The Balance-of-Payments Problem and Resouree Allocation in Pakistan A Linear Programming Approach

The purpose of this study is to examine Pakistan's foreign-trade problems and policies in the context of the wider question of a rational allocation of domestic resources. It will be argued that measures taken in Pakistan to resulate the flow of imports and exports have led to a pattern of resource allocation which may aggravate the balance-of-payments problem. The difficulty is mainly attributable to the fact that foreign economic policies and policy measures taken to regulate the domestic economy have often been at cross-purposes. For instance, whereas the domestic jnvestment policy has aimed at promoting the most economical use of scarce investment resources, the licensing system has provided strong incentive for a wasteful use of these resources by encouraging import substitution even where the country may have a long-run comparative disadvantage. While domestic policy has aimed at raising the marginal rate of savings, the policy of protecting consumption goods, particularly the nonessential ones, has tended to liberalize consumption.