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Industrial Sector Input Demand Responsiveness and Policy Interventions


  • Muhammad Ali Chaudhary

    (Quaid-i-Azam University, Islamabad.)

  • Eatzaz Ahmad

    (Quaid-i-Azam University, Islamabad.)

  • Abid A. Burki

    (Quaid-i-Azam University, Islamabad.)

  • Mushtaq A. Khan

    (Quaid-i-Azam University, Islamabad.)


In Pakistan, government intervention in the input market of the industrial sector is considerable. It regulates prices of virtually all energy and certain other non-labour inputs. To stimulate industrial production and output growth, it also encourages the provision of extended credit facilities to the industrial producers. Further, it has also often announced adjustments/reductions in duties and tariffs on products used in industrial production. Conversely, government also imposes taxes on outputs. It may desire to levy new taxes on the industrial inputs. All interventions have profound implications for producers, consumers and the government alike. Therefore, it is important to know how they may affect the industrial input demand. Further, it is equally important to know how effective they may be for the government in the realisation of its objectives. The most pertinent approach to ascertain the industrial input demand responsiveness to government interventions is to obtain valid estimates of price elasticities. In fact, competent elasticity estimates of the producer input demand derived with a sound methodology can serve as a solid basis to predict producer responsiveness to market changes and thereby the effectiveness and desirability of government interventions. While the price elasticities of products over the years have been estimated for Pakistan, renewed interest on estimating responsiveness of producer input demand with modern estimation procedures has recently surged. Idrees (1997) and Khan (1998) have determined elasticities for the domestic large-scale manufacturing sector from a demand system. Although these research studies make a good addition to the literature, their scope is extremely limited because they have combined industrial inputs into large aggregates. At present, there is no study that has investigated the input demand elasticities of the domestic industrial sector at the dis-aggregated level.

Suggested Citation

  • Muhammad Ali Chaudhary & Eatzaz Ahmad & Abid A. Burki & Mushtaq A. Khan, 1999. "Industrial Sector Input Demand Responsiveness and Policy Interventions," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 38(4), pages 1083-1100.
  • Handle: RePEc:pid:journl:v:38:y:1999:i:4:p:1083-1100

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    References listed on IDEAS

    1. McFadden, Daniel, 1978. "Cost, Revenue, and Profit Functions," Histoy of Economic Thought Chapters,in: Fuss, Melvyn & McFadden, Daniel (ed.), Production Economics: A Dual Approach to Theory and Applications, volume 1, chapter 1 McMaster University Archive for the History of Economic Thought.
    2. A. R. Kemal, 1976. "Sectoral Growth Rates and Efficiency of Factor Use in Large-Scale Manufacturing Sector in West Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 15(4), pages 349-381.
    3. Diewert, W. E., 1973. "Functional forms for profit and transformation functions," Journal of Economic Theory, Elsevier, vol. 6(3), pages 284-316, June.
    4. Browning, Martin & Deaton, Angus & Irish, Margaret, 1985. "A Profitable Approach to Labor Supply and Commodity Demands over the Life-Cycle," Econometrica, Econometric Society, vol. 53(3), pages 503-543, May.
    5. A. R. Kemal, 1981. "Substitution Elasticities in the Large- Scale Manufacturing Industries of Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 20(1), pages 1-36.
    6. Diewert, W. E., 1976. "Exact and superlative index numbers," Journal of Econometrics, Elsevier, vol. 4(2), pages 115-145, May.
    7. Sohail J. Malik & Mohammad Mushtaq & Hina Nazli, 1989. "An Analysis of Production Relations in the Large-scale Textile Manufacturing Sector of Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 28(1), pages 27-42.
    8. Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-326, June.
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    Cited by:

    1. Burki, Abid A. & Khan, Mahmood-ul-Hasan, 2004. "Effects of allocative inefficiency on resource allocation and energy substitution in Pakistan's manufacturing," Energy Economics, Elsevier, vol. 26(3), pages 371-388, May.
    2. Lahiri, Sajal & Nasim, Anjum, 2006. "Export-promotion under revenue constraints: The case of tariff-rebate on intermediate inputs in Pakistan," Journal of Asian Economics, Elsevier, vol. 17(2), pages 285-293, April.

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