ISLAMABAD: Pakistan is currently stuck in a ‘development trap’ since growth of the key markets – that regulate allocation of productive factors including land, capital and labour — have been stunted by an insider-outsider model of development, the World Bank said on Wednesday in its Systematic Country Diagnostic (SCD).
“Leveling the Playing Field” — the first SCD to be conducted in Pakistan by the World Bank — is aimed at informing the country’s ongoing structural reform process and providing an analytical base for the bank’s engagement moving forward. It notes that change is necessary to bring Pakistan out of this trap.
The insiders, that for reasons for historical legacy, controlled higher original endowments of land, physical and human capital, did not have the incentives to support policies that could have addressed existing factor market imperfections because this could have diluted their economic, social and political power, and their grip over state resources, the diagnostic said.
On the other hand, citizens who would have benefited from such reforms (outsiders) lacked the power (resources and political representation) to bargain for change.
Pakistan’s insider-outsider model lacks the potential to bring the country out of its low-income development trap. Consumption-led growth, with limited capital accumulation, declining productivity growth, and limited labour reallocation towards more productive sectors, will be insufficient to move Pakistan out of its structural boom-bust cycles.
Moreover, without addressing the existing inequality of opportunities and systematic socioeconomic discrimination affecting women in Pakistan, the prospects for sustaining poverty reduction and increasing shared prosperity moving forward are limited.
Published in Dawn, October 1st, 2020