A Disaggregated Analysis of Productivity and Growth for Pakistan’s Large Scale Manufacturing Sector

PSSP Working Paper 032, “A Disaggregated Analysis of Productivity and Growth for Pakistan’s Large Scale Manufacturing Sector”, computes Total Factor Productivity (TFP) growth for Pakistan’s large scale manufacturing (LSM) sector for each five year period from 1970-71 to 2005-06. It covers LSM activity according to the 2 digit Pakistan Standard Industrial Classification (PSIC) 2007. The ‘Two Deflator Growth Accounting Framework’ is employed in the study to compute the sources of value added (VA) growth in the LSM sector, along with the ‘Sunrise-Sunset Approach’ for determining the concentration pattern of TFP within VA growth. This study aims to fill the gap of research on the issue of productivity measurement at the disaggregated level. Results show TFP contributed positively in all the study periods except for the most destabilized period of the nineties, and while analyzing the results of TFP growth for the 16 LSM subsectors, no evidence was found for the persistency of any particular subsector in attaining the highest TFP growth. Furthermore, in determining the concentration of TFP among various subsectors, it was found that only a small proportion of subsectors accounted for achieving the aggregate TFP growth for the whole LSM sector. The study thus describes the important role played by negatively productive subsectors in reducing the overall performance of the LSM sector. The contribution of physical capital is found to be the major source of VA growth throughout the study period, a result consistent with previous studies, while the contribution of labor to VA growth is found to be lowest and needs the special attention of policy makers.