Essays on three major development issues in Pakistan

Abstract

This thesis comprise of three independent, but self-contained, chapters relating to economic development of Pakistan. While the first chapter is general and theoretical, the other two chapters are empirical. Chapter 2 is a theoretical analysis of the existence of agricultural externality when the cause of externality is not only the presence of sub-soil hydrological contamination but also the method of application of agricultural technology, otherwise known as 'efforts.' The analysis demonstrates that individual optimization of agricultural production activities leads to socially undesireable outcomes when the upstream farmer does not take into account the costs associated with the flow of pollutants generated by the upstream farmer on the downstream farmer. The analysis suggests that an optimal agricultural policy choice choice would be to taxing not only the flow of contaminants, but aso the efforts. Chapter 3 analysis the impact of abolition of the Multi-Fibre Agreement (MFA) on Pakistan's export of textiles and clothing sectors. Using the stochastic frontier gravity model and calculating the revealed comparative advantage (RCA) indices, the results show that the abolition of the MFA does not have a significant impact on Pakistan's export of textiles sub-sector. Also, the mean-export efficiency of textiles has shown a decreasing trend over time. In contrast, the abolition of the MFA has a significant positive impact on Pakistan's export of clothing sub-sector with the mean-export efficiency showing an increasing trend over time. Calculation of revealed comparative advantage reveals that Pakistan has maintained post-MFA comparative advantage in a wide range of its textiles and clothing products. Chapter 4 investigates the average and marginal spending behaviour of households in Pakistan that receive international remittances. Using nationally representative household income and expenditure survey data for Pakistan, this chapter analysis the households' spending behaviour on five different categories of goods: food, education, health, non-durables and durables. Using a counterfactual framework, a two-stage Heckman model is used to address the selection in unobservable heterogeneity. Two findings emerge. First, expenditure share on food for households that receive remittances would have been more if the households had not been receiving remittances. Similarly, less spending on the other four categories of education, health, non-durables and durables is predicted for remittances-receiving households had they not been receiving remittances. Second, households that receive remittances spend less at the margin on food and durables and more on education, health and non-durables. Remittances-receiving households appear to look at the remittance earnings as a transitory income and therefore tend to spend remittances more on investment than consumption.