Exports Performance of Pakistan: A Constant Market Share Analysis

Abstract

The Economic literature that mostly emerged after the East Asian Crisis of 1997-98 well established the fact that exports are one of the important drivers of sustainable economic growth for a country. The primary reason for most of the emerging economies to consistently face balance of payments problem is the lack of enhancement or failure to grow their exports in comparison to imports. Pakistan, being a small open emerging economy, also faces such challenges while managing its external sector performance. To address these challenges overtime, the authorities put in placed incentives based policies to promote exports along with a move to market based exchange rate mechanism. However, over the last two decades, Pakistan’s exports performance is consider as dismal when compared to that of its immediate neighboring economies, such as Bangladesh. Therefore, the aim of this study is to identify the underlying factors responsible for such dismal performance of Pakistan’s exports by using the Constant Market Share (CMS) analysis. The CMS analysis was first suggested by Tyszynski (1951) and was refined by Leamer and Stern (1970), Richardson (1971), Fagerberg and Sollie (1987), and Kapur (1991). The CMS analysis essentially decomposes growth of actual exports during a specified period into four parts, viz. the world trade effect, the commodity composition effect, the market diversification effect (referred in the literature as market distribution effect), and a residual. Like any other methodology, the CMS analysis also carries some merits and demerits. While the obvious advantage is the decomposition of exports to indentify the underlying factor responsible for growth, the main disadvantage of the CMS analysis is that its rests on the assumption that a country’s export share in the world market remains constant overtime. Previously, Hussain (1974), Mahmood (1981) and Mahmood and Akhtar (1996) have used CMS analysis to evaluate Pakistan’s export performance. While the former two studies covered the period 1960-68 and 1972-76, the latter study covered the period 1984-93, respectively. Since then, particularly during 2000s, Pakistan’s trade regime has become more liberalized, and also become more prone to external developments besides the internal ones. Therefore, the CMS analysis of exports for the recent decade can provide useful insights for policy debate. The rest of the paper is organized as follows. Section 2 briefly discusses some of the stylized facts about export performance of Pakistan and compares that with exports performance of Bangladesh. Section 3 describes the data and methodology behind the CMS analysis. Section 4 discusses the findings from the CMS analysis for Pakistan and Bangladesh. Section 5 makes the concluding remarks.