Pakistan Institute of Development Economics



Role of Institutions in the Industrial Development of Pakistan

Author: Tahir Hijazi

This study examines why a perverse kind of industrialisation developed in Pakistan. Following independence, the Pakistan government embarked on industrialisation proclaimed as a short-cut to eradicate poverty and reduce unemployment. But after four decades, it is still considered among the poorest countries ‘. of the world, with per capita annual income of only $375. The share of manufacturing sector in the GDP grew from a nominal base in 1947 to 19.7 percent in 1990, but it did· not help raise the standard of living. Pakistan’s economy grew eight-fold I during this period whereas some other developing countries grew many times tenfold.2 Adopting a historical perspective reveals a perverse kind of industrialisation in Pakistan, which inhibits its ability to eradicate poverty [Sixth Five-year Plan 1983-88 (1982)]. By a perverse kind of industrialisation, I mean a degenerate system of industrial development which, instead of helping the national economy to expand and grow retards its process . .It implies selective industrial investment which is more capitalintensive, remains import-dependent, ignores forward and backward linkages, ensures the dominance of larger oligopolists firms, produces lUXUry goods, does not help increase productivity, and is located in a few urban centres. This level of industry creates relatively few jobs, depends on imported materials and instead of increasing value-added at home, and puts extra pressure on. foreign exchange reserves which the economy must meet by exporting primary goods. The absence of forward and backward linkages restricts opportunities for industrial expansion and larger firms relying on . foreign technology employ relatively few workers; and they produce lUXUry goods for higher income brackets, all of which does not benefit the masses. Such perverse characteristics of industrialisation contribute little to the eradication of poverty [Lawrence (1974)].

Tahir Hijazi