COMSATS University Islamabad
HUM111 Pakistan Studies
Assignment # 3 (Semester Project)
Topic:
Human Capital Development and Industrial Growth
Submitted To:
Ms. Sadia Maqbool
Submitted By:
Mohammed Mustansir
FA19-BAF-070
Introduction
This report aims to analyse the role of human capital in the economic growth of the industrial
sector of Pakistan. We will take a look into the industrial sector of Pakistan and examine the
challenges faced by the country, in this report however, we will focus on the how the human capital
development capital influences the industrial sector.
Generally, the notion of Human Capital is used for education, skill development, health and other
capacities of people that can improve their productivity and efficiency. It is believed that capital
and natural resources are the slow factors while human capital is an active factor of production.
We can never develop anything for economic properity, if we cannot develop the skills of our
human beings. It is pertinent that if we want to use other resources effectively then we have to
develop the capacity of our human beings through literacy, skill development and by quality
enhancement so that we may cut down unemployment and enrich the process of growth.
Findings and Discussion
1. Industrial Productivity
In an era of fast technological change, developing countries including Pakistan are striving to
increase its Industrial competitiveness. To stimulate Pakistan’s economy, create jobs and enhance
economic growth. Pakistan’s economic prosperity and sustained development heavily depend
upon increasing the share of manufacturing sector; currently our industrial sector contributes just
13% of GDP. Textile and clothing sector is a top manufacturing sector of Pakistan which has
inherent advantage based on domestic availability of cotton. It absorbs 40% of industrial labour
force and contributes around 60% to overall exports of Pakistan.
Whereas the growth rate of the manufacturing sector has been quite impressive, value added in
this sector is largely over stated due to distortion in the system. If value added in the manufacturing
sector is assessed at world prices, its contribution to GDP is relatively far smaller, reflecting gross
inefficiencies and/or excessive profits. Even in 2011 when some of the distortions had been
removed, more than 30 percent of value added could be recognised as protection.
Efficiency levels have varied considerably across different industries: some industries have been
so efficient that domestic resources were merely a fraction of their valued added and were usually
penalized, while some were so inefficient that value added was negative at world market prices
and survived thanks to rather heavy protection. Whereas average Domestic resource cost (DRC)
for consumer goods industries has been 6.00, for intermediate and capital goods industries had
been 0.22 and 0.82, respectively. Similarly, in contrast to the average domestic resource cost of
1.20 for the large-scale industries it was 1.49. Moreover, the DRCs for export-oriented and importcompeting activities are 0.54 and 2.15. It shows that tariff rationalization that offers a level playing
field to import substitutes and export oriented industries and to consumer, intermediate, and capital
goods industries would help in enhancing the efficiency of the Industrial sector.
The performance of the manufacturing sector in Pakistan has been stained by numerous factors.
These problems are broadly be grouped into industrial and trade policy alterations, a narrow
industrial base, low productivity levels, poor quality of products, the role of public sector
enterprises, higher costs of production, problems within the regulatory framework, and weak
infrastructure.
The Industrial sector of Pakistan suffers from a variety of structural problems resulting in slow
growth rates of investment, output, and exports. These include, lack of diversification, allocative
technical and inefficiencies, poor quality of products, and low levels of research and development
activities leading to slow growth rates of productivity, making Pakistani products uncompetitive
within the world market. The standard industries like food and textile industries still account for a
large share of the manufacturing output; food industries accounted for 13.8 and textiles for 24.0
percent of the whole manufacturing value added in 2010-11. On the contrary industries based on
modern technologies like electrical and non-electrical machinery and automobile industries
accounted for just 4.4 and 4.6 percent of value added respectively. While chemical industries
accounted for around 15.2 percent of manufacturing output, most of the chemical industrial output
is centred in low-tech and low value added industries.
2. Human Resource Development
Increased investment in human and physical capital induced by more gentle policies, can forever
raise the growth rate of an economy. The steady state growth of output and therefore the two
varieties of capital are obtained by replacing both savings/investment rates into the production
function. Ignoring depreciation, if savings and investment in human capital were to increase from
5 to 10 percent of output, the steady state growth of output and capital would increase from 5 to
10 percent.
Pakistan is deficient within the skilled human resources that are vital for technological
advancement. More specifically, the standard of scientific manpower produced within
the educational institutions is poor because of variety of things including an absence of highly
qualified professional teaching staff. Moreover, thanks to higher returns elsewhere the most
effective students aren't opting to pursue careers in science and technology. Furthermore, the
talents imparted in various polytechnics and also the vocational institutions don't seem to
be demand driven and resultantly most of the skilled workers that graduate from these institutions
fail to induce employment. The productivity of varied industries is adversely affected thanks
to lack of skilled workers and a few of the industries aren't established due to the dearth of
requisite skilled workers. So as to make a sound and diversified production structure within
the industrial sector, Pakistan has to attach high priority to human resource development.
The labour market within the country are often characterized by a shortage of middle-level skilled
personnel and unemployment of educated persons. The provision of skilled manpower is
important for raising productivity levels moreover as achieving industrial diversification. Whereas
the relative neglect of technology based industries like engineering and chemicals and
extremely little consideration for the standard of products may have created low demand for
skilled workers, the availability of skilled workers has also been inadequate even to fulfil the
demand that was generated. Since Pakistan intends to manoeuvre towards high-tech industries and
therefore the world is changing in such how that export orientation are going to be the sole viable
strategy, the standard of products will should be improved significantly. This is often possible
provided there's an improvement in skill composition. Within the absence of trained manpower
the producers will make informal arrangements resulting in sub-optimal decisions, low levels of
productivity, and therefore the loss of output.
The formal institutional system produces an awfully small proportion of skilled and semi-skilled
workforce. Even more importantly, the trained workforce within the public sector
institutions aren't preferred by the entrepreneurs as they have an inclination to believe that such
training isn't very useful. The poor ranking of polytechnic and vocational institutions by the
producers reflect the actual fact that skills imparted let down of the necessities of the producers.
The main beneficiaries of skills improvement are the producers themselves who’s output,
productivity, and profits are expected to travel up. However, despite dearth of skills, little or
no effort has been made by producers to boost the talents of workers. It has to be underscored
that it might be counter-productive for one producer to initiate such training as he might not get
the benefit because workers can move to other producers. A cooperative effort on the part of the
industrialists with active support from the government would be required for putting in such
institutions. The institutions for specific industries would help in training within the relevant fields
and to the satisfaction of producers.
Conclusion and Recommendations
The poor state of Human capital may also be attributed to the relative lack of awareness of
technological needs and capacity of domestic industries, the weak link between industry,
academia, and research institutions and lack of means for scientific research and technological
development. To prepare the country to combat the emerging challenges, the country needs to
focus on its human capital development, and cultivate a human resources that are compatible with
the modern work frame of the industries, the development of science and technology and its
interface with industry also has to be brought to the front of the industrial idea for the future. While
some work has been initiated lately, it is just the tip of the iceberg.
Vocational training that delivers skilled manpower according to the requirements of the labour
market in the country adds significantly to the growth of manufacturing industries. The private
sector should be encouraged to increase its involvement in skills training. More access to credit,
exemptions on import duties on training equipment by specialised institutions and agencies could
be offered as incentives. There also may be public-private partnerships where the government
provides the initial investment.
Table:
Contribution of Manufacturing to Labor Productivity Growth
-Average contribution of manufacturing in growth of constant-price GDP per worker in 2010–2017
References
Khan, M., Amjad, R., & Din, M. (2005). Human Capital and Economic Growth in Pakistan [with
Comments]. The Pakistan Development Review, 44(4), 455-478. Retrieved April 26, 2021, from
http://www.jstor.org/stable/41260728
Hamid, A., & Pichler, J. (2009). Human Capital Spillovers, Productivity and Growth in the
Manufacturing Sector of Pakistan. The Pakistan Development Review, 48(2), 125-140. Retrieved
April 26, 2021, from http://www.jstor.org/stable/41260916
Industrial Sector Of Pakistan Problems And Solutions - Askedon. (2021). Retrieved 26 April 2021, from
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%20insufficiency.