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Is Pakistan's Growth Rate Balance-of-Payments Constrained? Policies and Implications for Development and Growth

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  • Jesus Felipe
  • J. S. L. McCombie
  • Kaukab Naqvi

Abstract

This paper examines the extent to which Pakistan's growth has been, or is likely to be, constrained by its balance of payments. Evidence presented suggests that Pakistan's maximum growth rate consistent with equilibrium on the basic balance is approximately 5% per annum. This is below the long-term target GDP growth rate of 7-8% per annum. This balance-of-payments constrained growth approach provides some important implications for Pakistan's development policy. Real exchange rate depreciations will not lead to an improvement in the current account. Pakistan must lift the constraints that impede higher growth in exports. In particular, it must shift its export structure towards more sophisticated products with a higher income elasticity of demand.

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  • Jesus Felipe & J. S. L. McCombie & Kaukab Naqvi, 2010. "Is Pakistan's Growth Rate Balance-of-Payments Constrained? Policies and Implications for Development and Growth," Oxford Development Studies, Taylor & Francis Journals, vol. 38(4), pages 477-496.
    • Handle: RePEc:taf:oxdevs:v:38:y:2010:i:4:p:477-496
    DOI: 10.1080/13600818.2010.525351
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    5. Saleem Khan & Muhammad Azam & Chandra Emirullah, 2016. "Import Demand Income Elasticity and Growth Rate in Pakistan," Foreign Trade Review, , vol. 51(3), pages 201-212, August.
    6. Anthony Philip Thirlwall, 2012. "Balance of Payments Constrained Growth Models: History and Overview," Palgrave Macmillan Books, in: Elias Soukiazis & Pedro A. Cerqueira (ed.), Models of Balance of Payments Constrained Growth, chapter 1, pages 11-49, Palgrave Macmillan.
    7. A. P. Thirlwall, 2013. "Economic Growth in an Open Developing Economy," Books, Edward Elgar Publishing, number 15208.
    8. F.N. Chimphamba & M.K. Wilson, 2022. "The balance-of-payments-constrained growth model for Malawi: Evidence from the bounds testing approach," Journal of Economic Policy and Management Issues, JEPMI, vol. 1(1), pages 50-61.
    9. Elias Soukiazis & Micaela Antunes & Ioannis Kostakis, 2018. "The Greek economy under the twin-deficit pressure: a demand orientated growth approach," International Review of Applied Economics, Taylor & Francis Journals, vol. 32(2), pages 215-236, March.
    10. Bilal Raza, 2021. "Balance of Payments Constrained Growth in Pakistan - Implications for Development Policy," SBP Working Paper Series 107, State Bank of Pakistan, Research Department.
    11. Kvedaras, Virmantas & Garcimartín, Carlos & Astudillo, Jhonatan, 2020. "Balance-of-Payments constrained growth dynamics: An empirical investigation," Economic Modelling, Elsevier, vol. 89(C), pages 232-244.
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    13. Ahmad Jafari Samimi & Ramezan Hosseinzadeh, 2011. "Foreign Trade and Economic Growth: Evidence of Thirlwall’s Law in Iran," Journal of Social and Development Sciences, AMH International, vol. 2(2), pages 81-88.
    14. Mohammed Al- Mahish, 2017. "Does Balance of Payments Constrained Growth Model Hold in Saudi Arabia?," Journal of Finance and Economics Research, Geist Science, Iqra University, Faculty of Business Administration, vol. 2(1), pages 1-15, March.
    15. Arsalan Ahmed & Faisal Nawaz & Muhammad Ali & Muhammad Younus & Shahida Wizarat, 2023. "Opportunities for Pakistan’s Exports Growth through OBOR: Case of Central Asian Republics," Journal of Economic Impact, Science Impact Publishers, vol. 5(1), pages 32-41.
    16. Chassem, Nacisse Palissy, 2011. "Hypothèse de Thirlwall: cas des pays de la zone Franc [Thirlwall’s hypothesis : the case of countries of the Franc Zone]," MPRA Paper 29990, University Library of Munich, Germany.
    17. Britto, Gustavo & Coelho, Clara & Freitas, Elton & Romero, João Prates, 2019. "The great divide: economic complexity and development paths in Brazil and the Republic of Korea," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), April.
    18. Hafsa Hina, 2021. "What Do We Know of Trade Elasticities?," PIDE Knowledge Brief 2021:30, Pakistan Institute of Development Economics.
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