How to promote industrial growth
October 03, 2018
Maryiam Haroon
Evidence of the benefits of industrial clusters has attracted interest among policy makers. These benefits have been used to justify cluster policies in various countries like Korea, Spain, Brazil, Japan, and France. Interestingly, the development of industrial estates is one of the main strategies in the Punjab Industries Sector Plan 2014-2018, which includes development of Industrial estates in Chunian, Gujrat, Rawalpindi and Jhang and a special economic zone at Pind Dadan Khan and Quaid-e-Azam Apparel Park. Researchers at the Lahore School of Economics have identified the role of firm clusters in the productivity improvement of firms and have recommended specific locations for clusters in different sectors.
Analysing the spatial distribution of firms and sectors across districts of Punjab, the researchers found that firms and sectors are more concentrated in a few districts, and there is an unequal distribution of activity in Punjab. Most of the activity was found to be concentrated in the central part of Punjab, with the highest activity being located in Lahore, Gujrat, Sialkot, Gujranwala, Faisalabad and Kasur. Following these districts, a moderate level of activity can be witnessed in some districts of Southern Punjab including Bahawalpur, Rahim Yar Khan and Multan. On the other hand, West and North Punjab have the least level of activity present in terms of firms and sectors. This clearly gives us a picture that firms, employment and sectors are not evenly distributed across Punjab, with Central Punjab considered as the main hub of economic activity at present.
Similarly, the researchers found other interesting observations about firms in Punjab, such as the fact that some sectors are highly concentrated while others are dispersed. It was found that more than 90 percent of sports and surgical goods companies are concentrated in the Sialkot district only. More than 40 percent of the firms in the textile sector are concentrated in Faisalabad and the rest of the firms in the textile sector are dispersed across other districts. The researchers found that the leather and food sector is mostly dispersed across districts, while the electrical equipment industry is mainly in Lahore with some presence in Gujranwala as well.
Moreover, the researchers found out that Central Punjab has the highest concentration of high productivity firms, while north, south and west Punjab on average have a much wider distribution of firm productivity. Furthermore, Sialkot has the greatest number of high productivity firms which is as expected since Sialkot comprises of the sectors which are mostly export oriented and produce some of the most competitive products in Pakistan. Sheikhupura and Lahore follow Sialkot in terms of the number of high production firms, whereas Gujrat and Gujranwala generally have less productive firms.
Similarly, the pharmaceutical industry is concentrated in Lahore (26 percent of total firms) and Faisalabad (22 percent of total firms). These findings thus suggest that textile and pharmaceuticals firms benefit from proximity to other firms. The two industries will also benefit if there is a specialised industrial policy designed to make it more concentrated. Policy focus for both sectors should be on promoting development of industrial clusters.
The researcher’s findings also revealed that the rubber and plastic industry and electrical equipment industry are mostly concentrated in Lahore, while the machinery industry is mostly dispersed across districts. These sectors not only requires proximity to firms in its own industry, but also from other industries which may be because of shared suppliers, buyers or input providers. The policy focus for such sectors should be to promote proximity both to firms from their own industry and also other industries through both industrial clusters and special economic zones.
The basic data for apparel sector suggests that firms are mostly concentrated in three districts of Punjab which are Faisalabad, Kasur and Sialkot. Similarly, 31 percent of chemical firms are located in Lahore while 26 percent are located in Sheikhupura. The rest of the activity is dispersed across other districts. Here, the policy should focus on promoting proximity to its own industry and development of industrial clusters only in these sectors.
For the non-metallic mineral industry, it was found that the firms are dispersed across districts of Punjab with 27 percent in Lahore followed by 18 percent in Faisalabad and 13 percent in Gujranwala. Similarly, they found out that for fabricated metal 38 percent of the firms are concentrated in Lahore, followed by 16 percent in Gujranwala and 13 percent in Sheikhupura. The researchers found little benefit of creating and establishing industrial clusters and special economic zones for these industries. The leather industry is also mainly in a few districts, with the data suggesting that the distribution of leather industry is 32 percent in Kasur, 25 percent in Lahore and 12 percent in Sheikhupura. The researchers found little benefit of creating and establishing industrial clusters and special economic zones for these industries.
The researchers also analysed whether new industrial clusters should be developed especially in sectors which are already congested. For the apparel sector, the researchers found that diminishing returns are about to set in, so policy for the sector should emphasise on building new industrial clusters. For sectors such as machinery and electrical equipment, the industrial policy should focus on promoting existing clusters and not establishing new ones since there is an increase in returns from the existing clusters.
For the textile sector, the researchers suggested possible location choices for the development of new industrial clusters such as Multan, Attock, Sargodha, Khushab, Dera Ghazi Khan, Muzaffargarh, Lahore, Bahawalnagar. The possible location choices for the development of new industrial clusters for the pharmaceuticals can be Rawalpindi, Faisalabad, Sheikhupura, Okara. For the chemical sector, possible locations choices for industrial clusters are Lahore, Sheikhupura, Jhelum, Rawalpindi, Pakpattan, and Sargodha. Lastly, the apparel industrial cluster should be developed in Sialkot, Faisalabad, Lahore, Hafizabad. For the machinery equipment sector, the development of industrial clusters should be in Faisalabad, Lahore, and Gujranwala. For the electrical equipment sector, the development of industrial clusters should be in districts like Lahore, Gujranwala, and Gujrat, while the rubber and plastic industry should focus on development of industrial clusters in districts like Muzaffargarh, Faisalabad, Gujrat, and Lahore.
The writer is Assistant Professor, Department of Economics & Research Fellow, Centre for Research in Economics and Business (CREB), Lahore School of Economics
Copyright Daily Times, 2018
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