Download 1961 No.1 Binder - Pakistan Institute of Development Economics

Industrial Location and Physical Planning in
Pakistan
JOHN C. EDDISON*
Introduction
The subject of industrial location, as an aspect of the economic development of the country, is one to which frequent references have been made in
recent years by government officials and by the writers of newspaper editorials.
During the period of the First Five Year Plan, the burden of such references
was generally to the effect that further industrialization should be fostered
in backward areas and that it should be discouraged or actually banned in
Karachi, Lahore and other cities believed to be overcrowded or vulnerable
from a defence point of view. More recently, the desire for the dispersal of
industry and for the provision of jobs in less developed areas has led to the
espousal of industrial estates as a means of solving the industrial location
problem1.
The concern of officials and of editors with the overconcentration of
manufacturing#in a few cities and with the lack of geographic balance in the
location of industrial investments is well founded. The problem is a serious
one in Pakistan, as well as in almost all countries in which a substantial
amount of industrialization has taken place. However, it does not lend itself
to simple solutions such as the banning of further investments in certain of
the most advanced areas or the proliferation of industrial estates in backward,
economically stagnant, or out-of-the-way towns. To say this is not to criticize
the use of industrial estates as a method of channeling investment. These
estates have a valuable function to perform if employed in conjunction with
other tools of investment promotion and as a part of a systematic approach
to the location of new industrial activity.
It is the contention of this paper that the location and promotion of
industries is too important a matter to be dealt with on an uncoordinated,
piecemeal basis, and that high priority should be given to the formulation
of a positive, integrated, industrial location strategy, to be spelled out in
♦The author is Economic Adviser to the Planning Commission, Government of
Pakistan..At the time of writing, he was serving as Economic Adviser to the Government
of West Pakistan.
i. For example, see articles on industrial estates in the Civil and Military Gazette,
Lahore, of 18th January, 1960, 9th October, 1960, 14th February, 1961, and 16th February, 1961.
Income Velocity and Pakistan's Second
Plan
RICHARD C. PORTER*
An attempt is made in this paper to appraise the extent to which the
income velocity concept1 is a useful tool in the financial planning of the
Second Five Year Plan. For many years now, economists have been skeptical
of the efficacy of velocity analysis, but most of this skepticism derives from
its disastrous failure in the depression of the 1930s. Theorists generally
concede its applicability in full-capacity situations2, and it is in just such a
situation that it is being applied in current analyses of the financial implications of Pakistan's Second Plan.
Nevertheless, the basic reason why the quantity theory is being revived
in Pakistan, and in many other developing countries, is not so much its
theoretical relevance as its great practicability. "Modern" Keynesian gap
analysis is just not feasible where data on consumption and investment
(not to mention their functional determinants) are totally lacking. Since
data do exist for velocity analysis3, it is used for want of a better.
The conclusion of this paper, summarised in a sentence, is that resort
to velocity analysis to avoid inflation is unnecessary, uncertain and misleading. The statistical estimates seem to "explain" movements in real money
balances quite well and conform to a priori predilections very satisfactorily,
but grave uncertainties are incurred when these historical fits are used to
predict the future.
Velocity analysis may be misleading if it suggests that the supply of
money is a variable completely independent of its demand. In Pakistan
*The author is Research Adviser in the Institute of Development Economics. For
comments on a draft of this paper, I am grateful to Nurul Islam and Rehman Sobhan of
Dacca University and to Parvez Hasan and Moinuddin Baqai of the State Bank of Pakistan
(Research Department). Abdur Rahman of the Institute has helped greatly in the checking
of calculations. They are in no way responsible for any errors that remain.
i. The concepts, income velocity, quantity theory, liquidity preference and real
money balance schedule are merely different ways of viewing a hypothesized relation
between money and income. In this paper, the latter is preferred, but the terms are used
interchangeably.
2. For a comprehensive discussion and extensive bibliography on the quantity theory
of money see D. Patinkin, Money, Interest and Prices (1956), especially Chapters 8 and 10.
Also see M. Friedman's introductory essay in Studies in the Quantity Theory of Money
(1956).
3. Though, as will be seen, such data may not be sufficiently accurate, plentiful, or
rich {i.e., varied) to yield meaningful income-velocity estimates.
Financing the Second Five Year Plan
AZIZUR RAHMAN KHAN*
I
The purpose of this paper is to indicate some of the problems involved
in financing Pakistan's Second Five Year Plan.
The Plan sets out the objective of increasing the gross national product
by 20 per cent. The cost of this growth rate has been estimated at Rs. 19,000
million of investment expenditure over the Plan period, Rs. 9,750 million in
the public sector, Rs. 3,250 million in the semi-public sector, and Rs. 6,000
million in the private sector.1 This is a large investment programme with per
Table 1
Comparative Plan Costs: Pakistan and India
Investment
1. Total Investment
A.
B.
Public ...
Private ...
2. Per-Capita Investment ..
Pakistan's Pakistan's First
First Plan Second
Indian
Plan
Plan
10,800 m
35,000 m 61,000 m
102,000 m
7,500 m 13,000im 17,500 m 38,000 m
3,300 m 6,000 m
17,500 m 23,000 m
62,000 m
40,000 m
Rs. 1312
19,000 m
m=million rupees
Second
Third
Indian
Indian
Plan
Plan
Rs. 2023
Rs. 99
Rs. 149
Rs. 233
SOURCE: Data about the First and Second Plan of Pakistan are obtained from the First
Five Year Plan and the Second Five Year Plan, Planning Commission, Government of Pakistan. Data about the First and Second Indian Plans are obtained
from An Appraisal of Pakistan's First Five Year Plan, S. A. Abbas, Netherlands
Economic Institute, 1956. The Third Indian Plan figures are taken from Third
Five Year Plan: A Draft Outline, Planning Commission, Government of India.
!. Including semi-public sector.
2- According to the population estimates of the Planning Commission for the
year 1955-56. Actual per capita investment was probably lower.
3. According to the provisional population estimates of the 1961 census. Morning
News, 4 March, 1961.
•The author is Staff Economist in the Institute of Development Economics. He is
grateful to Dr. Irving Brecher, Dr. Richard C Porter, and Mr. S. U. Khan, (all of the
Institute of Development Economics) for commenting on an earlier draft and suggesting
improvements.
!. This paper was prepared before the Plan was revised. It is therefore based
entirely on the figures published in June 1960. Since the new estimates are incomplete,
their use at this stage does not seem worthwhile. It is believed that in spite of the Plan
revision, the main conclusions of the Paper are still valid.
A First Glance at the Pakistan Age
Distribution
KAROL J. KROTKI*
What follows is not only a summary of first impressions, but it is also
limited to Pakistan as a whole, i.e., inter-regional differentials are not investigated. Furthermore, the following comments are limited to the youngest
ages. In particular, no discussion is offered of the age distribution at the
oldest ages. In any case the latter is partly a freak of the peculiar assumption
on which it is drawn, namely, that nobody in Pakistan lives beyond the age
of eighty. These are very severe limitations and in part what follows is
more in the nature of advance notice of research to be undertaken than it is
a report on substantive findings. Nevertheless, the initial impressions are of
a startling enough nature to justify disclosure at this stage, but on the distinct understanding that they may on further inquiry prove illusory.
The observations of this note are based on the simple fact that the
population of any area at any time is a function of fertility, mortality and
migration prevailing in the past. There are two ways in which these three
influences show themselves: on the age distribution and the rate of growth.
In a way, it may be more helpful to say that age distribution and growth
are the other side of the same thing, namely, the combined product of
fertility, mortality and migration. In fact, this is such a wide and all-embracing statement that it may seem almost meaningless. However, relatively
recent developments in demographic theory furnish powerful tools for analysis of age distribution and growth. Evidence of growth, such as it is, is
not considered in this note. As already indicated, the discussion is limited
to age distribution.
The theoretical approach in what follows is further illuminated in two
ways. Firstly, it is suggested that the peculiarities of Pakistani age distribution are not real demographic facts, but are most likely, or even almost
certainly, the function of enumeration vagaries. These enumeration freaks,
when allowed for, indicate higher fertility than currently assumed. As a
corollary, having accepted higher fertility even if only for the sake of argument, one or the other or both of two rates must give way. We can keep
•The author is Research Adviser in the Institute of Development Economics. He
is grateful for comments received from Professor Ansley J. Coale, Director of the OfBce
of Population Research at Princeton University; Dr. John F. Kantner of The Population
Council, Inc., in New York; Dr. Irving Brecher, Joint Director of the Institute of Development Economics in Karachi and Dr. Richard C. Porter, Research Adviser in the
Institute of Development Economics.
A Measure of Inflation in Pakistan*
A Summary by
S. U. KHANt
Although a number of series on wholesale and retail prices are being
published by the Central Statistical Office and other organizations, there is
no general price index to measure annual price changes in the country.
The price indices (composed of more than one commodity) presently available in Pakistan are cost of living indices of limited coverage. This monograph presents an annual wholesale price index for the purpose of measuring
the extent of inflationary pressure in Pakistan.
The index is computed for the East and West wings separately and
for the whole of Pakistan. It dates from 1951-52 through 1959-60 (July-June),
with 1951-52 as the base year. Owing to lack of data, it was not possible
to carry the index back to Partition, while the need for accuracy precluded
the construction of the index on a quarterly or monthly basis. The choice
of 1951-52 as the base year is inevitable if the special conditions of the
Korean Boom, its aftermath and the Plan period are to be avoided. Moreover, 1951-52 was a year of fewer controls, and prices in that year did not
differ much from the preceding two years.
The West Pakistan index contains 35 commodities and the East Pakistan
index 25. Thus the coverage is not "ideal" (that is, does not extend to all
goods sold into final use within the country); it is restricted to the available
data. The coverage of agricultural goods is estimated to be much greater
(perhaps 85-95 per cent of "ideal") than that of non-agricultural goods.
Insofar as the prices of agricultural goods are more volatile, the index may
overstate the extent of general price changes. However, some tests suggest
that the smaller coverage of non-agricultural commodities is not the primary
cause of volatility of the price index. In order to avoid double counting,
only end products were taken into account, although this was not possible
in the case of some commodities which by their nature are sometimes final
and sometimes intermediate goods.
The weights for each wing were derived from the net quantity absorbed
by final users in each year, which was computed as follows:
*A recently published study of the Institute of Development Economics: A Measure
of Inflation in Pakistan, 1951-60, Monograph No. 4 (March 1961).
tStaif Economist in the Institute of Development Economics.
Notes and Documents
Trends in World Demand for Jute
Manufactures*
At the request of the Food and Agriculture Organization of the United
Nations, the National Institute of Economic and Social Research, London,
undertook a study of the trends in world demand for jute manufactures
outside the principal raw jute producing countries. An attempt is made
here to bring out the main findings of this study which analyses the relative
importance of end-uses of jute manufactures, e.g., for floor coverings,
packaging, etc., and also examines the prospects for demand in the major
consuming countries over the period 1965-70.
I. World Consumption
Growth in world demand for jute has, since the end of the War, been
relatively slow compared with the increases in both agricultural and industrial production. The index of agricultural production (part of which uses
jute packaging material), showed a small increase at 117 during the years
1948-52 (base: 1934-38 average), as against the index of manufacturing
production which rose to 153 ^1938 =100). Meanwhile, the index of jute
consumption actually recorded a decline to 77 (1937 = 100). Further the
divergence between (a) consumption of jute and (b) agricultural and industrial production, continued to exist in 1957-58, the latest year covered by
this study. Thus, while the indices of agricultural and manufacturing production stood substantially higher at 137 and 233 respectively in 1957-58, the
index of jute consumption had risen to only 106.
The comparatively small increase in world demand for jute in post-war
years was partly caused by a scarcity of raw jute and a substantial increase
in prices, which tended to encourage substitutes for packaging. The devaluation; of the pound sterling in September 1949 and the boom created by the
Korean War were important factors in the steep rise in raw jute prices.
Bulk handling of agricultural output and certain structural changes and
technological developments in the end-use of jute manufactures in the
industrially advanced countries were other contributory factors in the slow
growth rate of world demand for jute in recent years.
It is noteworthy, however, that although jute consumption now remains
at a lower level than pre-war in North America and Western Europe, there
has actually been an appreciable expansion in the rest of the world, particularly in the centrally-planned countries. As shown in Table 1, the index
of jute-goods consumption (1937 = 100) stood at only 70 in 1957-58 for the
United States (the largest single importer in the world); in fact, even in the
pre-war period, despite the phenomenal expansion in economic activity, jute
*Mtonthly Bulletin of Agricultural Economics and Statistics, December 1960 and
January 1961, Food and Agriculture Organization of the United Nations, Rome.