Regional Disparity in Pakistan’s Economy: Regional Econometric Analysis of Causes and Remedies

Abstract

This study analyzes the role of public capital in regional economies and inter-regional economic disparity by means of a regional econometric model for Pakistan. The regional disparity measures show that a sizable disparity in per capita incomes and labor productivity continuously persists among the regions of Pakistan. The efficiency of public capital and private inputs has been analyzed by estimating regional production functions, and the results indicate that the public capital has been more efficiently used in relatively advanced region, whereas a small share of private capital has been allocated to relatively backward region. The tests of technological difference show that the two regions utilize different technologies in their production process, which causes the interregional economic disparity between the regions. The simulation analysis on the basis of the adopted structure of regional econometric model suggests that interregional disparity and the efficiency of the national economy are strongly affected by changing the regional allocation patterns of private capital stock and the level of national public capital.