Is Pakistan a Normal Economy?

Simon Kuznets’ pathbreaking study of modern economic growth was published in 1966.^[1] In it and in preceding monographs he identified the salient characteristics of economic change based on data from national accounts, the construction of which he pioneered.^[2] Because data on developing countries was sparse, Kuznets’ focus was largely on the industrialized economies and what he emphasized was the relative uniformity of the growth process in countries with widely varying institutions and cultures. Kuznets’ investigation triggered an outpouring of comparative analysis and as the volume of quantitative information on developing countries increased, researchers turned their attention to tracking change in the less developed parts of the world. One question that loomed large was whether developing countries would tread the same path that the industrialized ones had done. In other words, was there a normal pattern to development and structural change. This was most extensively explored by Hollis Chenery and his collaborators at the World Bank from the late 1960s through the 1980s. They went on to identify certain enduring uniformities and “stylized facts of development.”^[3] In Chenery’s (1971) words, “Rising income is associated with systematic variations in almost every feature of the economic structure—for example, rates of saving and investment, the types of commodities produced and consumed, the patterns of trade, and the use of capital and labor… To continue growing, however, a country must not only increase its resources but must also shift them according to changing patterns of demand and opportunities for trade.”^[4]

Although research on development has moved on, economists continue to benchmark the level and pace of development with respect to certain stylized facts distilled from the collective experience of a large sample of countries. A normal pattern of growth and development helps to establish what seems to work for most and to identify outliers to better understand the factors responsible for significant deviations above and below the norm and to derive lessons for the majority.^[5] In this note, my intention is to try and determine whether Pakistan is following a “normal” development path or whether it is an outlier. In attempting this, I use 12 indicators covering the period from 2000 through 2020, which broadly bracket a country’s performance, and match Pakistan against the average for low- and middle-income countries. Averages undoubtedly conceal a fair amount of variation, but this approach does provide a first cut and can be a prelude to a more fine-grained analysis. The data used are obtained from the World Bank’s World Development Indicators accessed in May 2022. 

Read the full note here.

^[1] S. Kuznets (1966) Modern Economic Growth. Yale University Press.

^[2] “First… are the high rates of growth of per capita product and of population in the developed countries…Second, the rate of rise in productivity, i.e. of output per unit of all inputs, is high, even when we include among inputs other factors in addition to labor, the major productive factor…Third, the rate of structural transformation of the economy is high…including e.g. the shift away from agriculture to non-agricultural pursuits and, recently, away from industry to services. …Fourth, the closely related and extremely important structures of society and its ideology have also changed rapidly…[e.g.] urbanization and secularization... Fifth, the economically developed countries, by means of the increased power of technology, particularly in transport and communication, have the propensity to reach out to the rest of the world [i.e. initiate globalization]. Sixth, the spread of modern economic growth, despite its worldwide partial effects, is limited in that the economic performance in countries accounting for three-quarters of world population still falls far short of the minimum levels feasible with the potential of modern technology.” S. Kuznets (1971). Nobel Lecture https://www.nobelprize.org/prizes/economic-sciences/1971/kuznets/lecture/

^[3] H. Chenery and M. Syrquin (1989) Three decades of industrialization. https://documents1.worldbank.org/curated/en/887781468766222564/pdf/multi-page.pdf

^[4] H. Chenery (1971) Growth and structural change. https://www.elibrary.imf.org/view/journals/022/0008/003/article-A003-en.xml

^[5] The interest in “normality” is deeply rooted. For example, see A. Shleifer and D. Treisman (2005) A normal country: Russia after communism. https://www.aeaweb.org/articles?id=10.1257/0895330053147949; After major disruptions such as the Financial Crisis of 2008-09 and the Covid pandemic, the search begins for a “new normal.” https://blogs.worldbank.org/psd/long-road-new-normal-economy; https://sloanreview.mit.edu/article/a-long-time-until-the-economic-new-normal/; https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/the-new-normal