Integrated Social-sector Macroeconometric Model for Pakistan

While the traditional neoclassical production model postulates that it is the physical inputs such as private capital, labour, land, and technology that are the key determinants of output and economic development, in recent years, however, the social sector variables are also considered to be critical, particularly for the long-run sustainable growth of the economy. If fact, what has been argued in the form of “new growth theories” is that social variables (e.g., education, health, knowledge, etc.) generate “positive externalities” and, thus, may facilitate and foster the process of economic growth and development. Recently, the World Bank, based on a broad cross-country study, found some very interesting results in the above context. According to the World Development Report (1991): about fifty percent of the factor productivity contribution to output growth comes not from traditional physical inputs (capital, labour and land) but is a residual factor. This unexplained factor, in the past, has been labelled (or as the Report called it “baptised”) as “technological change”, however, the World Bank (1991, p. 42) claims that: