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Public infrastructure and economic growth in Pakistan: a dynamic CGE-microsimulation analysis

Author

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  • Vaqar Ahmed
  • Ahsan Abbas
  • Saira Ahmed

Abstract

The role of infrastructure in economic growth and welfare has been studied extensively across the literature over the past three decades. We use a dynamic CGE model linked to a microsimulation model to estimate the macro-micro impact of public infrastructure investment. Two approaches to public investment are considered in our simulations. In the first, production taxes finance the additional public infrastructure investment and in the second, foreign borrowing provides resources. Our results reveal that public infrastructure investments have the same direction of impact whether funded by taxation or international borrowing, particularly when looking at macroeconomic gains and poverty reduction in the long run. However, in the very short run, tax financing puts a strain on output in the industrial sector and thus reduces economic growth in the short run. The financing from international borrowing has a Dutch disease-like impact in the short run, as indicated by a decline in exports.

Suggested Citation

  • Vaqar Ahmed & Ahsan Abbas & Saira Ahmed, 2013. "Public infrastructure and economic growth in Pakistan: a dynamic CGE-microsimulation analysis," Working Papers MPIA 2013-01, PEP-MPIA.
  • Handle: RePEc:lvl:mpiacr:2013-01
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    Cited by:

    1. Marjit, Sugata & Mandal, Biswajit & Chatterjee, Tonmoy, 2016. "Infrastructure Development vs Direct Cash Transfer: A General Equilibrium Comparison," MPRA Paper 73126, University Library of Munich, Germany.
    2. Syed Shujaat AHMED & Asif JAVED, 2017. "The Effect of Public Sector Development Expenditures and Investment on Economic Growth: Evidence from Pakistan," Journal of Economics and Political Economy, KSP Journals, vol. 4(2), pages 203-214, June.
    3. Ahmed, Riaz, 2016. "Social infrastructure and productivity of manufacturing firms: Evidence from Pakistan," ZEW Discussion Papers 16-038, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    4. Nagesh Kumar & Matthew Hammill & Selim Raihan & Swayamsiddha Panda, 2016. "Strategies for Achieving the Sustainable Development Goals (SDGs) in South Asia: Lessons from Policy Simulations," Development Papers 1601, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) South and South-West Asia Office.

    More about this item

    Keywords

    Infrastructure; Economic Growth; Poverty; Pakistan; Computable General Equilibrium;

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

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