Lahore School of Economics

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A low value-added export trap

Dr Azam Amjad Chaudhry

While there has been much debate about the strengths and weaknesses of Pakistan’s economy, the one thing that no observer of the economy can deny is its predictability. A balance-of-payments crisis forced the government to enter into an IMF stabilisation package a decade ago as did another crisis five years ago. Now, again, the country is faced with an unsustainable balance-of-payments situation and has entered another stabilisation programme. While there is a natural tendency to blame various economic managers, the fact is that the problem is not simply one that can be solved by minor policy adjustments. Rather, Pakistan is facing fundamental structural problems and while policymakers are making serious attempts to deal with some of these long-term issues, such as low savings and investment, they are reluctant to accept the fact that, even after an almost 40% devaluation, exports have failed to rise. The simple reason for this is that Pakistan is mired in a low value-added export trap.

In order to fully grasp the problem of low exports, one has to understand the current structure of Pakistan’s exports: To start with, the Pakistani export sector has been heavily reliant on textile exports and in particular low value-added textile exports. While many developing countries have started out by exporting low value-added goods, ones in which they have a comparative advantage, the problem in the Pakistani case is that it has failed to move beyond this narrow range of low value-added goods.
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posted by S A J Shirazi @ 6/22/2019 11:58:00 AM,

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posted by S A J Shirazi @ 6/11/2019 09:46:00 AM,

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