Observe the changes in the Pakistani economy and society


If the economists working in Pakistan remain attentive to the changes taking place around them, they too may one day aspire to be recognized. The last three recipients of the prestigious Nobel Prize in Economics, whose names were announced on October 11, demonstrated how observing daily changes can improve our understanding of economic and social behavior. It is not necessary to conduct expensive and controlled experiments to develop a better understanding of how economic managers at national level or working in private companies behave in dynamic economic and social situations.

Controlled experimentation is expected of natural scientists before firm conclusions can be drawn that affect public policy making. Much of the impressive advance in the development of vaccines to equip the human body to fight the novel coronavirus that causes Covid-19 has been made in laboratories. They divided the volunteers into two groups – one who received the vaccine under development and the other who were injected with saline water. The participants in the experiment did not know which group they belonged to. It was only when significant differences were seen between the response of the two groups that the researchers felt confident that they could recommend wider use of the vaccine. The last laureates in economics did not carry out controlled experiments. They only studied what was going on around them. What impressed the Nobel Prize awarding committee about the work of the economists whose work has been identified? What are the changes taking place in the Pakistani economy and society that might bring academic recognition to some of those working on developments in Pakistan? I will answer these two questions in turn.

“Sometimes nature or policy changes create situations that look like random experiments,” said Peter Fredriksson, chairman of the Nobel Prize committee, while announcing the names of the 2021 laureates. “This year’s laureates have shown that such natural experiences help answer questions of importance to society. David Card, one of the three recipients, did his pioneering work in association with Alan B Krueger, a Princeton University economist and former White House adviser who died in 2009. By accepting the award, Card a stated that if “Alan had been alive he would have also been honored.” Card and Kruger worked on the effect of salary increases on employment. The other two recipients – Joshua D Angrist and Guido W Imbens – have studied the impact of education on lifetime income.

Card’s work challenged conventional wisdom in labor economics that higher minimum wages lead to lower employment. He and Krueger used the border between neighboring states of New Jersey and Pennsylvania to test their hypothesis. New Jersey had raised the minimum wage for workers employed by state companies. The researchers found that employment at New York’s fast food restaurants was unaffected by the increase in wages that New Jersey employers were forced to pay. Card also looked at the effect of an immigrant influx on employment among low-educated local workers and found the impact to be minimal.

In their research, Angrist and Imbens found that an additional year of schooling resulted in a 9 percent increase in earnings. The pair showed that it was possible to identify a clear effect of an intervention on people’s behavior even if the researcher could not control who participated in the experiment. Their work has had a profound impact on the design of public policies. By rewarding observation rather than experimentation, the Nobel Committee followed the now well-established tradition.

Turning now to Pakistan, I would identify the country’s potential as a laboratory for serious economic and social research. It has a number of attributes unique to it among the emerging economies of the world. Four of them are worth mentioning and all four could be researched. It is one of two countries in the world that has been carved out of a larger geographic entity. The other is the State of Israel. Both were created to satisfy the aspirations of a community that wanted a separate living space for itself. Second, Pakistan has received the largest influx of migrants from overseas. The first wave came when Pakistan was separated from British India to separate the large Muslim minority from the vast Hindu majority. When the British left and returned home, the population of their colony was estimated at 400 million people. Of this number, 100 million were Muslims. However, the Muslim community was divided into three almost equal parts. One was concentrated in the northwest; another was located in the northeast; and the third spread throughout the colony. The first two communities found their homes in what would become Pakistan and Bangladesh. The third lost a significant number of people due to migration. Eight million people entered what is now Pakistan.

In 1947, the year Pakistan was born, refugees made up a quarter of the country’s population. The second wave was made up of Afghans who left their country after the Soviet invasion of 1979 and continued to arrive in Pakistan for more than four decades. Currently, 3-4% of the Pakistani population are Afghan refugees. Third, Pakistan has a large proportion of its population living outside the country. Over time, Pakistanis have developed three diasporas – one in the Middle East; two, in Great Britain; and three, in North America. Each of them reacts with their country of origin in different ways. Fourth, for a decade Pakistan experimented with a system of local government that helped it apply new technologies in the agricultural sector. The system was called the Basic Democracies (BD) and was designed by President Ayub Khan, Pakistan’s first military leader.

There are several sources of data and information that researchers could use to draw important conclusions on several aspects of social and economic developments in Pakistan. There is an enormous amount of information available in the files which have been kept by patwaris for decades. These contain information on changes in land ownership as well as the amount of production produced by the farming community. I once used this data to calculate the increase in land productivity in areas that adopted high-yielding varieties of wheat and rice in the 1960s. This period is known as the “Green Revolution”. “. What prompted one group of supervisors to adopt these crop varieties while the other group continued to use conventional technology? Did the system of grassroots democracies play a role in this change? These are important questions that research could answer.

Remittances sent by Pakistanis working abroad are a major source of foreign capital flow into the country. Who are the beneficiaries of these flows and how has this flow of money affected their social and economic status? These questions are waiting to be studied. Another aspect of the movement of people in and out of the country provides valuable information on why people move and how they choose their destinations. These are just a few examples of how observing human behavior could lead to valuable information that decision makers could use to do their jobs and gain recognition.

Posted in The Express Tribune, October 18e, 2021.

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