Growth and structural transformation : options for Pakistan

Structural transformation, which signifies a shift towards high value-added production and an elevated standard of living, is a vital ingredient for inclusive growth. Pakistan's pace of structural transformation has been amongst the slowest and lowest compared to other countries in Asia. Against this backdrop, the purpose of this paper is to quantify the economic benefits of accelerating the rate of transformation (trade and productivity-oriented) in Pakistan. This research explores this relationship using an Input-Output (IO) framework in conjunction with a global Computable General Equilibrium (CGE) model. This allows for the evaluation of the economy-wide impact of exogenous changes in the trade and productivity of critical sectors. The IO framework helps in identifying these key Pakistani sectors by providing backward, forward, and inter-sectoral linkages for each sector. The results of the IO framework show that the sectors with strong backward linkages in Pakistan are "Food, Beverages and Tobacco", "Textiles and Textile Products", "Leather and Footwear", and "Construction". Whereas "Agriculture", "Mining and Quarrying", and "Wholesale and Commission Trade" are the sectors with strong forward linkages. The estimated results from a global CGE Model demonstrate that structural transformation towards promising sectors (manufacturing and services) has a positive impact on the macro-economic variables as well as at the household level in Pakistan.