The Time Profile of the Cost Structure in Pakistan’s Manufacturing Sector

The manufacturing sector of Pakistan has at times played the role of the leading sector of the economy. The successful experience of planned growth in the 1960s owes much to the special attention paid to the growth of manufacturing sector. Policies like the export bonus scheme, tax-holidays, subsidised import of capital, easy and subsidised loans and over-valued exchange rate, resulted in a substantial growth in the sector. However, with over-protection of the sector, nationalisation of some of the major industries in the 1970s and, later-on, over-employment in the nationalised industries, the performance of the sector started to deteriorate gradually. It is now widely believed that many of the manufacturing industries in Pakistan have become inefficient because they have not been exposed to competitive environment due to protective and distortionary policies. It is to be expected that distortions like those mentioned would have not only eroded the performance but also affected the behaviour of the manufacturing sector. It is therefore important to determine how productivity growth in the manufacturing sector has been retarded over time and what type of changes in technology have taken place in terms of their effects on factor intensities and on the firms, reaction to such changes in factor prices. An analysis of the changes over time in production technology of the manufacturing sector may provide an answer to these questions. The present study aims at analysing changes in the cost structure of Pakistan’s manufacturing sector over the past two decades in order to study the nature and speed of productivity growth; determine whether there exists any factor bias in the technological changes; and to analyse how technology has adjusted to absorb changes in the relative factor prices.