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Abstract
The history of successful industrializers, such as South Korea and Taiwan, shows a systematic shift in the production structure from low- to high-value added activities in manufacturing and its resulting impact on agriculture, mining and services. Within manufacturing, the transformation is seen in both a movement from low-value added sectors, such as apparel making, to high-tech activities, such as automotive and electronics products, and, within particular industries, vertical integration into knowledge-intensive activities.
Pakistan's failure to engender the conditions to stimulate technological upgrading within its leading manufacturing industry of clothing, and a shift away to higher-value added industries is the prime reason why the country has not achieved rapid growth in GDP per capital over the long-term. This paper discusses Pakistan's stagnation in manufacturing over the period 1960-2013 against the experience of the rapid industrializers of South Korea, Taiwan and Malaysia. Drawing on empirical evidence it argues that Pakistan requires a dynamic industrial policy that focuses on technological upgrading in its existing manufacturing sectors and the creation of competitive advantage in high value-added sectors if the country is to experience sustained long-term economic growth.
Keywords: Manufacturing, industries, policy, Pakistan.
JEL classification: L60, O25.
1. Introduction
Pakistan has a rich history of producing and exporting cotton and cotton-based goods. Following independence in 1947, much was expected of the country, given that it was endowed with reasonable levels of human capital compared to other newly independent countries at the time. However, Pakistan has remained a poor country, so much so that its per capita income grew only about fourfold from US$ 219 in 1960 to US$ 790 in 2013 in constant 2005 prices (World Bank, 2014). This growth does not compare well with that achieved by South Korea and other rapid industrializers such as Malaysia, Thailand, and China. Korea's per capita income (in 2005 prices) rose by around 22 times from US$ 1,107 in 1960 to US$ 23,893 in 2013. Malaysia's GDP per capita grew sevenfold from US$ 987 in 1960 to US$ 6,998 in 2013. Thailand's GDP per capita grew eightfold from US$ 437 in 1965 to US$ 3,348 in 2013. China's GDP per capita growth significantly surpassed that of Malaysia and Thailand, growing by 15 times from US$ 246 in 1982 to US$ 3,567...