Export Policy in Pakistan

One of the main objectives of Pakistan’s export policy has been the promotion of exports of manufactured goods. This is an objective which many under¬developed, predominately primary-exporting countries have in common because of their interest in export diversification. The general arguments used to justify such a policy, e.g., improvement in the terms of trade and increased stability of export proceeds—will not, however, be discussed in this paper1. Attention will instead be focussed on the economic consequences of the specific measures adopted by Pakistan, namely, a combination of export duties and subsidies which discriminate in favour of processed goods and against raw materials. The fact that in Pakistan the chief beneficiaries of discrimination have been manufactures of jute and cotton, products which also constitute most of the country’s raw material exports, facilitates the economic evaluation of this policy. It can thus be assumed that if jute and cotton were not exported as manufactures they could be exported in raw form, or in other words, that the problem con¬sists in selecting that combination of exports in raw and manufactured form which maximizes net foreign exchange earnings. Furthermore, the textile industry is not a very good case for applying the external economy argument (i.e., subsidies to industries which provide training to the labour force in new skills, etc.,) be¬cause the industry would exist in any case to supply the internal market, economies of scale are limited and the skills employed are fairly rudimentary. In the follow¬ing, all our discussion will be concentrated on the jute and cotton situation, the special problems of other manufacturing fall outside the scope of our analysis.