Total Factor Productivity and Economic Growth in Pakistan: A Five-Decade Overview

Abstract

This paper traces Pakistan’s TFP and GDP growth from 1972 to 2021. The analysis shows that Pakistan’s TFP and economic growth have declined over time. The sectoral—agriculture, industry, and services—trends are also not different. The TFP and GDP growth rates of the total economy and the three sectors were the highest in the 1980s. In general, whenever TFP growth has increased, Pakistan’s economic growth has also increased. The analysis further shows that whenever attempts were made to deregulate and liberalise the economy, it resulted in higher TFP growth and consequently higher GDP growth. Similarly, macroeconomic and political stability also seems to be important factors in higher TFP and GDP growth. The comparison with other countries shows that Pakistan’s TFP growth performance has been reasonable, especially when compared with India. At the same time, however, the experience of other countries shows that to achieve GDP growth above 8 percent, Pakistan needs to enhance its productivity growth to 3 percent or above.