Pakistan's a country where the episodes of high-growth tend to be short-lived, although longer than low-growth periods. Regardless of all this, over the last 50 years, the average economic growth is around 5.4 percent per annum - "its growth pattern is full of short cycles of rapid growth followed by stagnation." Growth has been cyclical due to input-driven factors rather than productivity-driven. The investment-to-GDP ratio accounted for only 16% in 2018, implying that there are some other factors which have significant effect on growth.
In this scenario, it is important to understand the role of Total Factor Productivity (TFP) in order to foster and sustain economic growth. TFP is determined by how efficiently and intensely the inputs are utilised in production or in other words, achievement of potential GDP.
However, growth level in itself can be reached by putting more inputs for production process and through attaining higher levels of output with the same quantity of resources. Few sectors of Pakistan's economy show some gains, but Pakistan's low human development indicators undermine economic growth and labour force productivity, with Pakistan being ranked at 150 out of 189 countries according to HDI, far behind of most countries in South Asia. In terms of Global Competitive Index 2018-19, Pakistan ranks at 107 with India and Turkey at 58 and 61, respectively.
Over the last decade, Pakistan gained momentum from the sluggish growth, but the contributory factors (Factors Driven) are still dominant, growth has been mainly driven by labour and capital accumulation rather than productivity growth, as measured by TFP (the best overall measure of competitiveness). The core question is what caused this productivity slowdown? For Pakistan, there is a clear evidence that it is due to inadequate utilisation of the inputs, i.e., human capital and technological development.
According to the latest statistics on labour force, the total labour force strength in the country was 65.50 million in FY18, out of this only 5.70 million are employed. The unemployment is reported to be 5.7 percent in 2017-2018. Having high percentage of workforce could be taken as potential for economic growth but there are issues related to the quality of this human resource. It is important for Pakistan to understand the utilisation of its resources. According to the Asian Productivity Organisation, Pakistan's per hour productivity has marginally improved from 1970 to 2015.
Labour productivity and TFP can serve as major drivers of productivity growth. The lack of sustained growth, low and declining levels of investment appear to be the most important factors of the low contribution of TFP to productivity growth, which has now reached the levels that should be of major concern for policymakers in relation to Pakistan's growth prospects.
Global Competitiveness Index (GCI) is an appropriate measure to understand the slow productive performance of Pakistan. GCI combines in presenting the current sustainable level of economic activity. GCI can be used as a reference point to understand Pakistan's environment to improve its TFP. According to this Index, Pakistan ranks at 107, which is very low if compared with the countries in the region (World Economic Forum, 2018).
Innovation and technological development is not directly related to the amount of productive resources; therefore, it affects growth of the economy mostly through TFP. Technological innovation and non-technological factors are two main divisions of innovation.
Apart from all this, the most important and significant feature of TFP is that it can generate employment as Pakistan is a country where 64% of the total population in 2018 was below the age of 30, which indicates a high percentage of workforce that will eventually translate into higher GDP growth rates. The point of concern is: how TFP can lead to generation of jobs and employment in a country like Pakistan?
At this time the need is of sustained growth; it's a possibility that TFP may not give up to mark results in the short run, but it has huge benefits in the long run. While faster productivity growth may reduce employment in the short run, it promotes employment and higher wages in the long run.
The best example for this can be extracted when 4G entered Pakistan and the online taxi service started its operations, in the starting days it caused certain problems as employment level of other regular taxis/cabs fell down and the employees opposed this decision but after some time they themselves shifted to the 4G networking, adopted the technology and got themselves employed in the online taxi service. There was shrinkage of one industry and expansion of the other, and thus this all depends on how efficiently the labour force adopts the changes.
Since the 1980s, and until now, rapid globalization - driven in part by the exceptional pace of technological change, especially in ICT - has allowed several developing countries, including China and India, to take advantage of these developments and achieve exceptionally high rates of economic growth, even soaring to double digits. Unfortunately, Pakistan, which was among the ten fastest-growing economies of the world during 1960-90, has not been one of them now. According to UNDP's Global Knowledge Index (2018) Pakistan ranks at 115 with India at 81 and China at 39.
But the persistence of the technology gap suggests that the causes are deep-rooted and at least partly structural. Although a lot of steps have been adapted by recent government to foster productivity and TFP as proposed in PSDP 2019-20; an amount of Rs 12 billion is allocated to Science and IT, and with a total amount of Rs 13 billion being allocated to Knowledge Economy Initiatives. Other than this, other initiatives adopted and are in consideration emphasizing on the TFP and digitalization are Vision 2030, MTDF, Growth Strategy, Vision 2025 and above all 12th plan along with other models.
Other than that there are a number of steps Pakistan can take today to boost its economic performance and thereby ensure a better future for its people. These steps are a replication of the countries which have already taken the initiatives such as technological readiness, innovation, company R&D, improved quality and quantity of human resources especially engineers and scientists and lastly improved intellectual property rights for laying the foundations for growth (TFP); investment, and good jobs. Pakistan's greatest asset is its people - a young population of 208 million. This large population can transform into a demographic dividend that drives economic growth.
To achieve that, Pakistan must act fast and strategically as foster productivity growth leads to higher real wages and improved living standards.
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