Technical Change, Technical Efficiency, and Their Impact on Input Demand in the Agricultural and Manufacturing Sectors of Pakistan

Karamat Ali, Abdul Hamid


Technical change has been considered as one of the most
important determinants of economic growth. In developed economies, a
proportionately higher percentage of GDP growth is attributable to
technological progress and technical efficiency. However, technical
change in developing countries is in its early stages and increased use
of factor inputs is still the dominant source of economic growth. An
attempt has been made in this paper to analyse technological progress
and technical efficiency and their contribution to economic growth along
with other factors of production by using more efficient methods in the
manufacturing and agriculture sectors of Pakistan. There are a few
studies on technological growth and technical efficiency change in
Pakistan but they suffer from certain limitations. Most of them use the
terms of technical change and productivity synonymously. Further, all of
them use Hicks’s formula of neutral technical change and assume that
technical change is happening at a constant rate. We have attempted to
measure technical change, technical efficiency, and productivity in the
form of the Hicks neutral technical change as well as in the form of
variable and continuous and discrete technical change. Besides, this
paper also analyses the impact of technical change on input demand
(i.e., its impact on labour and capital demand) and examines the issue
of technical change being either labour-saving or capital-saving. We
found that technical change was taking place at a continuous and
variable rate. The major contributor to the growth of output and
value-added in both sectors was capital, contributing over 50 percent.
Labour share was about 20 percent in the agriculture sector and about 10
percent in the manufacturing sector. Technical change share was very
significant in manufacturing but not so in agriculture. The
manufacturing sector in Pakistan has grown at an annual rate of about 6
percent during 1970s and at 8.7 percent during 1980s, and its share in
GDP has increased from 16.5 percent to about 19 percent, but it has
failed to generate new employment opportunities for the labour force.
The employment growth rate is only about 2 percent.

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