Course:

Economic Development in Pakistan-I

Course Code: 4659

Lecture-3
Unit.4
Technological Change and economic Development
Unit.No.5
Mobilization of Domestic Resources
 Technology encompasses a huge body of
knowledge and tools that ease the use of
economic resources as a way to produce
goods and services efficiently and
innovatively. Technological progress is
essential to economic growth and
development, and the more advanced the
technology available, the more quickly the
local and global economy can improve.
 Time is Money
 Efficiency
 Specialization
 Natural Resources
 Industrial Expansion
 Research
 The Internet and International Trade
 Technology can save the time it takes to
produce a good or deliver a service,
contributing to the overall profits of a
business.
Efficiency
 Technology can contribute to the efficiency of
a business's output rate, allowing for larger
quantities of products to be moved or of
services to be rendered.
 Technology has lead to an increase in the
division of labor and specialization of jobs
within a business, further contributing to the
efficiency with which a business is able to
run.
Natural Resources
 Technology has a huge effect on the ability of
businesses and governments to access
natural resources and use them in the most
effective ways possible to benefit both the
business and the economy.
 Thanks to the increased efficiency of labor
with the ever-improving state of technology,
businesses are able to increase total output,
which in turn leads to higher profits and
greater economic development.
Research:
 Better technology has lead to further research
into nearly every sector of business and
science, meaning businesses can benefit from
all sorts of technological advancements
 Information technology is the single most
important element in the success and growth
of international trade and job market growth,
allowing businesses to share information and
conduct trade in less time than the blink of
an eye.
 (DRM) — the process through which countries
raise and spend their own funds to provide
for their people – is the long-term path to
sustainable development finance. DRM not
only provides governments with the funds
needed to alleviate poverty and deliver public
services, but is also a critical step on the path
out of aid dependence.
 The analysis of Pakistan’s savings potential
and how best it may be drawn on is a central
issue at this time, since any optimistic
scenario of future growth depends on a
considerable increase in the national savings
rate from its current low level. The average
saving rate over 1990-91 to 1995-96 has
been only 14.7 percent of GDP. It is essential
to get this rate up to 20 percent and
desirable to get it to 25 percent as soon as
possible.
 Pakistan’s saving performance is evaluated in
two ways. We provide information on relative
saving and investment rates in Pakistan and a
few other selected Asian countries. We trace
the trends in different measures of savings
over time. The sources of savings and how
these have changed over time is also an
important issue.
 the period 1960-61 to 1995-96, domestic saving
rates of 9.66 percent is low. A much more
disturbing feature of the savings performance is
that the saving rate has fallen over time from
13.54 percent during 1960s to 8.44 percent
during 1970s. The savings improved slightly
during 1980s and 1990s and was slightly higher
than 1960s. There have also been large
fluctuations in the saving rates. Another
disturbing feature is that national saving has
been able to finance, on average, 3/4th of gross
total investment in Pakistan during the last 25
years.
 In second section, evidence on main
determinants of savings in East Asia was
presented. In this section, we first provide a
review of empirical literature drawing largely
on previous studies in the context of
Pakistan. We find that results are broadly
consistent with standard economic theory.
However, the statistical significance of some
of the variables has been found to be weak.
Also the directions of relationship between
growth and saving need to be examined.
 This section provides an empirical assessment of the
role of income, public saving, real interest rate,
financial deepening, foreign capital inflows, and other
demographic and structural factors in the
determination of private, domestic, and household
savings in Pakistan. Regression equations have been
estimated by ordinary least squares (OLS) for private
saving, domestic saving, and household saving for
the period 1961–1996. The estimated equations are
reported in Table 5 Equation 1 explains private
saving in terms of public saving, GNP, Financial
Deepening (measured as a ratio of M1 to GNP), ratio
of value added in agriculture to GDP (VAGDP), foreign
capital inflows, and real interest rate.
 There are two issues that need to be addressed at the very
outset. First, the target level of domestic savings required
to finance the investment needs for achieving the objective
of 7 to 8 percent growth in the economy needs to be
known. This exercise requires, among other things, the
expected sectoral composition as different sectors vary in
their capital requirements and expected changes in the
efficiency of investment would in future years. In view of
the current infrastructural constraints, it is expected that
future investment would be characterised with a high level
of Incremental Capital Output Ratio (ICOR) as investments
in the infrastructural sectors has a higher ICOR than most
other sectors. If the improvements in the efficiency of
investments does not fully offset the impact of larger
required investments in infrastructures, it is expected that
ICOR would increase over time in Pakistan.
 Domestic savings in Pakistan have been low and have
risen quite slowly. Public savings have been the major
problem area in the past. An econometric analysis of
private savings determinants shows that we can
expect private savings to grow gradually as a result
of rising per capita income, falling dependency
burden, improved financial deepening and macro
stability. If public savings remain low, private savings
would not suffice to finance the high growth target
needed to eradicate poverty as well as improve the
general living standard. Part of the problem of a low
savings rate would be solved if a virtuous cycle is
created whereby high GDP growth contributes to an
acceleration in the growth rate of savings.