Pakistan Institute of Development Economics



Comparative Costs, Factor Proportions and Industrial Efficiency in Pakistan

Author: Nurul Islam

The paper presents, in Section I, new and additional evidence on the comparative costs of manufacturing industries in Pakistan. Furthermore, the findings of the present study are compared with those of earlier studies. Comparative costs in this context are defined as the ratios of ex-factory prices of specific domestic products to CJ/prices of closely competing imports. In Section II, it examines whether the tariff rates are an adequate index of the comparative cost ratios i.e., in other words, whether the differences in the tariff rates reflect the differential cost structure of Pakistani industries? We also examine, in Section III, whether the available data provide any evidence on the relationship between the magnitude of cost disabilities of the Pakistani industries and their stage of infancy, i.e., whether and to what extent cost ratios decline with the growing up of infant industries. This paper also analyses in Sections IV and V how far comparative cost ratios can be used as a measure of the relative inefficiency of industries in Pakistan? How far, for example, the high cost ratios of domestic industries merely indicate that the Pakistani rupee is overvalued? How far the cost ratios are affected by or represent high profits of industries? An attempt is made to adjust for both the overvaluation of foreign exchange and the prevalence of abnormally high profits. Finally, in Section VI, we relate the comparative cost ratios of the manufacturing industries to their factor intensities or their factor proportions in an attempt to explore whether relative efficiency is correlated with the relative intensity of use of the different factors such as capital, labour, and skill.

Nurul Islam

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