Role of Institutions in the Industrial Development of Pakistan

This study examines why a perverse kind of industrialisationdeveloped in Pakistan. Following independence, the Pakistan governmentembarked on industrialisation proclaimed as a short-cut to eradicatepoverty and reduce unemployment. But after four decades, it is stillconsidered among the poorest countries '. of the world, with per capitaannual income of only $375. The share of manufacturing sector in the GDPgrew from a nominal base in 1947 to 19.7 percent in 1990, but it did·not help raise the standard of living. Pakistan's economy greweight-fold I during this period whereas some other developing countriesgrew many times tenfold.2 Adopting a historical perspective reveals aperverse kind of industrialisation in Pakistan, which inhibits itsability to eradicate poverty [Sixth Five-year Plan 1983-88 (1982)]. By aperverse kind of industrialisation, I mean a degenerate system ofindustrial development which, instead of helping the national economy toexpand and grow retards its process . .It implies selective industrialinvestment which is more capitalintensive, remains import-dependent,ignores forward and backward linkages, ensures the dominance of largeroligopolists firms, produces lUXUry goods, does not help increaseproductivity, and is located in a few urban centres. This level ofindustry creates relatively few jobs, depends on imported materials andinstead of increasing value-added at home, and puts extra pressure on.foreign exchange reserves which the economy must meet by exportingprimary goods. The absence of forward and backward linkages restrictsopportunities for industrial expansion and larger firms relying on .foreign technology employ relatively few workers; and they producelUXUry goods for higher income brackets, all of which does not benefitthe masses. Such perverse characteristics of industrialisationcontribute little to the eradication of poverty [Lawrence(1974)].