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  • Four Essays on Trade, Foreign Direct Investment, and Markets in Pakistan

    Fire artikler om handel, utlendingers direkte investeringer og markeder I Pakistan.

    Philosophiae Doctor (PhD) Thesis

    Burhan Ahmad

    NMBU School of Economics and Business Norwegian University of Life Sciences

    s 2014

    Thesis number 2014: 24. ISSN: 1503-1667.

    ISBN: 978-82-575-1194-4.

  • Acknowledgement I start praising and paying thanks to Almighty Allah (God) for his blessings and bestowing me

    the opportunity and ability to conduct my PhD studies. This has been a long and circuitous

    journey with ups and downs, and hard times, and Allah has imparted me the courage and patience

    to face them.

    My studies were financed by Higher Education Commission Pakistan (HEC) and

    coordinated by Norwegian Higher Education Commission (SIU). I am highly grateful to HEC for

    awarding me the scholarship to conduct PhD studies at NMBU School of Economics and

    Business, Norwegian University of Life Sciences (NMBU). I also appreciate the administrative

    support and cooperation of SIU.

    This dissertation would not have been possible without the guidance, comments,

    cooperation and help of many people. First of all, I am highly grateful to my Supervisor,

    Associate Professor Roberto J. Garcia. His advices, guidance, critiques, and meticulous and

    tattered analysis of my work provided the strong foundations to my work. His training

    substantially improved my analytical abilities and writing skills, and advanced me in my

    academic life. Second, I express my sincere gratitude to Professor Ole Gjlberg. It would not

    have been possible to complete my dissertation without his support, guidelines, comments,

    instructions and critical analysis of my work. His cooperation really boosted the speed of my

    work.

    Thanks are also due to Associate Professor Olvar Bergland for help in applying

    econometrics. I extend my appreciations to Professor Gerald E. Shively, Professor Klaus Mohn,

    Associate Professor Genaro Sucarrat and Dagfinn Rime for their helpful comments. I am grateful

    to the national research school in business economics and administration (NFB) for financing my

    participation in FIBE conferences and to the NMBU School of Economics and Business for

    financing Forskemte conferences.

    All faculty members and staff at the NMBU School of Economics and Business,

    Norwegian University of Life Sciences have been very kind and supportive; I express my deepest

    gratitude to all of them. Special appreciations are for Inger-Lise Labugt, Reidun Aasheim, Lise

    Thoen, Berit Pettersen and Stig Danielsen for their administrative support. My Gratitude is also

    due to the staff of Student Information Centre (SIT) especially Vilma Veronica Bischof and Iben

    Andersen for coordinating with HEC and SIU for my scholarship.

  • My acknowledgement would not be completed without expressing appreciation for the

    beautiful company of my past and current PhD colleagues at NMBU School of Economics and

    Business and friends, which I had. I am grateful to all PhD colleagues for providing a friendly

    environment and for fruitful discussions. Special thanks to John Herbert, Daniel, Daumantas,

    Kenneth, Meron, Livingstone, Thabbie, Akther Zaman, Akther-ul-AAlam, Erik and Faisal for

    fruitful discussions and comments. I highly appreciate the company of my friends at s, Yehia,

    Yousaf, Tahir Mehmood, Tahir Mehmood Junior, Mehmood Ayaz, Nadeem, Noor, Tahir

    Quraishi, Shahid Nadeem, Asif Khan, Asif, Saqib, Tanveer, Shahid Mehmood, Rizwan, Kahsif

    Khan, Abbas, Shakir, Abdul Samad, Shehzad, Zahid, Naveed and all the Pakistani community at

    s.

    I pay heartiest thanks to my father, Nazir Ahmad and mother Majeeda Bano, in Pakistan,

    for their love, prayers, encouragement and patience. Love you very much, Mom and Dad. I

    appreciate the moral support given by my sisters, Robina and Roheena; and brothers, Imran and

    Rehan, and their families, in Pakistan. Thank are also due to my in-laws for their prayers and

    words of encouragement. Last but not the least, I express my gratitude to my wife, Maryam for

    her love, care, prayers and especially the words of encouragement in the times of depression.

    Special thanks to her for cooking and baking delicious food. Most special thanks to the smiles

    and innocent talks of my sweet daughter, Wardah, which used to release my tensions and

    tiredness. Love you so much, Wardah.

  • Four Essays on Trade, Foreign Direct Investment, and Markets in Pakistan

    Abstract

    This dissertation seeks to study aspects of economic growth and development in Pakistan that have been pursued through enhancing commodity-specific exports, attracting foreign investment and improving the functioning of commodity markets. It is comprised of four research articles. Article 1 investigates the factors affecting commodity exports and identifies markets that have unexploited export potential. Rice exports from Pakistan during 1991-2010 are taken as the example and studied using panel data and techniques. It is found that Pakistan's economic growth, importers income, export prices, specialization, the currency exchange rate and transactions costs are the major factors affecting rice exports from Pakistan. A high unexploited export potential is also found in 49 export markets out of the 92 countries. The second article measures the economic and institutional determinants of Foreign Direct Investment (FDI) inflows into Pakistan and answers why FDI has been low and uneven despite investment-friendly policies during 1996-2010. Pakistans market size, governance, infrastructure, human capital, favorable business environment and income and governance of the foreign investors are the major factors responsible for attracting foreign direct investment in Pakistan. Low economic growth, bad governance, and a lack of skilled human capital are possible reasons for low and variable net FDI inflows. Article 3 answers the question whether commodity markets such as rice are integrated domestically and with the international markets. It also examines the effects of government policies on the extent of market integration employing time series data and techniques. It is found that Pakistans domestic markets are integrated domestically and with the international markets. The price support policy abolition seems to have contributed to greater domestic integration, while the subsequent export policies seem to have decreased the extent of Pakistans integration with the international markets. Article 4 examines the spatial differences in volatility across regional rice markets of Pakistan using time series data and techniques. Volatility clustering is found in all markets. Volatility and its persistence differ spatially reflecting differences in infrastructure that make some regions more exposed to risk. A positive association of volatility across markets is found, and its degree is reviewed in light of market geography and infrastructure. Overarching conclusions of this dissertation are the following: Higher productivity and economic growth, specialization, developing infrastructure and human capital, and improving institutional quality are the important factors that can contribute to the economic development of Pakistan. Investments on education and research and development, bringing in technology, improving infrastructure and institutional quality and implementing bilateral trade and investment agreements would strengthen the foundation for economic development of Pakistan through accelerating exports, foreign direct investment and improving the functioning of markets.

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    Contents Acknowledgement

    Abstract

    1 Introduction ................................................................................................................................... 2

    2 The Economy of Pakistan ............................................................................................................. 5

    2.1 The economy of Pakistan: A comparative view ..................................................................... 5

    2.2 The economy of Pakistan: A historical view .......................................................................... 7

    3 Exports, FDI, functioning of commodity markets and economic growth ................................... 15

    3.1 Empirical evidence on the export-growth relationship ......................................................... 15

    3.2 Empirical evidence on FDI-growth relationship .................................................................. 16

    3.3 Functioning of commodity markets and economic growth .................................................. 18

    4 Data and methods ........................................................................................................................ 19

    4.1 Data sources .......................................................................................................................... 20

    5 Summary of the main findings .................................................................................................... 21

    5.1 Article 1 ................................................................................................................................ 21

    5.2 Article 2 ................................................................................................................................ 22

    5.3 Article 3 .................................................................................................................

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