Is Pakistan’s Manufacturing Sector Competitive?

This paper attempts to examine the cost competitiveness of the manufacturing sector of Pakistan for the period 1972-73 to 2002-03. Given that the data on the value of cost expenditure has not been published after 1995, the paper relies on constructing a composite index of input prices and compares it with export price (taken as a proxy for output price, since the main focus here is on external competitiveness). The findings indicate that both the composite (weighted) factor input price and the non-factor input price indices have grown at a rate faster than the export price index during the sample period. Furthermore, the growth in the prices of energy, imported machinery, and wages stayed higher than that of the overall inflation. While investigating the pattern of productivity of the manufacturing sector, the paper reveals that although it increased over the sample period, its rate of growth has slowed down. And, for the most recent period, 1999- 03, productivity growth has failed even to offset the extent to which input price increases have outpaced increase in the export price. This creates the concern that if this situation goes on, over the course of time, the profits eventually will become negative and will put some producers/exporters out of business.