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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. repec:gei:jnlfer:v:2:y:2017:i:1:p:1-15 is not listed on IDEAS
    2. A. Bagnai & A. Rieber & T.A.D. Tran, 2013. "Economic growth and balance of payments constraint in Vietnam," Working Papers 13, Development and Policies Research Center (DEPOCEN), Vietnam.
    3. A. P. Thirlwall, 2013. "Economic Growth in an Open Developing Economy," Books, Edward Elgar Publishing, number 15208.
    4. 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.
    5. Anthony P. Thirlwall, 2011. "Balance of payments constrained growth models: history and overview," PSL Quarterly Review, Economia civile, vol. 64(259), pages 307-351.
    6. Elias Soukiazis & Micaela Antunes & Ioannis Kostakis, 2016. "The Greek economy under the twin-deficit pressure: a demand orientated growth approach," GEMF Working Papers 2016-08, GEMF, Faculty of Economics, University of Coimbra.
    7. repec:dau:papers:123456789/11406 is not listed on IDEAS

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