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Is Pakistan’s Growth Rate Balance-of-Payments Constrained? Policies and Implications for Development and Growth

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  • Felipe, Jesus

    (Asian Development Bank)

  • McCombie, J. S. L.

    (University of Cambridge)

  • Naqvi, Kaukab

    (Asian Development Bank)

Abstract

This paper examines the extent to which Pakistan’s growth has been, or is likely to be, limited or constrained by its balance-of-payments (BOP). The paper begins by briefly considering the BOP-constrained growth model in the context of demand and supply-oriented approaches to economic growth. Evidence presented suggests that Pakistan’s maximum growth rate consistent with equilibrium on the basic balance is approximately 5% per annum. This is below the long-term target rate of a growth of gross domestic product of 7–8% per annum. This BOP-constrained growth approach provides some important policy prescriptions for Pakistan’s development policy. Real exchange rate depreciations will not lead to an improvement of the current account. Pakistan must lift constraints that impede higher growth of exports. In particular, it must shift its export structure to products with a higher income elasticity of demand and sophistication.

Suggested Citation

  • Felipe, Jesus & McCombie, J. S. L. & Naqvi, Kaukab, 2009. "Is Pakistan’s Growth Rate Balance-of-Payments Constrained? Policies and Implications for Development and Growth," ADB Economics Working Paper Series 160, Asian Development Bank.
  • Handle: RePEc:ris:adbewp:0160
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    1. Alberto Bagnai & Arsène Rieber & Thi Anh-Dao Tran, 2015. "Economic growth and balance-of-payments constraint in Vietnam," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 38(4), pages 588-615, November.
    2. A. P. Thirlwall, 2013. "Economic Growth in an Open Developing Economy," Books, Edward Elgar Publishing, number 15208.
    3. Anthony P. Thirlwall, 2011. "Balance of payments constrained growth models: history and overview," PSL Quarterly Review, Economia civile, vol. 64(259), pages 307-351.
    4. Elias Soukiazis & Micaela Antunes & Ioannis Kostakis, 2018. "The Greek economy under the twin-deficit pressure: a demand orientated growth approach," International Review of Applied Economics, Taylor & Francis Journals, vol. 32(2), pages 215-236, March.
    5. Bilal Raza, 2021. "Balance of Payments Constrained Growth in Pakistan - Implications for Development Policy," SBP Working Paper Series 107, State Bank of Pakistan, Research Department.
    6. Kvedaras, Virmantas & Garcimartín, Carlos & Astudillo, Jhonatan, 2020. "Balance-of-Payments constrained growth dynamics: An empirical investigation," Economic Modelling, Elsevier, vol. 89(C), pages 232-244.
    7. Hafsa Hina, 2020. "Correction of Trade Deficit through Depreciation - A Misdirected Policy: An Empirical Evidence from Pakistan," PIDE-Working Papers 2020:24, Pakistan Institute of Development Economics.
    8. Ahmad Jafari Samimi & Ramezan Hosseinzadeh, 2011. "Foreign Trade and Economic Growth: Evidence of Thirlwall’s Law in Iran," Journal of Social and Development Sciences, AMH International, vol. 2(2), pages 81-88.
    9. Mohammed Al- Mahish, 2017. "Does Balance of Payments Constrained Growth Model Hold in Saudi Arabia?," Journal of Finance and Economics Research, Geist Science, Iqra University, Faculty of Business Administration, vol. 2(1), pages 1-15, March.
    10. Chassem, Nacisse Palissy, 2011. "Hypothèse de Thirlwall: cas des pays de la zone Franc [Thirlwall’s hypothesis : the case of countries of the Franc Zone]," MPRA Paper 29990, University Library of Munich, Germany.
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