Academic journal article The Lahore Journal of Economics

Comparing Industrialization in Pakistan and the East Asian Economies

Academic journal article The Lahore Journal of Economics

Comparing Industrialization in Pakistan and the East Asian Economies

Article excerpt

1.Introduction

The East Asian countries' successful transformation from poor to rich and middle-income economies has always attracted policymakers' interest in the rest of Asia, Africa and Latin America (Rasiah, 1998). The successful development models of Singapore and Hong Kong are often removed from such policy lessons, given that they are city-states and inherited strong baseline conditions as entrepots under British colonialism and the gateway to trade with China and Southeast Asia. East Asia has produced the successful models of the Republic of Korea (henceforth referred to as Korea) and Taiwan, which became developed in one generation. Malaysia and Thailand had reached upper middle-income status by the 1990s, while China, Indonesia and the Philippines enjoy middleincome status despite their enormous populations.

Among the East Asian developing economies, China's GDP per capita grew fastest (by 31.9 times), followed by Korea (by 22.2 times) over the period 1960-2015. Thailand, Malaysia and Indonesia's GDP per capita grew by 9.9, 7.5 and 6.4 times, respectively, over the same period. In contrast, Pakistan's GDP per capita grew by only 3.7 times, exceeding that of the Philippines, which expanded by 2.4 times in 1960-2015.

While a wide range of reasons can be found to explain such contrasting growth outcomes, from political leadership to human capital development policy and trade strategies, the nature of structural transformation promoted through institutional change has increasingly gained currency as a key factor in explicating such unequal growth performance among these countries. That the Philippines' GDP per capita growth was smaller than that of Pakistan shows that geography (being located in East Asia) is not a decisive factor in determining why some countries develop faster than others. In searching for answers, it is also critical to assess the type of industrial policy implemented rather than referring to it as a 'black box' in explaining unequal outcomes.

Pakistan and the East Asian economies examined in this paper started to deindustrialize when their share of manufacturing in GDP began to fall. Korea began to deindustrialize after achieving developed status, but its manufacturing productivity continued to grow. China, Indonesia, Malaysia, the Philippines and Thailand began deindustrializing before they had achieved developed status. Since Pakistan has begun experiencing deindustrialization at such an early stage, when the economy is still poor, it is important to compare its industrialization experience with that of the East Asian economies.

This paper seeks to analyze the growth and competitiveness of manufacturing in Pakistan in comparison with selected East Asian economies. Owing to problems of data, we exclude Taiwan from the analysis, although its stellar experience is worth studying. We also exclude Singapore for the reasons cited earlier. Thus, we evaluate the economic growth experience of, and the significance of manufacturing for, Pakistan against that of China, Indonesia, Korea, Malaysia, the Philippines and Thailand.

Section 2 compares the GDP per capita growth rates of these economies, followed by a review of the theoretical considerations that underpin our analysis of their industrialization experience (Section 3). Section 4 analyzes changes in the composition, growth and competitiveness of manufacturing. Section 5 gives a critical account of the policies targeted at promoting industrialization and the technological performance of the hightech industry of integrated circuits. Section 6 presents the study's conclusions and implications for industrial policy.

2.Growth in GDP per Capita Compared

Pakistan has the lowest GDP per capita of the countries compared at US$1,317 in current prices in 2014 (World Bank, 2015). Korea has the highest GDP per capita at US$27,970, followed by Malaysia in distant second place at US$11,300. The commensurate figures for China, Thailand, Indonesia and the Philippines are US$7,590, US$5,977, US$3,492 and US$2,813, respectively. …

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