• Significantly low to achieve required GDP growth of 7-8pc
• High-productivity growth sectors mostly based on services or technology
ISLAMABAD: Pakistan’s average productivity growth remained just 1.5 per cent from 2010 to 2020, significantly low to achieve the required GDP growth rate of around 7-8pc on a sustainable basis, a new study shows.
The study – titled Sectoral Total Factor Productivity in Pakistan and conducted by the planning ministry and the think tank Pakistan Institute of Development Economics (PIDE) – says that the growth of productivity is a crucial determinant of an economy’s growth that has to be pushed higher to over 3pc.
The study used unique listed and non-listed data from 1,321 firms divided into 61 sectors to estimate productivity growth in the country. Its results show that high-productivity growth sectors are mostly based on services or technology, whereas those with medium to low or negative productivity growth are in manufacturing.
Total factor productivity (TFP) growth is a crucial determinant of long-term output growth. Countries that manage to boost their TFP growth grow at a much higher rate and for a sustained period. On the other hand, countries growing without a significant contribution from the TFP growth experience difficulty in maintaining a sustainable growth trajectory.
According to the study, evidence shows that economies that had TFP growth of more than 3pc had a GDP growth rate of 8pc or more, whereas TFP growth of less than 3pc was associated with a GDP growth rate between 3pc and 7pc, enunciating a positive correlation between TFP growth and GDP growth.
The economy-wide TFP growth estimates show that both TFP and GDP growth have been erratic in Pakistan since the early 1970s. For some years, TFP growth has even remained negative. Moreover, the economy-wide TFP growth, according to different estimates, has hovered around 2pc over the last few decades.
While the economy-wide TFP estimates are indicative, sectoral estimates are significant to understand productivity at various sub-macro levels. Firm data needed for sectoral estimates has been difficult to obtain, especially for those firms that are not listed on the stock exchange.
The study has estimated firm-level and sectoral TFP growth based on the Harmonized System’s level-two codes, or HS-2. In the study, 1,321 firms are divided into 61 sectors, with each firm’s data spanning a period from 2010 to 2020.