An Analysis Of The Effects Of Economic Reforms And Openness On Structure Conduct And Performance Of Agro-based Industries In Pakistan
Author: Saeed Ahmed Sheikh

Manufacturing sector is one of the key sectors and plays an important role in the economy of Pakistan. At the time of independence Pakistan had no industrial base but soon after the independence efforts were made to create a domestic industrial base largely centered on agricultural raw materials. Private sector was seen to be the main driving force and liberal incentives were provided under import substitution and infant industry arguments. Much of the industrialization in the 1950s and 1960s was concentrated in large-scale consumer goods manufacturing units. These industries were mostly concentrated in the urban areas of Punjab, Sindh, and Khyber Pakhtoonkhawa. The share of manufacturing sector in GDP has risen from 2.2% in 1949-50 to 26% in the fiscal year 2008-09. According to the latest Census of Manufacturing Industries (CMI: 2005-06) conducted by the Federal Bureau of Statistics (FBS), government of Pakistan, the share of agro-based industries in gross value added by the large scale manufacturing at constant prices of 1999-2000 is more than 50% (textiles 25.6%, food products 15.3%, wearing apparel 3.9%, ginning pressing and bailing 3.2%, paper and paper products 2.7% and tobacco 2.2%). Improvement in market structure and performance of these industries can play a pivotal role in poverty alleviation and overall development of the economy. These industries have an important role in earning foreign exchange and creating jobs and will continue to play important role in future development of the economy. Cotton, sugarcane, wheat and rice are the major crops of Pakistan and are the important source of raw material for the agro-based industries. The spillover effects of agro-based industries are expected to have important effects on other industries and the agricultural sector itself. Agro-based industries have a large potential for growth and development because the natural endowment of the country (availability local raw material and cheap labor) is favorable. The main focus of the most of the earlier studies on large scale manufacturing in Pakistan was on the estimation of structure profit relationship. These studies concluded that firms in the large scale manufacturing sector have high market shares and earn monopoly profits and that the concentration ratios have not changed much over time. The main focus of the present study is on the analysis of the effects of trade related domestic reforms and openness on the structure, conduct and performance of agro-based industries. The study of S-C-P is important for policy prescription. It is a well-known fact that protection reduces efficiency and absence of foreign competition allows domestic firms to enjoy monopoly power and excess profits. Literature on the study of the effects of policy reforms on productivity and efficiency of industries in different developing countries of Asia, Africa and Latin America has provided mixed results. Some Researchers have found significant positive effects of trade and industrial policy reforms and openness on industrial productivity and efficiency in most of the developing countries while some others have found positive and significant effects of protectionist policies. Some of the researchers have found that industrial policy reforms and openness have significantly reduced the Price Cost Margins in the industrial sectors of many developing countries. Census of Manufacturing Industries (CMI) data from 1970-71 to 2005-06 has been used for analyzing the effects of domestic economic reforms and openness on performance of agro-based industries. Eleven agro-based industries of three digits level of industrial classification have been used for this purpose. The analysis has been carried out in two parts. In part one, effects of economic reforms and openness have been analyzed under structure-conduct-performance approach and in the second part efficiency analysis has been carried out using stochastic frontier production function. Our results show that almost all the agro-based industries operate under imperfect market conditions, have positive price cost margins and no visible change has taken place in price cost margins overtime. During 1971-77 domestic reforms did not have a favorable effect but trade liberalization did have some favorable effect on price cost margins in agro-based industries. During 1978-90 a major policy change took place and privatization and deregulation policies were adopted instead of nationalization of the economy. Our analysis shows that trade liberalization had an insignificant favorable effect on price cost margins during this period. During 1991-06 many reforms were implemented for macroeconomic stability and structural adjustment of the economy. These reforms and openness policies adopted under WTO regime had a partial favorable effect on price cost margins in agro-based industries. The stochastic frontier analysis was carried out to study the technical efficiency and technical change taking place in agro-based industries. Our analysis shows that agro-based industries have low output elasticities, depict constant returns to scale and suffer from high levels of technical inefficiency. No prominent technical change seems to have taken place overtime in agro-based industries in Pakistan. Major policy implications that emerge from our analysis are that agro-based industries have an important place in the manufacturing sector of Pakistan. Presently these industries are operating under imperfect competitive market conditions and have positive price cost margins. Inefficiency is a special feature of these industries and no prominent technical change has taken place overtime in these industries. More vigorous and well coordinated efforts are needed to improve the performance and efficiency levels of these industries. This can be done by making these industries more competitive and by improving the quality of physical and human resources employed in these industries. Supervisor: Dr. Ejaz Ghani Co-supervisor: Dr. Musleh-ud-din

Meta Data

Keywords : Agro-based Industries, Economic Reforms, Growth Performance-Pakistan, Manufacturing Sector-Pakistan, Pakistan
Supervisor: Musleh ud Din
Cosupervisor: Ejaz Ghani

Related Thesis​