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Department of Economics Doctoral Thesis Department of Economics Doctoral Thesis “Decentralization and Sources of Interprovincial Growth; Dependency and Disparities: A Case study of Pakistan” by Tahir Sadiq Registration # DECON01141001 Supervisor Prof. Dr. M AslamChaudhary HoD, Economics (UoL) i “Decentralization and Sources of Interprovincial Growth; Dependency and Disparities: A Case study of Pakistan” By: Tahir Sadiq Registration # DECON01141001 This dissertation is submitted to Department of Economics, The University of Lahore, Pakistan in partial fulfillment of the requirement for the completion of Ph.D. in Economics. Approved by: External Examiners i) Dr. Shabbir Ahmed ii) Dr. Ahmed Internal Examiner/ Advisor Chairman (committee) Head of Department ii Author’s Declaration I, Mr. Tahir Sadiq, hereby state that my PhD thesis titled: “Decentralization and Sources of Interprovincial Growth; Dependency and Disparities: A Case study of Pakistan” is my own work and has not been submitted previously by me for taking any degree from The University of Lahore or anywhere else in the country/world. At any time if my statement is found to be incorrect even after I graduate from the university (UOL) has the right to withdraw my PhD degree. Tahir Sadiq Registration # DECON01141001 PhD candidate iii Plagiarism Undertaking I solemnly declare that research work presented in the thesis titled: “Decentralization and Sources of Interprovincial Growth; Dependency and Disparities: A Case study of Pakistan” is solely my research work with no significant contribution from any other person. Small contribution/help wherever taken has been duly acknowledged and that complete thesis has been written by me. I understand the zero tolerance policy of the HEC and The University of Lahore towards plagiarism. Therefore, I as an Author of the above titled thesis declare that no portion of my thesis has been plagiarized and any material used as reference is properly referred/cited. I undertake that if I am found guilty of any formal plagiarism in the above titled thesis even after award of PhD degree, the university reserves the rights to withdraw / revoke my PhD degree and that HEC and the University has the right to publish my name on the HEC/University Website on which names of students are placed who submitted plagiarized thesis. I declair that plagiarism in this thesis is as per HEC/UOL policy. Signature:___________________ Tahir Sadiq Registration # DECON01141001 PhD candidate iv Dedication To my Wife and my Son Muhammad v Acknowledgment to bestow the ﷺ First of all, thanks to Almighty Allah Who sent the Holy Prophet knowledge to humanity. I would like to express my special thanks of gratitude to my supervisor Prof. Dr. M. Aslam Chaudhary who provided a continuous support and guidance to complete my PhD. One is motivational force and one supporting force, in my thesis motivational force is my wife and supportive strength has been presented by one and only Prof. Dr. M. Aslam Chaudhary, as without his guidance it would not have been possible for me to complete this research study. He is really a mentor and great asset for the university especially and to the country. Lastly, I would like to thanks Mr. Wasim Saleem Phd student at PIDE for helping me in this long journey to complete this task. Last but not the least, a special heartiest tribute to my parents, wife, children and other family members, for suffering during my busy schedule of research days. Thank God it is over now. Tahir Sadiq Registration # DECON01141001 vi Accroynames ADE Average Daily Employment CPI Consumer Price Index DFID Department for International Development ECM Error Correction Model EG Engle Granger GDP Gross Domestic Product GOP Government of Punjab GRP Gross Regional Product HCI Human Capital Index HDI Human Development Index HIES Household Integrated Economic Survey HYV High Yield Variety IPP Institute of Public Policy IPR Institute of Policy Reforms KPK Khyber Pakhtunkhwa NEPRA National Electric Power Regulatory Authority NFC National Finance Commission NIHDI Non-income human development index PGDP Provincial Gross domestic product vii PIDE Pakistan Institute of Development Economics PILDAT Pakistan Institute of Legislative development and Transparency PPAF Pakistan Poverty Alleviation Fund RIA Regional Income Accounts SBP State Bank of Pakistan SPDC Social Policy & Development Centre VA Value Added viii Abstract Regional (provincial) growth inequalities and deprivation among provinces of Pakistan is one of the hot issues. It is a general perception that small provinces are neglected in the development process, while main focus of development policies was on large provinces. This study the first of its kind, which analyzes the relationship among the growth rates of provinces in Pakistan. It also explores sources of regional inequalities among provinces. In this context, the role of monetary and fiscal polices, are also explored. To understand, the nature of economic relationships and regional pattern of growth among provinces, the study Applied Engle Granger (EG) cointegration technique. The use of EG enables to analyze inter-provincial growth rates on one to one basis. The study has estimated 144 co-integrating equations to explore the dynamic relationship between GDP, agriculture, industry and services sectors of Pakistan and in its four provinces. Empirical evidences are drawn within sectoral relationship and among the four provinces of Pakistan. The results reveal that GDP growth rate of Punjab and Sindh provinces complement each other, in the development process. However, it revealed that the deprived provinces of Balochistan and KPK growth rates depend upon Sindh and Punjab. The sectoral cointegration analysis indicated that linkages across sectors and provinces are weak; among poor provinces. The findings confirm that there is a significant sectoral relationship and integration between relatively developed provinces of Punjab and Sindh. Their growth benefited each other, across provinces. This may be due to the fact that planning in Pakistan, before the 18th Amendment in the constitution, was centralized, and polices were focused on sectoral development rather than regional development; while regional income inequalities were ignored which led to provincial deprivation and inequalities. Further, the results of the study also supported that the growth of agriculture and industry, in each province, significantly depends on the growth of the services sector of the same province, as well as, on the service sectors of other provinces. The study has also estimated the impact of monetary and fiscal Policy on inter provincial growth differentials. For this, purpose panel data was utilized by applying fixed effect model. The analysis indicated that fiscal policy helped to reduce the regional growth disparities in Pakistan, whereas monetary policies enrage the situation of increasing income inequalities in the provinces. The study indicted high variations in the level of financial development across provinces, which may be one of the reasons for less development in the poor provinces like Balochistan and KPK. Lastly, an important finding of the study is that the incidences of terrorism and electricity load shedding, have augmented the regional growth disparities among provinces and in Pakistan. The shortfall in electricity has most affected the large scale manufacturing sector of Sindh, whereas ix the terrorism mostly affects KPK and Balochistan, which further fueled deprivation of the neglected province. The study suggests that planning and policy making should use from bottom up approach to address the above cited emerging economic issues. Provinces be empowered to have lion’s share in financial exchequer and economic decision making. The central planning body had members from each province who had responsibility to keep check on regional equity and disparities. The very concept of the institution has lost, since government servants (CSP officers) are serving on these positions now and they hardly play their role in this respect. It is recommended that the central planning body (Planning Commission) and Central bank should play their role in curtailing regional income inequalities and deprivations. There is an earnest need to integrate all provinces in to the main framework of economic development, on equity basis. Besides, although there is a right step of NFC award, which provides more resources to provinces but still there is a need to strengthen it more in terms of more economic power to provinces if they have to be integrated. Special development programs are needed to integrate relatively underdeveloped provinces of Balochistan and KPK; if at all regional equity has to be maintained and these provinces have to bring out of the sense of deprivation. x Table of Contents Author’s Declaration .................................................................................................................................... iii Plagiarism Undertaking ................................................................................................................................ iv Dedication ..................................................................................................................................................... v Acknowledgment ......................................................................................................................................... vi Accroynames ..............................................................................................................................................
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