Academic journal article The Lahore Journal of Economics

The China-Pakistan Economic Corridor (CPEC): Considering Contemporary Pakistan through Old-Fashioned Economics and Historical Case Studies

Academic journal article The Lahore Journal of Economics

The China-Pakistan Economic Corridor (CPEC): Considering Contemporary Pakistan through Old-Fashioned Economics and Historical Case Studies

Article excerpt

1.Introduction

Much has been written about the China-Pakistan Economic Corridor (CPEC)1. Many of these writings are brimming with optimism such as the definition of CPEC as given by the Government of Pakistan, "a growth axis and development belt featuring complementary advantage, collaboration, mutual benefits and common prosperity." (2017:4). The promised investment in CPEC (US$46 billion) is enormous relative to the cumulative Foreign Direct Investment (FDI) Pakistan received between 1970 and 2001 (around US$7 billion) (Atique et al., 2004). CPEC can represent more than just a boost to economic growth. The explicit longterm commitment of investment can assist Pakistan in making a decisive break with the decades-long dependence on the fickle whims of U.S. policy (McCartney, 2011). There is need for more careful reflection. CPEC is not due for completion until 2030 and Pakistan has a dire record of implementing and benefiting from large-scale donor funded projects - the unsuccessful Social Action Program (SAP) in the 1990s being just one such example (Birdsall & Kinder, 2010).

It is not easy to make a rigorous assessment about whether CPEC is likely to be an economic success. Economics, particularly its neo-classical branch, is very well suited to examining the impact of marginal changes to the economic environment. When it comes to how a new road, bridge or railway track will impact various markets and economic outcomes, economics has a well-developed methodology for doing just this - Cost Benefit Analysis (CBA) (see Gunasekara et al (2008) for an example in the South Asian region). The academic problem stems from the promise of CPEC - that it will represent a transformational and wide-ranging change to existing economic relations. These changes cannot be captured by a methodology geared to economic shifts at the margin.

This article offers a contribution to this theoretical and empirical dilemma. Often forgotten amidst the excitement surrounding CPEC is that, while it is unprecedented for contemporary Pakistan, there are many historical examples of transformational infrastructural change - among those discussed in this paper are the massive (much greater than CPEC) expansions of the railway systems in nineteenth century India, Mexico, the U.S. and Germany. This paper tries to draw out lessons from these historical case studies to inform our understanding of contemporary Pakistan. This paper will also make the case that there is a neglected body of economic theory more suitable to engage with such a question than CBA. This theory derives from the writings of the early development economists - like Rostow, Rosenstein-Rodan and Hirschman - whose starting point was not marginal interventions and consequent shifts in equilibrium, but was that of transformational change in the entire structure of an economy. While they were writing about the shift from a ruralagricultural to an urban-industrial economy we can profitably draw from their discussion to consider the possible impact of a transformational change in infrastructure.

This paper is organised as follows: section 2 examines the economics of geography to explain why transport infrastructure is important, section 3 introduces CPEC, section 4 examines the work of the early development economists, section 5 considers problems with existing studies and proposes a possible methodology, section 6 considers the possible impact of CPEC on making markets more efficient, and section 7 on whether CPEC will more likely promote industrialization or deindustrialization in contemporary Pakistan. Section 8 concludes and draws together the lessons from this paper into a research agenda.

2.Why Transport Infrastructure is Important

The deep determinants of economic growth are those underlying factors that influence the ability of firms, households and the government to acquire land, labor, capital and technology. These factors are utilized to increase output and to do so productively. …

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