Why Has Pakistan’s Economy Underperformed?

Abstract

Notwithstanding poor outcomes in the social sectors, what else does Pakistan’s economic history tell us and what does it tell us in terms of the reasons for its underperformance? First, let’s go through some numbers. Taking a long-term view of Pakistan’s economic history from 1950 to 2010, a period of 60 years, long enough for any bumps in the road to have been evened out, GDP growth has been around 4 per cent a year and population growth around 2 per cent a year (between 1990 and 2010 the average growth rate is closer to 3 per cent). In other words, per capita GDP has roughly trebled from about $450 in 1950 (at 2010 prices) to about $1350 ($3000 at purchasing power parity (PPP)) in 2010, while India’s per capita has reached $1700 ($4200 at PPP) over the same period (Pakistan and India were one country until 1947) and Sri Lanka’s per capita has reached $3000 ($6500 at PPP). Given Pakistan’s initial difficulties, this could be described as a respectable performance and, indeed, many developing countries have done worse than this. However, compared to East and South-East Asia Pakistan’s performance is distinctly unimpressive. Starting at approximately the same level in 1950, Indonesia’s per capita income had reached $3700 ($5200 at PPP) and Thailand’s had reached $5800 ($10,000 at PPP), while South Korea’s per capita income had grown to an extraordinary $24,000 ($33,000 at PPP) over the same period, the level of a developed economy (see Appendix for more information on Pakistan’s comparative performance in key areas).