According to Paul Krugman, productivity is not everything but in the long run, it is almost everything. The average total factor productivity (TFP) and GDP growth in China stood at 3% and 9%, respectively, India at 1.4% and 5.4%, and South Korea at 2% and 7% during 1971-2017.
Pakistan’s average TFP and GDP growth rates were 1.6% and 4.8%, respectively, from 1972 to 2017. The maximum and minimum levels of TFP and GDP growth were 2.8% and 6% in the ’80s and 0.33% and 4%, respectively, in the ’90s.
During 1990-2018, labor productivity in Pakistan, Bangladesh, India, and China grew by 45%, 191%, 263%, and 360%, with average annual growth rates of 1.3%, 3.9%, 4.7%, and 8.1%, respectively. Pakistan’s capital-output ratio dwindled from a peak of 3 in the ‘70s to 1.6 in 2018, while it mounted or remained constant in the region. Thus, Pakistan’s average TFP and GDP growth rates remained low in the region for the last five decades.
Low TFP growth debilitates the economy by weakening competitiveness, leading to higher imports and lower exports, a deteriorating trade deficit, dwindling revenue, mounting expenditures, and an amplifying fiscal deficit. This puts pressure on foreign exchange reserves and leads to internal and external borrowings.
In Pakistan, low productivity growth has been holding back sustainable economic growth for decades, while multiple socio-economic challenges are its by-products. It........