Public Infrastructure and Economic Growth in Pakistan: A Dynamic CGE-Microsimulation Analysis

PEP working paper serie 2013-01

35 Pages Posted: 10 May 2018 Last revised: 12 Jul 2018

See all articles by Vaqar Ahmed

Vaqar Ahmed

Sustainable Development Policy Institute (SDPI)

Ahsan Abbas

Quaid-i-Azam University - Pakistan Institute of Development Economics (PIDE)

Saira Ahmed

Quaid-i-Azam University - Pakistan Institute of Development Economics (PIDE)

Date Written: February 1, 2013

Abstract

The role of infrastructure in economic growth and welfare has been studied extensively across the literature over the past three decades. We use a dynamic CGE model linked to a microsimulation model to estimate the macro-micro impact of public infrastructure investment. Two approaches to public investment are considered in our simulations. In the first, production taxes finance the additional public infrastructure investment and in the second, foreign borrowing provides resources. Our results reveal that public infrastructure investments have the same direction of impact whether funded by taxation or international borrowing, particularly when looking at macroeconomic gains and poverty reduction in the long run. However, in the very short run, tax financing puts a strain on output in the industrial sector and thus reduces economic growth in the short run. The financing from international borrowing has a Dutch disease-like impact in the short run, as indicated by a decline in exports.

Keywords: Infrastructure, Economic Growth, Poverty, Pakistan, Computable General Equilibrium

Suggested Citation

Ahmed, Vaqar and Abbas, Ahsan and Ahmed, Saira, Public Infrastructure and Economic Growth in Pakistan: A Dynamic CGE-Microsimulation Analysis (February 1, 2013). PEP working paper serie 2013-01. Available at SSRN: https://ssrn.com/abstract=3168027 or http://dx.doi.org/10.2139/ssrn.3168027

Vaqar Ahmed (Contact Author)

Sustainable Development Policy Institute (SDPI) ( email )

38, Old Embassy Road (AttaTurk Avenue)
G-6/3
Islamabad, 44000
Pakistan

Ahsan Abbas

Quaid-i-Azam University - Pakistan Institute of Development Economics (PIDE) ( email )

Quaid-i-Azam University Campus
P.O.Box 1091
Islamabad, Federal Capital 44000
Pakistan

Saira Ahmed

Quaid-i-Azam University - Pakistan Institute of Development Economics (PIDE) ( email )

Quaid-i-Azam University Campus
P.O.Box 1091
Islamabad, Federal Capital 44000
Pakistan

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