Comparative Costs, Factor Proportions and Industrial Efficiency in Pakistan

This paper contains, in Section I, new and additional evidence on the comparative costs of manufacturing industries in Pakistan. Comparative costs in this context are defined as the ratios of ex-factory prices of specific domestic products to c.i.f. prices of closely competing imports. In Section II, we examine whether tariff rates are an adequate index of comparative cost ratios, i.e., in other words, whether the differences in the tariff rates reflect the differential cost structure of Pakistani industries. We also examine, in Section III, whether the available data provide any evidence on the relationship between the magnitude of cost disabilities of the Pakistani industries and their stage of infancy, i.e. whether and to what extent cost ratios decline with the growing up of infant industries. This paper also analyses in Sections IV and V how far comparative cost ratios can be used as a measure of the relative inefficiency of industries in Pakistan. How far, for example, do the high cost ratios of domesdic industries merely indicate that the Pakistani rupee is overvalued ? How far are the cost ratios affected by or represent high profits of industries? An attempt is made to adjust for both the overvaluation of foreign exchange and the prevalence of abnormally high profits.