Pakistan's average productivity growth remained just 1.5% from 2010 to 2020: Report

Pakistan's average productivity growth, a crucial determinant of an economy's growth, remained just 1.5 per cent from 2010 to 2020, according to a media report.

Dawn reported that the study — titled Sectoral Total Factor Productivity in Pakistan and — noted that the growth of productivity is a crucial determinant of an economy's growth that has to be pushed higher to over 3 per cent.

The study was the product of research conducted by the planning ministry and Pakistan Institute of Development Economics (PIDE) -- a think tank.

The study used unique listed and non-listed data from 1,321 firms divided into 61 sectors to estimate productivity growth in the country.

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High-productivity growth sectors were mostly based on services or tech, whereas those with medium to low or negative productivity growth are in manufacturing, as per the report.

Total factor productivity (TFP) growth is a crucial determinant of long-term output growth.

According to the study, evidence showed that economies that had TFP growth of more than 3 per cent had a GDP growth rate of 8 per cent or more, whereas TFP growth of less than 3 per cent was associated with a GDP growth rate between 3 per cent and 7 per cent.

The economy-wide TFP growth estimates show that both TFP and GDP growth have been erratic in Pakistan since the early 1970s.

For some years, TFP growth has even remained negative. Moreover, the economy-wide TFP growth, according to different estimates, has hovered around 2 per cent over the last few decades, it added.

In the study, 1,321 firms are divided into 61 sectors, with each firm's data spanning a period from 2010 to 2020. The study's results show that the average TFP growth for all the 61 sectors included in the analysis between 2010 and 2020 remained 1.5 per cent.

Low TFP growth implies that the economy has not been productive over time.

Dividing the 61 sectors into three categories — i.e., high TFP growth (above 3 per cent), medium to low TFP growth (between 0 per cent and 2.9 per cent), and negative TFP growth (below 0 per cent) — the study found that most sectors with high TFP growth are either related to services or tech.

According to the analysis, services have higher TFP growth on average than manufacturing.

One plausible reason for this could be greater competition in services. Besides, the manufacturing sector is protected in Pakistan, which insulates them from the competition by retarding any incentive to improve efficiency, the report said.

The services sector could also be more productive because of digitisation. Similarly, flexibility in technology adoption could be another factor.

It is often observed that Pakistani firms in the manufacturing sector are primarily family-owned and managed, and are in general averse to modern management practices, a factor that inhibits productivity growth, Dawn said quoting the study.