Pakistan Journal of Applied Economics

19-38

Authors: Omo AREGBEYEN*

This study investigates the factors that influence the growth rate of firms in Nigeria with a sample of 94 publicly listed firms during the period 1994-2005. The theoretical/analytical framework rested on the optimal firm size growth theory. It offers the most practical approach. The empirical methodology combines descriptive/statistical with econometric analysis. The significant determinants of the firms’ growth rates include the firms’ previous growth rates, size, age, capital intensity, financial constraints, management efficiency, and the extent of vertical integration. However, the significance of these factors depends on how the growth of firm is defined and/or measured as well as the estimation methods.

53-65

Authors: Omo AREGBEYEN* and Stanley Ogochukwu MBADIUGHA**

There has been significant investment in shares market in Nigeria in recent years. This paper investigates the factors that have influenced the share investment decisions of a sample of 2000 Nigerian investors. Anchored on the behavioral finance theory, it explored and analysed the influence of various social, economic, psychological, and cultural factors and sub-groups as indicated by available literature. Our findings showed the degree of influence of each factor as well as the sub-groups. However, there were no significant differences among the subgroups. The study therefore concluded that investment decisions in shares by Nigerians investors are influenced jointly by several groups of factors.

77-99

Authors: Abedullah, Tariq A. SHEIKH, Hasseeb ALI, and Shahzad KOUSER**

For many decades, pesticide (insecticide, fungicide and weedicide) and fertilizers have played an imperative role in improving agricultural productivity, but their adverse affects on the sustainability of natural resources (environment and ground water etc) has been largely ignored. The present study attempts to estimate the environmental efficiency indices of environmentally detrimental variables by employing a translog stochastic production frontier approach in vegetable production. Pesticide cost and active nutrients of fertilizer (NPK) are treated as environmentally detrimental variables. The input-output data from 140 freshwater and 135 wastewater farmers are collected from two major vegetable producing districts (Gujranwala and Faisalabad) of Pakistan’s Punjab province in 2010. The mean technical efficiency indices in wastewater and freshwater area are 74 and 91 percent, respectively. The environmental efficiency indices of active nutrients of fertilizer (NPK) in wastewater and freshwater areas are 14 and 69 percent while the environmental efficiency indices of pesticide cost are 47 and 43 percent, respectively. This implies that substantial reduction (86 percent) in active nutrients of fertilizer in wastewater is possible while more than 50 percent reduction in pesticide cost can be made both in wastewater and freshwater areas by maintaining the revenue at maximum achievable level. The reduction in pesticide cost and active nutrients of fertilizer NPK is Rs.568 and Rs.1850 per acre in wastewater area while in freshwater area it is Rs.451.5 and Rs.1525.2 per acre, respectively. However, total saving at the province level from the reduction in pesticide cost both in wastewater and freshwater areas is Rs.314.5 million but from active nutrients of fertilizer is Rs.1060.9 million. The saving from the reduction in fertilizer use is more than three times the saving from the reduction in pesticide use. Our empirical findings demonstrate that safe vegetable for consumption (with fewer chemicals) together with reduction in environmental pollution and higher level of profitability through reduction in cash input use is achievable.

15-36

Authors: Kalluru Siva REDDY*

The present study explores the determinants of profitability of commercial banks in India by employing Arellano and Bond (1991) dynamic panel data model for the unbalanced panel data of 87 banks for the period 1992-2006. The study used net interest margin and returns on assets as two alternatives for measuring profitability of banks. Empirical results reveal that profitability of banks is not only determined by its own characters but also by the industry specific and macroeconomic factors. Further, the study also finds the role of ownership and political factors in determining the profitability of banks in India. However, the determinants of profitability significantly varied across the groups.

53-67

Authors: Mehmood Khan KAKAR* Samina KHALIL**

This study, empirically examines the aggregate tourism demand function for Pakistan using time series data for the period 1960-2006. The total tourism receipts in Pakistan are related to the world income, relative prices and transportation cost. This study employs bounds testing cointegration procedure proposed by Pesaran et al. (2001) to compute the short and long-run elasticities of income, prices, and transportation cost variables. Also the CUSUM and CUSUMSQ stability tests are implemented on the aggregate tourism demand function. The empirical results indicate that income is the most significant variable in explaining the aggregate tourism receipts to Pakistan and there exists a stable tourism demand function.

93-110

Authors: M. Abimbola OYINLOLA, Oluwatosin ADENIYI, and Festus O. EGWAIKHIDE*

This paper explore the long-run absolute purchasing power parity (PPP) hypothesis for a sample of 26 African countries, using both the univariate and the panel unit root tests on annual data for the period 1973-2008. The conventional unit root tests essentially failed to reject the null hypothesis of a unit root in the real exchange rates of the countries which were investigated. Evidence, in favour of PPP for only 7 countries was found. Consequently, a volley of panel unit root tests was employed. The results demonstrated that the null of meanreversion in the real exchange rates of all countries in the sample could not be rejected, implying a breakdown of the PPP in these countries. Therefore, it could be insightful to consider non-linear assessments of adjustment of the exchange rate towards its PPP trajectory. This threshold-type of analysis may convey information useful for policy making.

13-28

Authors: Abdul SALAM*

The paper has examined and analyzed the domestic producer and international prices of wheat, basmati and IRRI paddy during 1996-06. The analysis has suggested deterioration in the purchasing power of these foodgrains as their annual increases fell short of the general price increase in the economy. The analyses of domestic and international prices during the study period suggest negative protection to domestic production of wheat averaging between 30-34 per cent per year, of basmati paddy varying from 12 to 20 per cent and huge transfer of resource from the producers of these crops. The comparison of domestic prices of IRRI paddy with the export parity prices, estimated at the official exchange rate, generally suggests positive protection to its domestic production averaging at 6 per cent per year. However, when export parity prices are estimated at the equilibrium exchange rate the overall picture changes to one of negative protection or implicit taxation averaging at 4 per cent per year.

47-65

Authors: Benjamin Ayodele FOLORUNSO and Anthony Enisan AKINLO*

The paper investigates the determinants of aggregate private investment and determines the long-run relationship between macroeconomic uncertainty and aggregate private investment decisions in Nigeria between 1970 and 2006. Cointegration and error correction modeling techniques is adopted in the estimation of aggregate private investment models. The results show that private investment in Nigeria is significantly and positively affected by income, public investment and credit to private sector while it is negatively affected by real interest rates and the size of debt. The paper further reveals that inflation rate, exchange rate and fiscal deficit uncertainties are most detrimental to private investment recovery in Nigeria. The paper concludes that the key to private investment recovery and economic growth in Nigeria is in reducing the overall level of macroeconomic uncertainty.

77-99

Authors: Ihtsham ul Haq PADDA*

This study analyzes the continued and separate fiscal policy options regarding taxes, expenditures and public debt for Pakistan. It evaluates the plausibility of an important hypothesis that seeks to maintain a balance between raising resources, increasing expenditures and contracting public debt i.e., the tax smoothing hypothesis. The study determines whether Pakistan has adopted a tax smoothing policy to overcome fiscal deficit and if so, what forms such policy has taken. The Wavelet Transformation is used for the first time to decompose the expenditure rate series into the permanent and transitory parts. The graphical and empirical analyses presented here reveal that Pakistan has tried to minimize the welfare cost of taxation but these policies have not followed best practices in tax smoothing elsewhere. The paper also makes some useful recommendations in this regard. It shows that in order to minimize the welfare cost of taxation the government should finance its permanent expenditure by increasing the tax rate while transitory shocks to the expenditures or output should be financed by creating public debt. The debt, so incurred, should, however, be contingent upon an emergency situation and retired when that emergency ends. It is asserted that if Pakistan’s fiscal policies are reformed along the lines suggested in this study it would lead to efficient and equitable policies which are based on robust theoretical and empirical foundations.

103-127

Authors: Khalid RIAZ

This paper attempts to look at actual export performance by employing revealed comparative advantage approach pioneered by Balassa in contrast to several previous studies of Pakistan’s ex-ante comparative advantage in export of agricultural products,. Detailed trade information from SITC data was used to study relative export performance for a broad range of agricultural products. The results indicate that Pakistan has strong revealed comparative advantage in cereals exports, and that the country capitalized on this during international commodity price boom, especially for rice exports. However, actual performance was weak for high value products such as livestock and dairy, and was erratic for vegetables. Only mango and citrus show a high revealed comparative advantage, although the country grows a large variety of fruits.

153-174

Authors: ABEDULLAH, Shahzad KOUSER, Khalid MUSHTAQ

The study estimates technical, allocative and economic inefficiencies in carrot production by employing the stochastic production frontier approach and the duality theory. The impact of determinants of technical, al locative and economic inefficiencies has also been addressed. Carrot production is concentrated in two districts, Sheikhupura and Kasur in Pakistan’s Punjab, and this study is based on data collected from these two districts. Farmers are, respectively 54, 2I and 63 per cent technically, allocatively and economically inefficient. Our results reveal that a large potential exists that can be explored to increase the income of vegetal* farmers in the study area. The elimination of technical and economic inefficiencies will generate an amount of 409.9 and 594.5 million rupees per year, respectively, in the province. Education, farming experience and average distance from input-output markets are found to be highly significant in order to improve technical, allocative and economic efficiency, indicating that investment on education and improvement of physical infrastructure (i.e., construction of roads) are the most critical areas that can help to eliminate inefficiencies in carrot production. This implies that investment in these sectors could play a critical role in expanding the production of carrots and to improve farm income by improving resource use efficiency in carrot production.

19-33

Authors: ABEDULLAH* & Sushil PANDE** & Saima JABEEN*

A linearised version of the Cobb-Douglas stochastic frontier production function with time-varying technical efficiencies is estimated. The panel data (1990-1995) collected by the International Rice Research Institute CIRRI) from paddy farmers in the rainfed rice ecosystem of Tarlac, Philippines is used. Firm effects are assumed to be an exponential function of time. The result of the hypothesis testing indicated that significant inefficiency exists in the panel data. Empirical analysis demonstrated that paddy farms in the rainfed rice ecosystem of the Philippines have time-variant technical efficiency and this conclusion is along the lines of earlier findings in the literature. The results also depicted that technological change is not accounting for improvement in technical efficiencies which contradicts the earlier findings. Hence, empirical findings are area specific and cannot be generalised for all ecosystems and regions. On average, technical efficiency estimates improved from 80 per cent in 1990 to 91 per cent in 1995, implying that further potential that can be explored exists.

59-73

Authors: Shaista KAZMI,* Faiza Azhar KHAN** and Naheed Zia KHAN** READ MORE

This study focuses on determining the significance of the imported resource content, the largest consumer of the foreign exchange earnings, relative to the domestic inputs in the large scale-manufacturing sector (LSMS) of Pakistan. The analysis also includes the causal relationship of the major manufacturing sector variables; namely manufacturing employment, investment, and exports, with the economic growth of the country, determined within a unidirectional model. The relative significance of -the domestic and imported resource content in the LSMS is determined for thirty 3-digit level industries over a period of 12 year~~ 1975-1991. The results are obtained by estimating a simultaneous equations model, i.e., applying the 3SLS technique. The findings suggest that the domestic resource content has played a significant role in determining both the output and employment in the .LSMS of Pakistan, but the estimated coefficients oithe imported resource content variable indicate the absence of a significant relationship with the left hand side variables, LSMS output and employment, respectively.