There is a general belief that industrialization implies economic growth and development. Unless countries industrialize, they will continue to remain underdeveloped. The progress of countries like South Korea, Taiwan, and other East and South -East Asian countries, called the Newly Industrialized Countries (NICs), only endorses this view. In Pakistan the extraordinary growth in industry in the 1950s and 1960s suggested that Pakistan might be one of the few countries at that time to join the developed world. However the historical perspective reveals that the industrialisation that has taken place in Pakistan, failed to help the economy to expand and grow. Industrial investment in Pakistan remains import-dependent and ignores backward and forward linkages thus restricting opportunities for development and growth. The perverse characteristics of industrialisation in Pakistan have contributed little to the eradication of poverty in the country. Pakistan after five decades of independence still remains one of the poorest countries of the world. This study sets out to analyse Pakistan's industries and their ability to broaden and upgrade their competitive positions to cope with increasing international competition. It suggests a conceptual framework of organisational characteristics influencing the process and formation of clusters. After the general analysis of Pakistan's competitive industries, the research limits itself to Pakistan's textile/apparel industry because of the time constraint. The textile/apparel industry is the dominant export industry in the manufacturing sector of Pakistan. Clusters are a driving force in increasing exports and magnets for attracting foreign investment. The phenomenon of clusters in one form or another has been recognised and explored in a range of literatures. Intellectual antecedents of cluster theory date back at least to Alfred Marshall' who included a fascinating chapter on the externalities of specialised industrial locations in his 'Principles of Economics' (originally published in 1890). During the first 50 years of this century, economic geography was a recognised field with an extensive literature. With the mid century advent of neo classical economics, however, location moved out of the economic midstream. More recently, increasing returns have started to play a central role in new theories of growth and international trade, and interest in the field of economic geography is growing (Porter, 1996, p. 206). Knowledge about cluster theory has advanced and continues to spread since publication of 'The Competitive Advantage of Nations', (1990) by Michael Porter. The cluster concept now represents a new way of thinking about national, state, and city economies, and points to new roles for companies, governments, and other institutions striving to enhance competitiveness.

The effect of Pakistan's trade liberalization on total factor productivity and profitability is empirically investigated over a period of 15 years. Total factor productivity is measured for eight major sectors separately and TFP parameter estimates are derived for each sub sector individually. Parameters are estimated by following Levisohn & Petrin (2003) method which takes into account the simultaneity bias inherent in a particular level of total factor productivity and selection of inputs for a panel data set covering a period 1980-95. Technical efficiency is also measured for the same panel data and time period for four major sectors by stochastic production frontier time varying model, in order to complement the estimation of total factor productivity. Price cost margins are also measured for all the sectors to indicate the profitability of the sectors. In the second stage estimation total factor productivity and time varying technical efficiency estimates are related to a variety of trade related variables in the presence of sector specific variables which serve as control variables. The empirical results are mixed. A positive relationship between productivity and liberalization had been hypothesised but the evidence is not unanimously supportive of a positive relationship. Price cost margins are also empirically related to trade variables, plus some structural and sector specific variables. The results are informative about the effect that trade related policies have been exerting on the profitability of the sectors. Restrictive trade policies appear to have shaped a particular industrial structure which seems to limit the effect of trade liberalization policies on the price cost margins. The overall evidence suggests that trade liberalization reforms have no substantial effect on total factor productivity of the manufacturings ectors. This is due to the absence of enabling environment caused by non implementation of complementary reforms in education,infrastructure and competitive policies aimed at discouraging the monopoly powers. There is need for further research to conduct the same analysis with firm level data using entry and exit rates and relate the total factor productivity, turnover and trade liberalization in order to arrive at a definitive conclusion about the role of entry barriers that crept into the manufacturing industries by either deliberate policy making or through by products of trade protection.

This thesis examines Pakistan's success in technological and organizational capability development for enhancing competitiveness in its industrial sector, focusing on the automotive industry as a case study, under several policy regimes. Pakistan has had to face many adverse conditions since it gained independence and as a result its growth has been sporadic, with periods of growth spurts followed by periods of slow growth. Successful interventions supporting capability development have happened in other developing countries without 'good governance' and with rent-seeking so a deeper analysis of the institutional failures in Pakistan is required. The thesis locates Pakistan's institutional choices and performance in the context of changes in its political settlement to explain why performance was weak at key points in the automotive industry's history. The analysis focuses on the contests over potentially growth-enhancing rents in the context of the distribution of power between the groups and organizations affected by these policies. Policy had to be implemented in the context of extensive political clientelism that was increasing in its fragmentation with low levels of political stability and frequent changes in government. The proliferation of clientelist groups resulted in the state compromising on long term economic growth in an effort to ensure its short-term political sustainability. Production in the automotive industry has also become increasingly globalized in recent years and Pakistan has found it hard to break into global value chains on account of the weak technological capabilities that it could develop. Two case studies of relatively more successful instances of technology acquisition within the automotive industry of Pakistan show that even in this adverse policy environment, intervention can still assist some capability enhancement. The policy challenge is to develop instruments that can enable capability development on a broader level in the context of the clientelist processes that characterize the political settlement.

This dissertation consists of three essays in development economics. The first essay is concerned with competition between two processing mills in the sugarcane market of Pakistan. I develop a two-stage duopsony game where, in the first period, mills fragmentize the market by investing in the procurement logistics and infrastructure to create captive segments in the market. In the second stage, mills take the segmentation given and compete in prices. The model endogenously determines the market fragmentation. In equilibrium, complete segmentation of the market emerges, mills buy cane from mutually exclusive segments of the market. Finally, I show that a binding price floor has no effect on the market segmentation. The second essay is concerned with coordination amongst processing mills. I analyse why sugar mills in Pakistan pay cane farmers by weight instead of sucrose content? I develop a two-stage pricing game. In the first stage, mills choose the price regime: pay by weight or sucrose content. In the second stage, for a given price regime, mills compete in prices. The model suggests that evaporation of moisture increases the effective transportation cost for farmers and hence reduces the competition between mills. Numerical solution to the game generates a coordination game. The fact that mills pay by weight, payoff dominant equilibrium, indicates a collusive behaviour among mills. However, I could not rule out the possibility of historical inertia when parameter values represent the historical conditions of the market. Finally, I suggest a price floor as an equilibrium switching policy. The final essay of this dissertation is concerned with cooperation between rural households. I study informal risk sharing contracts when players’ behaviour is motivated not only by their material payoff but also by intrinsic motivations. My results suggest that emotions such as envy, altruism, and intentions work in different directions. Envy and altruism not only reduce the critical discount factor that can self-sustain risk sharing but also make the sharing mechanism more equitable by reducing the number of equilibria in the repeated game. Finally, I study intention based preferences in an infinity repeated psychological game. The main result of the final chapter shows that intrinsic reciprocity based on expectations and intentions can reduce the level of informal insurance by increasing the critical discount factor.

In 1978, Government of Pakistan had taken a first step towards the privatization in Pakistan when three nationalized industrial units were handed over to their original owners. In the mid-eighties, privatization began to receive some consideration. A serious attempt in this regard however, was taken during early 1990s, when the government persuaded outright sale of public enterprises, nationalized commercial banks and development financial institutions. This study looks into the financial and economic consequences of transfer of ownership from public to private in the cement industry. The study utilizes the data on twenty cement firms covering 95% of the industry over twenty six years (1986 to 2011), comprising of both public and private ownership periods. The study utilizes two different techniques; 1) financial performance evaluation using financial ratio analysis such as profitability ratios, operating efficiency ratios, capital investment, output, financial insolvency, and dividend pay-out pattern; 2) economic performance evaluation using adjusted economic ratios such as public profit and profitability and total factor productivity. By using frontier production and cost function, firm level cost and technical efficiency and productivity is estimated to compare the performance over the years. Total factor productivity is further decomposed into technical change and scale component to find out the key sources of productivity change. To shed some light on the labour use efficiency, the study estimated labour demand function using non-linear least square method. To complete the story, an effort was made to estimate competitive conditions in pre- and post deregulation and privatization period using a variety of parametric and non-parametric methods. It is found that on average, investment spending and output has increased after privatization. Margin on sales and other profitability measures show a jump immediately after privatization but had been falling recently. Overall, profitability levels have suffered due to bad economic and law and order conditions. Public profits and profitability has also improved over the years. The decomposition into cost and technical efficiency reveals that firm-level cost efficiency has improved in the post privatization period. It is also found that firms using dry production process are more efficient both technically and cost wise compared to firms using wet process. When firms are grouped according to location, the north region firms outperformed the south region firms in term of technical as well as cost efficiency. Further, contrary to expectations, labour demand function estimates show decreasing labour use efficiencies. For most of the years this study covers, industry was operating under increasing returns to scale. The estimates of total productivity reveal that the industry has become more productive since 1997, recording 3-4% growth per annum. This growth was achieved primarily, due to technical change after significant investment was made by the new management in technology upgrades. The contribution of scale component was negligible. The evaluation of competitive conditions reveals that the industry as a whole has started exercising some market power in the post reforms period. By estimating biases in input usage, the study concludes that firms are using more labour and capital and less of fuel and material.

This thesis investigates, theoretically and empirically, the relationship among economic growth, financial liberalisation and poverty reduction in Pakistan, between 1970' and 2000, with the aid of a rigorous co-integration analysis. A literature review provides an account of the existing models and other poverty reduction strategies in Pakistan. An analysis of poverty trends (1970-2000) in Pakistan shows large variations in poverty indices during all three decades under observation, at both provincial and intra -provincial levels. Ruman development indices show that poverty is highly concentrated in rural areas. Among provinces, the rural areas of Sindh and Balochistan provinces are worst affected. The trend of poverty shows a high rise during the 1990s, a decade of slow economic growth in Pakistan. The rural poverty nexus is correlated to the agricultural land reforms and weak institutional mechanism. Ineffective public services delivery to the poor has been the result of weak institutional response. The gender poverty is also all pervasive in Pakistan, as rural women are found to be more vulnerable to poverty shocks. Institutional failure has been found to be the main cause of the rising poverty in Pakistan. To analyse the relationship between economic growth and poverty reduction in Pakistan, we used the Dollar and Kraay model (2000) that predicts that economic growth reduces poverty. Using annual data sets for Pakistan from 1970 to 2000, our results show a positive relationship between economic growth and poverty reduction in Pakistan. We also tested the impact of financial development and growth in Pakistan. The McKinnon-Shaw hypothesis (1973) implies that increase in real rate of interest will increase savings and investment, which will lead to higher economic growth. The co-integration tests of the McKinnon-Shaw model (1970-2000) for Pakistan could not substantiate the prediction of the model. With a significant increase in savings over the period under observation, investment failed to rise. However, overall financial intermediation plays a significant and positive role in boosting economic growth. Authoritarian governments and the nationalisation policies are largely responsible for the inability to transform savings into investment.

Geographical indications assumed prominence in terms of juridical development and economic importance with their inclusion in the TRIPS Agreement. Due to their nexus with place of origin, the importance of agricultural GIs has increased manifold. Pakistan has a strong agriculture-based economy. It has many valuable GIs, like Basmati rice, with significant trade worth billions of dollars. Nevertheless, not a single GI has been registered in Pakistan due to factors such as the inadequacies in the present system of protection of GIs in Pakistan, institutional weaknesses and the absence of an active role of the state. This thesis argues that a sui generis law for the regulation of agricultural GIs will facilitate better protection of GIs and economic development in Pakistan provided that it is also accompanied by the necessary institutional reforms. Pakistan is making efforts to enact a separate GI law for better protection of its GIs. However, there are administrative hurdles and institutional incapacities in Pakistan which need to be reformed. Examples have been taken from the sui generis laws of the EU and India in the discussions on legislative and institutional reforms in Pakistan. The EU and Indian sui generis laws have shown better protection of their GIs resulting in the registration of hundreds of their GIs and economic development. The situation in neighbouring India was the same as is currently found in Pakistan until 2003 when it introduced its sui generis law; it has now registered hundreds of GIs. Besides literature reviews, interviews have been conducted with public and private sector stakeholders to gain an insight into the weaknesses and strengths of the system of protection of GIs in Pakistan, as well as potential reforms. Based on the findings, a sui generis law and institutional reforms for better protection of agricultural GIs and economic development in Pakistan are proposed.