Average productivity growth in country quite low: study

ISLAMABAD: Productivity is the measure of how efficiently inputs, such as labour and capital, are used to produce output.

The growth of productivity is a crucial determinant of an economy’s growth.

These are the findings of a joint study titled “Sectoral Total Factor Productivity in Pakistan,” conducted by the Planning Ministry and Pakistan Institute of Development Economics (PIDE).

The study shows that in Pakistan, average productivity growth has been 1.5 per cent from 2010-2020.

However, 1.5 per cent productivity growth is not enough if Pakistan wants to achieve GDP growth of around 7-8 per cent, it suggests.

The study used unique listed and non-listed data from 1,321 firms divided into 61 sectors, to estimate the productivity growth in Pakistan.

According to the study’s results, high-productivity growth sectors are mostly services-based or tech-based, whereas most of the sectors that have medium to low or negative productivity growth are in manufacturing.

The study maintains that one plausible reason for afore stated sectors could be greater competition in services.

The research further finds that manufacturing sectors are “protected in Pakistan, which insulates them from the competition; protecting a sector retards any incentive to improve efficiency.”

The study shows that export-designated sectors (not export-oriented firms in a sector) have either low or negative productivity growth. Moreover, sectors that are the recipient of subsidies also have low to negative productivity growth.

It further highlights that productivity growth turned negative around the time of elections thrice and once during the COVID period. This, perhaps, suggests that the overall macro environment and political transitions casts significant impact on productivity and GDP growth, according to the research.

The research results further furnish some serious implications. One of such implications is that the negative productivity in the subsidy recipient sectors is essentially a deadweight loss to the economy. It also acts as a barrier to private sector development, the study suggests.

Copyright Business Recorder, 2023