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Welfare impact of external balance in pakistan: CGE-microsimulation analysis

  • Ahmed, Vaqar
  • O' Donoghue, Cathal

This paper studies the welfare impact of changes in the external balance of a developing economy (Pakistan). We explain that the economic growth achieved during the past decade is highly dependent on the improvements in external balance. After 2001, Pakistan has benefited from, an increase in the inflow of remittances, foreign assistance from bilateral and multilateral sources, and a relatively stable exchange rate. This was complimented by growth in the real sector. The GDP grew at an average of 7 percent from 2002 to 2007. During the same time period the growth in per-capita income was around 13 percent in dollar terms. This performance however has come under pressure due to the rising inflation, slowing down of global economy and external price shocks. The increase in import price of petroleum, raw materials and other manufactured goods has the potential of reducing the growth performance, impacting the competitiveness of the economy and thereby threatening the gains achieved during the past seven years in reducing the poverty levels. We study using a CGE-microsimulation model the effects of changes in import prices faced by Pakistan. Also provided in the simulation exercise is an analysis of increase in foreign savings that are usually prescribed for developing economies in order to augment the domestic savings and channelling investment towards developments in infrastructure and social sectors.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 9267.

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Date of creation: 01 Jun 2008
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Handle: RePEc:pra:mprapa:9267
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  1. Paul Dorosh & Muhammad Khan Niazi & Hina Nazli, 2006. "A Social Accounting Matrix for Pakistan, 2001-02 : Methodology and Results," Finance Working Papers 22187, East Asian Bureau of Economic Research.
  2. François Bourguignon & Anne-Sophie Robilliard & Sherman Robinson, 2003. "Representative versus real households in the macro-economic modeling of inequality," DELTA Working Papers 2003-05, DELTA (Ecole normale supérieure).
  3. Maurizio Bussolo & Jann Lay, 2003. "Globalisation and Poverty Changes in Colombia," OECD Development Centre Working Papers 226, OECD Publishing.
  4. Adams, Richard H. Jr. & He, Jane J., 1995. "Sources of income inequality and poverty in rural Pakistan:," Research reports 102, International Food Policy Research Institute (IFPRI).
  5. Robinson, Sherman & El-Said, Moataz, 2000. "GAMS code for estimating a social accounting matrix (SAM) using cross entropy methods (CE)," TMD discussion papers 64, International Food Policy Research Institute (IFPRI).
  6. N. Hérault, 2006. "Building And Linking A Microsimulation Model To A Cge Model For South Africa," South African Journal of Economics, Economic Society of South Africa, vol. 74(1), pages 34-58, 03.
  7. Coady, David & Harris, Rebecca Lee, 2004. "Evaluating targeted cash transfer programs: a general equilibrium framework with an application to Mexico," Research reports 137, International Food Policy Research Institute (IFPRI).
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