers in Pakistan
Abstract:Given that clustered firms in developing countries generally sell their goods through multinational firms, we seek to determine under what conditions might clustered surgical instrument firms band together and form a cooperative to "break out"...
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The Trade Potential of Pakistan: An Application of the Gravity Model
AbstractThis paper attempts to estimate Pakistan's trade potential, using the gravity model of trade. Panel data for the period 1981-2005 across 42 countries is employed in the analysis. The coefficients obtained from the model are then used to predict...
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Comparative Advantage of Major Crops Production in Punjab: An Application of Policy Analysis Matrix
AbstractThis study uses data from 1999/2000 to 2004/05 to determine the relative efficiency of major crops (wheat, rice, sugarcane, and cotton) in Punjab (Pakistan) and their comparative advantage in international trade as measured by economic profitability...
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Impact of Monetary and Macroeconomic Factors on Wheat Prices in Pakistan: Implications for Food Security
AbstractThis paper attempts to evaluate the impact of monetary and macroeconomic factors on real wheat prices in Pakistan for the period 1976-2010, using Johansen's co-integration approach. The Augmented Dickey-Fuller test reveals that all the variables...
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The Reserve Equation and the Analytics of Pakistan's Monetary Policy
AbstractThis paper deals with the computation and analysis of some fundamental reserve aggregates and associated monetary statistics, which impart important information regarding the design and conduct of monetary policy at the State Bank of Pakistan...
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The Role of Education and Income in Poverty Alleviation: A Cross-Country Analysis
AbstractThe existing literature on education and poverty considers mostly primary data from an income point of view. However, the benefits of education vary from a direct income effect to positive externalities, which can help reduce poverty. This paper...
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Towards New Developmentalism, Market as Means Rather Than Master
Edited by Shahrukh Rafi Khan and Jens Christiansen, Towards New Developmentalism, Market as Means Rather than Master, Routledge, Taylor and Francis Group, London and New York, 2011, ISBN13: 978-0-415-77984-5, pp 286.Neo-liberalism has virtually seen...
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Vol. 15, No. 2, Winter

Fiscal Marksmanship in Pakistan
AbstractUsing Theil's inequality coefficient based on the mean square prediction error, this paper evaluates the forecasting efficiency of the central government budget and revised budget estimates in Pakistan for the period 1987/88 to 2007/08 and decomposes...
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Does Trade Openness Reduce Inflation? Empirical Evidence from Pakistan
Abstract:One of the more celebrated propositions found in international trade is the case that trade liberalization is associated with declining prices, so that protectionism is inflationary. In line with this view, Romer (1993) postulates the hypothesis...
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Measurement and Decomposition of Consumption Inequality in Pakistan
AbstractThis paper shows that inequality in consumption expenditure in Pakistan improved slightly between 1992/93 and 2004/05, and that the extent of inequality in food consumption has remained substantially lower than in nonfood consumption. An important...
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Asymmetric Behavior of Inflation Uncertainty and Friedman-Ball Hypothesis: Evidence from Pakistan
AbstractThis paper is a first attempt to measure and analyze inflation uncertainty in Pakistan. It makes several contributions to the literature. In the first stage, using quarterly data from 1976:01 to 2008:02, we model inflation uncertainty as a time...
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Evaluation of Rice Markets Integration in Bangladesh
AbstractThe liberalization of the agricultural sector in general and the rice subsector in particular has been a major component of Bangladesh's structural adjustment program initiated in 1992. However, the government has continued to intervene in the...
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Adopting Inflation Targeting in Pakistan: An Empirical Analysis
AbstractThe objective of this paper is to assess the conditions for inflation targeting in Pakistan. The recent inflationary surge in Pakistan calls for rethinking monetary policy afresh. This paper argues the case for inflation targeting in Pakistan...
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A Note on the Pricing of Liquidity in Stock Returns
1. IntroductionKeynes (1930) proposed that an asset is more liquid than another "if it is more certainly realisable at short notice without loss" (vol. II, p. 67). This definition suggests that the liquidity of an asset is twofold. First, an asset should...
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Vol. 15, September

Provincial Rights and Responsibilities
AbstractThis article suggests that Pakistan requires a different development paradigm. The analysis begins by giving a quick overview of some of the larger economies of the region and assesses the divisions that have developed between the people as a...
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A Panel Data Analysis of Electricity Demand in Pakistan
AbstractThis paper looks at the economy-wide demand and the firm level demand for electricity in Pakistan. The economy wide estimation of electricity demand uses panel data from 63 countries from 1998-2008, and finds that the elasticity of demand for...
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Dynamics of Circular Debt in Pakistan and Its Resolution
AbstractThis paper examines the circular debt problem in the Pakistani energy sector. After presenting the profile of the energy sector in Pakistan, the paper explains why circular debt has emerged in the sector. Two principal reasons are discussed for...
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Pakistan: Indus Basin Water Strategy - Past, Present and Future
AbstractThis paper looks at the Indus Basin Water Strategy for Pakistan. It begins with a historical overview of the Indus Basin Irrigation System (IBIS), the Indus Basin Replacement Works (1960-1980) and the Indus Basin Salinity Control Efforts (1960-2000)....
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The Endemic Crisis of Federalism in Pakistan
AbstractThis paper looks at the issue of federalism in Pakistan. It begins with an analysis of the conceptual paradigms of federalism and goes on to examine the history of federalism in Pakistan. The paper goes on to discuss the reasons for the failure...
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Can Pakistan Get out of the Low Tax-to-GDP Trap?
AbstractThis paper explores how Pakistan can get out of the low-tax-to-GDP trap and come close to achieving its revenue targets. Examining the trend factors influencing the trend in total and individual tax-to-GDP ratios over a period of twenty years,...
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Editors' Introduction
The Sixth Annual Conference on the Management of the Pakistan Economy was hosted by the Center for Research in Economics and Business (CREB) of the Lahore School of Economics from April 22nd to April 23rd, 2010 and the annual Special Edition of the Lahore...
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Pakistan's Energy Sector Issues: Energy Efficiency and Energy Environmental Links
AbstractThis paper analyzes Pakistan's energy sector issues and highlights (i) the importance of the link between energy and the environment, and (ii) the central importance of energy efficiency for high return demand-side solutions to meet the country's...
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Why Is It So Difficult to Implement a GST in Pakistan?
AbstractThis paper discusses the efforts by the Government of Pakistan to implement a General Sales Tax (GST). First, a history of Pakistani tax reform efforts is presented along with the reforms recommended by the National Taxation Reforms Commission....
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Estimating Residential Electricity Demand Responses in Pakistan's Punjab
AbstractIn this paper, we aim to understand residential electricity demand responses to changes in income, in order to assist policymakers in managing demand for electricity and evaluating tariff increases associated with proposed projects for increasing...
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Vol. 15, No. 1, Summer

The Determinants of Pakistan's Trade Balance: An ARDL Cointegration Approach
AbstractThis article is an attempt to examine the short and long-run relationship between the trade balance, income, money supply, and real exchange rate in the case of Pakistan's economy. Income and money variables are included in the model in order...
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Unilateral Liberalization versus Regional Integration: The Case of ECO Member Countries
AbstractUsing an international dataset on bilateral trade for 137 countries in 2005, we estimate a gravity model to address the question of whether intra-Economic Cooperation Organization (ECO) trade is too low and whether the scale of trade at present...
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External Shocks in a Small Open Economy: A CGE - Microsimulation Analysis
AbstractThis paper studies the impact of changes in the external balance of Pakistan. We explain why the economic growth achieved during the past decade was highly dependent on improvements in the external balance. Between 2001 and 2007, Pakistan benefited...
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Development of Supply and Demand Functions of Pakistan's Wheat Crop
AbstractA simultaneous-equations model was used to capture the supply and demand functions for Pakistan's wheat sector at the national level. This model reflects the fact that Pakistan's domestic wheat supply is price-responsive and positively affected...
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Reaction of Stock Prices to Dividend Announcements and Market Efficiency in Pakistan
AbstractThis study tests the semi-strong form of market efficiency by investigating the reaction of stock prices to dividend announcements. It analyzes cash, stock, and simultaneous cash and stock dividend announcements of 79 companies listed on the...
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Asset Allocation for Government Pension Funds in Pakistan: A Case for International Diversification
AbstractReforms have begun in Pakistan to sustain the funded pension scheme for government-operated pension schemes such as the Employees Old Age Benefit Institution (EOBI). Presently, the EOBI operates its own fund and invests most of its assets in...
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Vol. 14, September

Editors' Introduction
In April 2009, the Centre for Research in Economics and Business (CREB) of the Lahore School of Economics hosted the Fifth Annual Conference on the Management of the Pakistan Economy on the theme, "Growth, Trade and Development." The Centre's Director,...
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Total Factor Productivity Growth in Pakistan: An Analysis of the Agricultural and Manufacturing Sectors
AbstractThis paper uses Cobb-Douglas and translog production functions to calculate total factor productivity (TFP) in Pakistan over the period 1985 - 2005, first for the manufacturing and agricultural sectors individually, then for the economy as a...
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Microeconomic Flexibility in India and Pakistan: Employment Adjustment at the Firm Level
AbstractIn this paper, we look at the pace at which firms adjust their employment levels as a measure of "microeconomic flexibility." Flexibility aids in creative destruction processes, where less efficient establishments recede and dynamic firms can...
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The Political Economy of Industrial Development in Pakistan: A Long-Term Perspective
AbstractPrivate industrial development in Pakistan has a mixed track record. This paper presents a political economy overview of industrial development in Pakistan. Starting with an analysis of initial conditions, such as low levels of urbanization and...
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Capital Flows and Real Exchange Rate Overvaluation - A Chronic Ailment: Evidence from Pakistan
AbstractThe objective of this study is twofold: (i) to estimate the equilibrium real exchange rate (RER) from a long-run perspective and calculate the degree of overvaluation for the period 1972-2007, and (ii) to test the Dutch Disease hypothesis concerning...
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Recent Experience and Future Prospects of Pakistan's Trade with China
AbstractThis paper examines the prospects of expanding bilateral trade between Pakistan and China particularly in the context of the recently signed free trade agreement between the two countries. Using the augmented gravity model in the tradition of...
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The Rise of Bilateralism in Trade and Its Implications for Pakistan
AbstractThis paper examines and critiques the worldwide mushrooming of preferential trading arrangements and traces its implications for Pakistan. It points out that this development is fundamentally contrary to the principle of most-favored-nation (MFN)...
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International Trade Arising from Wage Differences
AbstractThis paper analyzes how trade can develop between low and high wage countries when there is free trade and when there is protection. In particular, the paper focuses on Pakistani industrial development from the 1950's and how standard international...
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Bilateral FTAs in South Asia: Recasting the Regionalism Debate
AbstractThe slow pace of progress of the South Asian regional trade integration process under SAARC has prompted many countries to seek bilateral agreements. Sri Lanka is a case in point with bilateral agreements with both India and Pakistan. While the...
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Pakistan-India Trade Potential and Issues
AbstractPakistan and India are the two largest economies in South Asia with very low levels of bilateral trade. This has been the result of border disputes and political tensions, but also of inward-looking import-substitution growth strategies. Trade...
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Vol. 14, No. 1, Summer

Trade Liberalization and the Lead Role of Human Capital and Job Attributes in Wage Determination: The Case of Pakistan's Labor Market
AbstractThis study analyzes the role of human capital and job attributes, i.e., supply-side determinants, in determining wages in a period of trade liberalization. Using the Mincerian earning function and based on data from the Labor Force Surveys, we...
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The Impact of Socioeconomic and Demographic Variables on Poverty: A Village Study
AbstractPoverty is a complex phenomenon based on a network of interlocking economic, social, political, and demographic factors. An understanding of the extent, nature, and determinants of rural poverty is a precondition for effective public policy to...
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Economic Value of Irrigation Water: Evidence from a Punjab Canal
AbstractThis study is based on data from a cross sectional survey of 120 farms located along the Mithaluck irrigation canal in central Punjab. The data collected were analyzed using (i) the residual imputation method, and (ii) the change in net income...
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Cointegration and Causality: An Application to Major Mango Markets in Pakistan
AbstractMangoes are one of Pakistan's most important fruits; the country is the world's fourth largest producer and exporter of mangoes. Integrated markets are those where price signals are transferred from one to another, allowing physical arbitrage...
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An Empirical Investigation of the Causal Relationship among Monetary Variables and Equity Market Returns
AbstractThis study explores the long-term dynamic relationship between equity prices and monetary variables for the period June 1998 to June 2008. Monetary variables include money supply, treasury bill rates, foreign exchange rates, and the consumer...
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The Impact of Corporate Governance on the Cost of Equity: Empirical Evidence from Pakistani Listed Companies
AbstractThis study examines the impact of the quality of corporate governance, as measured by a specially constructed corporate governance index, on the expected cost of equity calculated using the capital asset pricing model (CAPM) approach. A total...
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Banker to the Poor, the Story of Grameen Bank
Yunus, Muhammad with Alan Jolis, Banker to the Poor, The Story of Grameen Bank, Aurum Press Ltd, London, 1998, ISBN 978-1-85410-924-8, pp 313, Price: UK Pounds 8.99.It is the firm conviction of Muhammad Yunus, winner of the Nobel Peace Prize, that poverty...
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Vol. 14, No. 2, Winter

The Role of Satellite Stock Exchanges: A Case Study of the Lahore Stock Exchange
AbstractIn many countries, capital markets are often served by multiple stock exchanges, typically with one national or dominant exchange and several regional or satellite exchanges. While multiple exchanges create a competitive landscape, they also...
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Trade and Income Convergence in Selected South Asian Countries and Their Trading Partners
AbstractThis paper analyzes trade among and the convergence of per capita income for India, Pakistan, Bangladesh, and Sri Lanka. The extent of trade and its relationship with the magnitude of income convergence is studied among these countries and their...
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An Analysis of Host Country Characteristics That Determine FDI in Developing Countries: Recent Panel Data Evidence
AbstractThis paper analyzes a range of host country characteristics that determine foreign direct investment (FDI) flows to developing countries, using panel data on 72 countries for the period 1970-2008. Keeping in view the endogeneity problem of the...
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An Efficiency Analysis of Punjab's Cotton-Wheat System
AbstractThis study examines the technical, allocative, and economic efficiencies of the cotton-wheat farming system in Punjab, Pakistan. It also investigates the determinants of these efficiencies using a non-parametric data envelopment analysis (DEA)...
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Competitiveness of Pakistani Fruits in the World Market
AbstractThis paper examines the global competitiveness of Pakistan's fruit exports (dates, mangoes, and oranges), using revealed comparative advantage (RCA). It also analyzes domestic consumption trends among selected fruits grown by major exporters....
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Income Tax Revenue as an Indicator of Regional Development in Pakistan
AbstractThe objective of this paper is to highlight the use of income tax revenue as an indicator of regional development in Pakistan. Initially, we identify a dramatic shift in income tax revenue trends at the provincial level for the period 1992/93...
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