Twelfth International Conference on Management of the Pakistan Economy Technology, Entrepreneurship and Productivity Growth – Where Pakistan stands and where it must go:Diversification and sophistication of Pakistan’s exports: the need for structural transformation

Abstract

The composition of the export basket of a country is an indicator of its industrial structure. The diversity of a country is expressed by the number of products it exports with a comparative advantage. According to the literature there is substantial evidence of diversification in exports leading to enhanced total exports and subsequent increases in GDP growth rates (Samen, 2010). Diversification coupled with structural transformation involves a movement of the export products along the sophistication chain. Therefore, shifting from primary to manufactured exports and further, from labor intensive to more resource intensive production. In this paper, we analyze Pakistan’s export performance through: the location in the product space, technological sophistication of exported products and economic complexity of the productive structure. By comparing Pakistan’s export performance with India, we find that while Pakistan’s exports are more diversified, its total exports show a downward trend as opposed to a rising trend for India. This refutes the traditional argument of diversification leading to greater exports and economic development. Instead, we find that in addition to diversification, the nature of exports is of huge significance. Pakistan’s exports are concentrated in the periphery of the product space with no production in the tightly packed industrial core where structural transformation is more promising (Hausmann and Klinger, 2010). The paper will conclude by making policy recommendations for enhancing the productive structure of exports by promoting movement into the industrial core of the product space and producing a more technologically sophisticated product mix.