Economic Growth and Regional Convergence: The Case of Pakistan.

Muddasar Nazir Sandilah, Hafiz M. Yasin


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. JEL classification: 047, R11, O53, C33 Keywords: Economic
Growth, Convergence, Regional Disparities, Human Capital

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