akistan has suffered long on account of a narrow export base. There is compelling evidence to suggest that a healthy level of exports and positive terms of trade are good for a country‘s economy. Recent World Bank global estimates show that the average per capita GDP of the countries with negative balance of payment is around $8,000 (constant 2015). The per capita GDP of the countries with positive balance of payments is around $19,500 (constant 2015). The pattern is hard to miss.

It is not just the positive or negative terms of trade that translate into large differences in per capita GDP. There is equally compelling evidence that as the share of exports in the national GDP increases, the national income increases at a higher rate. Global estimates show that if the share of exports is less than 10 percent of the GDP, the average per capita income is no more than $18,440.

The average per capita GDP of the countries with more than 10 percent of their GDP coming from exports is around $32,000.

A quick comparison of Pakistan’s exports with its regional partners suggests that Pakistan’s performance has been dismal despite being one of the world’s most populated countries.

In 2020, Pakistan’s exports of goods and services were around $28 billion. Bangladesh‘s exports were a little over $39 billion and India exported goods and services worth $500 billion.

In 1972, Pakistan’s exports were $0.68 billion, Bangladeshi exports were $0.36 billion, and Indian exports were worth $2.88 billion. Pakistan’s exports have therefore grown around 40 times in the 50 years, while Bangladeshi exports have increased 108 times and Indian exports increased 172 times over the same period. This shows that we have lagged far behind our neighbours, who themselves are nowhere near the economic status of developed countries.

There is an asymmetry between the effect of imports and exports on economic outcomes. Global evidence suggests that increasing imports do not always hurt but increasing exports bring a definite benefit. A positive external balance is the most important marker of the economic health of an economy. The evidence is less clear regarding the role of imports in national wealth.

Why has Pakistan’s export potential remained untapped and unrealised? Some of the reasons are rooted in the institutional framework. Other reasons are more directly related to economic mismanagement.

Pakistan has been happy exporting traditional goods like textiles, leather and agricultural products, such as rice and cotton. Despite massive changes in the information technology and increasing globalisation, there have been meagre increases in the competitiveness of our export sector. There has been little effort at value addition, diversification or innovation. Most of the exports crucially dependent on significant subsidies, do not contribute much to the national wealth and further aggravate the distribution of economic resources.

There has been growing criticism of large subsidies to the export sector, primarily because they are not sustainable. However, the reason for the government’s generosity towards the export sector is not difficult to identify. Pakistan has a narrow export base and dwindling foreign export reserves. So there are few options available to the governments.

Innovation plays a fundamental role in expanding the export base. Innovation requires quality education. Many countries have reaped massive benefits from their investments in higher education.

Innovation plays a fundamental role in expanding the export base. Innovation requires quality education. Many countries have reaped massive benefits from their investments in their higher education.

Pakistan‘s investment in education is woefully small. To make the matters worse, the quality of education, especially at the lower level, scarcely seems to be a priority of the governments. There has been no integrated approach to improving the educational standards. Consequently, the per capita labour productivity is low. The industries can barely compete in the rapidly changing international manufacturing environment.

Pakistan has a culture of nepotism, which takes many forms including over-employment in public enterprises. The PIA and Pakistan Steel are two obvious examples of this. As a result, the cost of operating the national carrier is significantly higher than similar services in the private sector.

Massive subsidies are currently provided to unproductive and loss-making public enterprises. Once the labour force is recruited based on considerations other than merit, efficiency is the first casualty.

The political will required to take meaningful steps to either revamp the system and make the national enterprises productive or shut down the unsustainable enterprises is missing.

A major factor in anaemic growth in the export sector is the infatuation with the real estate business. The role of influential segments, including some state institutions, in the real estate business has done great harm to the economic incentive system. People no longer consider establishing new businesses. Instead, they are happy investing their surplus funds in real estate. Why should one take the risk of investing in productive sectors like manufacturing or agriculture when one can earn a guaranteed income from real estate?

The market value of urban properties is significantly higher than its actual value. This has stunted growth in the construction sector. Inflated property prices, especially around large cities result from massive speculative activity.

Little thought has been devoted to the long-term effect of converting agricultural lands into housing societies. Indifference is being shown even though we have to import even the essential commodities Pakistan has had a traditional comparative advantage in producing. We are no longer self-sufficient, even in the agricultural sector, touted as the mainstay of Pakistan’s economy. We have been sitting on a virtual ticking time bomb of food insecurity. Recent floods have increased the risk.

Small and medium enterprises (SMEs) have traditionally been at the centre of modernising economies and increasing the share of exports in the GDP. SMEs have done a commendable job in making China one of the world’s leading economies. Pakistan’s SMEs, however, are limited in their scope and diversity. Apart from cities like Gujranwala and Sialkot, there is no concept of home or cottage industries.

Apart from the institutional issues that have hamstrung Pakistan’s export sector, economic mismanagement has played a role in keeping the exports depressed. Reliance on a few exportable commodities and the inability to diversify its export base is an important marker of Pakistan’s economic mismanagement.

The massive difference in the growth of export sector in Bangladesh and India and the emaciated growth in Pakistan is also attributable to national economic policies. A robust strategy to market Pakistan’s products is crucial.

Increasing imports, especially luxury goods, have created economic imbalances and killed small domestic industries. There is a need to overhaul Pakistan’s international trade policies.

The writer is an associate professor in the Department of Economics at  COMSATS University Islamabad, Lahore Campus