Why India and Pakistan grew differently….

Profs Atif Mian and Amir Sufi have started this really nice blog called houseofdebt…They have been posting some useful stuff on many a topics and is a nice simple read.

In a recent post they discuss the historical paths of India and Pakistan. Much like econs compare North Korea/South Korea, China/taiwan etc..we have a case for India vs Pakistan too. After all both were quite similar in terms of institutions etc.

The authors compare on the basis of exports:

India and Pakistan are a natural pair for long-run comparison. The two countries share a common colonial history and started off with a largely similar nature of economic activity. How does the long run trajectory of these two countries compare?

We use real exports per capita as our metric of comparison because exports are much better measured than other components of GDP in India and Pakistan. Exports also provide a reflection of a country’s global interconnectedness.  The graph below plots real exports per capita for India and Pakistan starting in 1980. We index the two lines to 100 in 1992 for ease of comparison.

 

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Up until 1992, both India and Pakistan were on a similar trajectory with low growth in their exports per capita. However, the trajectories diverge strongly in 1992 with India’s export growth taking off while Pakistan continued to trudge along at mediocre pace. One can see the power of compounding when growth rates persistently differ. Within a span of just two decades, Indian exports per capita have grown to be almost six times those of Pakistan.

What explains the persistent divergence between India and Pakistan since 1992? A natural candidate would be India’s economic liberalization that kicked off in 1992. However, an oft-overlooked fact is that Pakistan initiated economic liberalization earlier and with greater gusto than India. So something else must be at work.

Relatedly, the divergence between India and Pakistan has more to do with Pakistan’s failure to keep up with its peers as opposed to the growth being unique to India. A case in point is Pakistan’s comparison with Bangladesh, a country that was part of Pakistan until 1971. It turns out that growth in Bangladesh also diverged from Pakistan starting 1992.

So what could be behind Pakistan’s dismal long-run export performance? We will turn to this question in a later post.

I think the answer is going to be obvious-  it is politics stupid…Pakistan’s case has been a self-destruction one with really dismal state of political affairs for more than 20 years now..

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One Response to “Why India and Pakistan grew differently….”

  1. Why India and Pakistan grew differently…. | MERCIAR BUSINESS CONSULTING Says:

    […] https://mostlyeconomics.wordpress.com/2014/04/03/why-india-and-pakistan-grew-differently/ […]

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