Economic Growth and Regional Convergence: The Case of Pakistan.

JEL Classification : 047, C33, O53, R11
Publication Year : 2011

The questions concerning the prevalence of poverty and the deepening gulf between rich and poor have always been the burning issues all over the world. These issues, irrespective of their causation factors, bear far reaching economic and political consequences. The federation of Pakistan displays complex regional diversities; the component units differ not only in linguistic, cultural, and social characteristics but also in the level of economic development. Although the constitution of Pakistan guaranties equitable shares for all provinces in national resources, the level of growth across regions has not been uniform. During the past half a century, investment in physical and social sectors concentrated in selected parts of the country, particularly in big cities. This practice has led to creation of economic disparities and a number of socio-political problems like terrorism, regional tensions, weakening of the federation and difficulty in arriving at consensus on issues of national interest. Growth theory provides a powerful analytical framework to analyse the issue of regional convergence. Given the assumption of perfect markets, the countries within a geographical region are supposed to converge overtime to a common steady state level of income, provided they are similar in other socio-economic conditions. Put differently, if countries differ significantly in these conditions, then each unit is likely to follow an independent growth path. This is also true for different regions within the same country/ political entity. The objective of this study is to investigate empirically if there is any evidence of convergence across different regions of Pakistan. The study utilises the conventional analytical tools and time series data over the period 1979-2005 for the four provinces, disaggregated into rural and urban sectors. As expected, no evidence of absolute convergence could be observed obviously due to presence of vast differences across the provinces in terms of the growth determinants. In contrast, the income disparities across the regions exhibited a widening tendency during the period under reference. However, the data did support conditional convergence, which implies that different regions followed independent growth paths. The findings further indicate that certain socio-economic conditions are crucial to explain the persistence of income disparities. The question as to why these conditions differ so widely across the different parts of Pakistan is often discussed at different economic and political forums. The study concludes with some policy recommendations that may improve the situation.