Dutch disease in Pakistan

Muhammad T. Khalid, Lahore University of Management Sciences, Lahore, Pakistan

Abstract

In recent years Pakistan has faced a rapidly growing services sector which has lead some observers to believe that there is a transfer of resources occurring in Pakistan from the tradable to the non-tradable sector, hence causing the Dutch Disease in the economy. However no precise response has been offered on this subject. This paper seeks to provide empirical evidence on the question of the existence of Dutch Disease in Pakistan by using Linda Kamas's model on Dutch Disease. The percentage change in the growth of the tradable and the non-tradable sectors in Pakistan is calculated by using data from the Economic Survey of Pakistan from the Fiscal Year (FY) 1995-1996 to the FY 2006-2007. It is found that although the non-tradable sector growth has increased by a little larger amount than the growth of the tradable sector, there is still steady increase in the tradable sector growth. Hence empirical evidence indicates that the Dutch Disease does not exist in Pakistan.