Pakistan can increase profits from exports through well-functioning duty refunds, lower effective protection for domestic-oriented industry, smart export promotion, and a lower Real Effective Exchange Rate (REER), according to World Bank Senior Economist, Gonzalo Verela.
Pakistan’s export-to-GDP ratio has fallen from 16 percent in 2000 to less than 10 percent today, and this matters because exports and productivity are linked, Varela argued in response to the rising uncertainty of matters concerning exports.
A short 🧵on #exports, #productivity and do's and don'ts on support for #exporting in #Pakistan
Main messages: #exporting matters because it helps #productivity growth.
to boost #exports you need to increase relative returns to exporting.— Gonzalo Varela (@gonwei) October 7, 2022
Broadly discussing Pakistan’s trade deficit in a series of tweets, the trade and macroeconomic researcher highlighted that the downward trend of the country’s exports can be easily observed in historical data of large and listed exporting firms. “In the past decade, the share of exporters among large, publicly listed firms, fell from 60% to a bit more than 50% – almost 10pp!” Varela noted.
According to the WB economist, within companies involved in the country’s export business, the share of exports in their sales has declined by about five percentage points (pp).
Varela continued to explain that most exporters in Pakistan sell most of their output domestically, which might also help explain why the export sensitivity to REER is relatively low.
Varela added, “Declining export trends matter because exporters are more productive (because of selection – exporters to be, are already more productive before they start exporting), and they become more productive as they export more systematically (because they learn”.
In his final remarks for Pakistan, Varela acknowledged that from a public policy standpoint, it makes sense to incentivize exporting, both for long-term growth and the need for genuine sources of forex in the short term.
Actions that increase profits of exporting relative to domestic sales include a more depreciated REER, well-functioning duty drawbacks, lower effective protection for domestic-oriented industry, and smart export promotion the researcher concluded.
