The Automotive Industry in Pakistan: Structure, Composition and Assessment of Competitiveness with India

Abstract

The paper provides insights about the automotive industry in Pakistan, first, by determining the structure and composition of the sector and its contribution to employment of the industry. We find out that although the industry is beginning to make a significant contribution to the Pakistani economy, it is still relatively small by international standards and has to go a long way to fully mature and develop. Effective protection to the industry is high and imports are governed by non-tariff barriers in addition to high rates of duty. Secondly, on the basis of a survey of 34 vendors and OEMs, we find out that the protection to the industry resulted in large increase in the employment, making the industry monopolistic and hugely suffering the consumer surplus. Further, if the MFN status is awarded to India, most producers will be unable to compete owing to lack of incentive structure for export due to high profit-margins and low levels of production.

Keywords: Automotive industry, effective protection, non-tariff barriers, consumer surplus, MFN

JEL Classification: L1, L2, L5, L9