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The Question Of Regional Economic Disparity (Corrected Version)
Dr.Akmal Hussain
Newspaper: Daily Times
Dated: Thursday, August 08, 2002

In Pakistan, historically, regional economic disparity has been an important political issue. During the 1960s the economic disparity between East and West Pakistan fueled the movement for national independence in Pakistan's eastern wing that became Bangladesh in 1971. During the subsequent three decades the issue of regional disparity between the remaining provinces of Pakistan acquired a significant emotional charge. It may be time now to begin a serious analysis of the problem in order to devise policies for strengthening Pakistan's national integrity. An understanding of the dynamics of regional disparity is also important as Pakistan embarks on a programme of devolution of power to the district level.

In this article we will briefly analyze the mechanism of regional economic disparity in Pakistan and propose an alternative planning perspective for a more equitable regional economic growth.

Mechanism of Regional Economic Disparity

The earlier study by Naved Hamid and me and later studies by Hafiz Pasha et al showed that not only have inter provincial economic inequalities increased over time, but also the degree of inequality within provinces has accentuated. It was interesting that the economic disparity between the districts of each province was positively correlated with the overall provincial economic growth rates, i.e., the rank ordering of intra provincial inequality was congruent with the rank ordering of provincial growth rates.

The evidence in Pakistan as indeed for the world as a whole shows that when industrial growth occurs within the framework of the market mechanism there is a cumulative tendency for the relatively developed regions to grow faster than the relatively less developed regions. The developed regions enjoy internal and external economies, and lower costs of production relative to other regions which make the initiating region cumulatively more advantageous for further investment. The specific factors underlying cumulative divergence in the attractiveness of regions for further investment and hence increased disparity in regional growth rates are: Concentration of communications, banking facilities, public utilities, technical know-how, trained manpower, and maintenance facilities. Conversely, as growth is concentrated in the developed region, it pulls capital and skilled labour from the backward region, thereby adversely affecting the age composition, skill and capital endowment of the backward areas. Agriculture growth following the Green Revolution in the 1960s also served to accentuate regional economic disparity. This was because the new high yielding varieties required a seasonally flexible supply of irrigation water. Thus those provinces which had a larger proportion of their cultivated area under irrigation, could achieve a relatively faster agriculture growth.

Planning for Equitable Regional Growth

The attainment of regionally equitable growth means a carefully designed government intervention for greater regional balance, while allowing the dynamic growth factors of the market mechanism to remain intact. At the moment economic planning essentially involves allocating government resources amongst various "sectors" of the economy such as agriculture, industry, energy, irrigation, etc. The current planning exercise involves achieving consistency between sectoral growth targets and external and internal financial resources. Space is assumed out of the planning exercise except for sops like Special Development Programmes, in which investment in backward areas is marginal to the overall plan. Regionally equitable development requires placing the regional dimension into the heart of the planning exercise. Each investment package must be evaluated in terms of its impact on regional growth, before designing fiscal/monetary policy incentives and institutional support. This has become particularly important now that the government is envisaging a major public sector development programme for building dams, ports and transport infrastructure.

Pakistan's experience has shown that the development of backward regions cannot be stimulated simply by giving tax incentives to entrepreneurs for investment in backward areas. For the entrepreneur, the attractiveness of infrastructure and markets in the developed regions far outweighs the attractiveness of tax incentives. In rare cases where the entrepreneur does invest in the area designated "backward", (e.g. Hub Chowki) he indulges in "border hopping", i.e., he locates the unit just across the border between the developed and backward regions. The industrial unit draws its inputs and sells its outputs in the developed region, and therefore generates secondary multiplier effects in the developed rather than the backward region.

If investment is to go deep into the backward regions to generate self sustained growth, the development of infrastructure in these regions is essential. The question then arises, where in the vast "backward" region to set up the infrastructure and how much? A regional planning exercise would involve mapping the economic and social infrastructure, geographic location of markets by size and source of raw materials. On the basis of such a "map", potential growth NODES could be specified in the backward region. These would be locations which on the basis of some existing infrastructure, closeness to a local market, or raw material deposit, qualify for supplementary infrastructural investment by the government. The first step towards specifying such growth nodes has already been taken with our study on Industrialization potential of Selected Districts (A.I. Hamid, A. Hussain, A. Qutub). This study has proposed growth nodes in the following districts: Khairpur, Nawabshah and Sanghar in Sind; D.G. Khan, Muzaffargarh and Bhakkar in the Punjab. A similar exercise could be conducted for all the backward regions of the country. The nodes could be specified in such a way that as growth begins to occur, they begin to interact in terms of factor markets, thereby generating self-sustained growth diffusion in the backward areas.

In conclusion one can propose that for a regionally balanced economic growth and in the designing of fiscal/monetary policy incentives, the regional dimension needs to be taken into account. In the same way in the design of poverty alleviation measures by the government and NGOs, differences in the level of poverty and the dynamics of poverty creation as between provinces and districts should be an essential consideration.

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