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The structure and performance of economy of pakistan


Does economic growth needs Democracy or Autocracy and does Democracy or Autocracy, in turn, lead to economic prosperity? This enquiry has developed many arguments, which after decades of enquiry emerge no nearer to being resolved. This study takes a nearer gaze at the contentions behind this inquiry and tries to clarify the linkages between Democracy and economic growth. This paper is an attempt to investigate the Economic performance in Pakistan while considering the role of democratic Government and non-democratic Governments in comparison.More traditional methods of comparative institutional analysis are used to understand the mechanisms through which Democracy or Autocracy either helps or hinders the process of development and growth. The Result revealed, and concluded that overall performance/growth of economy of Pakistan is far better in Democratic Government than Non-Democratic/ autocratic Government.



The debates on Democracy and growth have freshly bought additional importance as the global extension of Democracy has been welcomed via pushback from continent with immense economic energy, such as China and Russia in Latin America, the new left are furthermore reshaping attitudes on Democracy. At the same time, the global economic disaster of 2008-2009 has caused several to doubt the viability of the floating market model and to allege the lack for a more powerful government role. In the present international weather, assertions are occasionally made that neither free markets nor democracy are essential to the accomplishment of economic goals, and that authoritarian forms even work better.

In the economies like Pakistan and Bangladesh the democratic and non democratic governments always play an impact on the economic and financial performances. This research is an attempt to investigate the Economic performance in Pakistan while considering the role of democratic Government and non-democratic Governments in comparison.

Yearly data is used from 1980 to 2010 of economic performance which includes GDP (market price), GDP per capita, Direct Tax, Indirect Tax, Inflation Rate, Exchange Rate, Unemployment rate, Export, Import, Net Export, FDI, Expenditure on Health, and Real wages. Compare Mean Technique / independent sample t-test is applied to investigate the economic performance during the democratic and non-democratic Governments.

Research Objective

The objective of this research is to investigate the impact of Democratic Government or Autocratic (Non-democratic) Government on economic growth of Pakistan by examining the factors that help in measuring the countries performance in different Governmental Regime. This study utilizes GDP market price, GDP per capita and other different variables to conclude that which state of Government is found better than the other in Pakistan.


The fundamental dynamics of political institutions, fiscal aftermath and performance has accompanied social scientists since the days of Adam Smith. Over time, it has become commonly recognized that economic performance is causally linked to the political and institutional setting of economic activities.

However, corpus of recent studies has shown that bridge between economic growth and democracy is much complex and confused, and intellectuals sliced on the matter that either democratic authorities has superior impact on economic performance than Non-democratic(authoritarian) regimes or is it other way around. After ambiguous and inconclusive results of numerous studies, supporters of the democracy endorses growth and hypotheses emphasized that it delivers eagerness to people to work and invest, and paves the way for the efficient allocation of resources and profit maximizing achievement in a conditions of freedom and security. It is a mutual understanding that democracy is a luxury, which arrives at a price within terms of subsequent slower growing national living standards. However, various modern cross section studies possess located evidence that scarcity of civil and political liberties are negatively correlated with commercial growth of an economy.

Shen (2002) discovered that mean democracy enhance the stride of growth. Bhagwati (1995) and Rodrik (2000) put forward that democracies supply higher and better value growth through different ways. Helliwell (1994) presented an empirical check to display that democracy have an affirmative result on growth through the conduit of investment. The other researchers stated that democracy raises investment, which in turn spurs economic growth.

While democracy opposing theories assert that democracy harm the tempo of economic growth in various ways, create uneven countrywide wages movements and some time a hindrance in getting coercive and quick economic growth for a country. Sirowy and Inkeles (1990) assessed the fifteen empirical investigations and discovered that eleven out of fifteen shown no or conditional connections between democracy and economic growth. Borneret (1995) found that out of sixteen empirical investigations, three disclose an affirmative association between democracy and development, three reveal the contradictory attachment and stay behind and ten are inconclusive regarding the correlations between democracy and economic development.

Lipset (1959, 1981) Coleman (1960) Cutright (1963) Rustow (1970) and Huntington (1984) devised the development-democracy hypotheses. The authors concluded that there is a positive correlation between Growth and political competitiveness.

Lewis (1970) and Finer (1962) rejected the prediction that autocracy assures sudden financial growth. Pourgerami (1998) for instance, postulated that the price of more political freedom is necessarily a retardation of growth and that sudden growth effect in a loss of freedom. Also, O'Donnell (1973) and Bauer (1981) asserted that the processes of growth inescapably gave boom to the emergence of a fresh, stronger and more lasting authoritarian rule.

Huntington (1984) and Bloch (1986) explained that the occurrence of democracy is positively affiliated with the practice of human privileges and political freedom. The long run result of democratization is to elaborate and enhance one-by-one freedom. A comparable political scheme, whose paramount target is to maximize the self-development of all constituents of its society, outcomes in high qualifications of flexibility that endow persons to request self-interest and encourage prosperity, Clearly, Democratic regimes have misused human privileges and Authoritarian Governments supply high qualifications of order and security. Nevertheless, popular authorities are more probable to esteem human privileges and encourage political flexibility, while non-democratic authorities are more probable to repress, and repress more swiftly.

Barro (1996) explains that there is important correlation between democracy, which ensures political freedom and economic growth. Hence, this leads to powerful correlation between economic sovereignty and growth.

Bardhan (1999) contends democracy is ideologically more hospitable to the rule of law, what is actually significant for enterprise to thrive is predictability rather than legal accountability. In the past, a lot authoritarian regimes were more successful than democracies at supplying relative predictable contracts. Evans (1992) gave another review that economic development needs a “developmental state”, which requires a bureaucracy that is both insulated and “embedded.” According to Evans (1992), embeddedness needs that the bureaucracy possesses “accurate understanding, inventiveness, hardworking bureau and complicated responsiveness to an altering economic reality.” If the bureaucracy is embedded, it possibly overwhelms inflexibilities.

According to a well-known study by Migdal (1988) the primary distinction between feeble and powerful state lies in rulers' incompetence in feeble states to rule competently and chase a very broad political and communal agenda as it stay committed in brokering inconsistent claims from concern groups.

Kaufmann, Kraay, and Lobaton (2000) examined that there is a forceful positive correlation exists between per capita GDP and the administrator of law. The three surveys of the empirical study with contradicting conclusion are one by Sirowy and Inkeles (1991) is in favor of a negative relationship between democracy and development, One by Campos (1994) concluded that there is a positive relationship but Przeworski and Limongi (1993) are not clear on the matter that whether democracy fosters or obstructs economic growth.

In the more latest empirical work Haan and Siermann (1996) make a judgment that political regimes do not differ in impact on the growth of per capita incomes. Polterovich and Popov (2007) found that democratizing nations have fewer tools to promote expansion than autocracies.

Democracies are especially susceptible to populist stresses for immediate utilization, unproductive grants, autarchic trade principles and other particularistic claims that democracies hamper long-run investment and growth. On the other hand, authoritarian rulers who had the capability to oppose such pressures are rather than be self-aggrandizing, plundering the excess of the economy. In fact, historically, authoritarian regimes arrive in distinct types, some drawing from legitimacy some from supplying alignment and steadiness.

North and Weingast (1989) have mentioned the historical case of the Glorious Revolution in England in 1688, which by reinforcing political institutions that curtailed the king improved his undertaking to securing private property rights and consequently fostered economic growth.

Bettcher and Shkolnikov (2009) asserted that democracies are more probable to experience smaller rates of economic growth because it leads to an expanded role for superior categories that inhibit effective allocation of resources resulting in growth.

Menocal (2007) stressed on the fact of ‘real' democracy is said to be accomplished in political regimes that foster development, financial equality and communal justice. Other analysts have documented, for instance Schmitter and Karl (1996) that there is nothing inherent within the nature of a democratic system that automatically command towards certain outcomes. Olson, Sarna, and Swamy (2000) have shown that political unsteadiness weakens the growth. Some economic historians, for instance Mokyr and North (1990); Rosenberg and Birdzell (1985) have deduced that divergences in governance and schools are very valued for clarifying innovation.

The recent Human Development Report contends that there is no relation between democracy and growth.

In most of the under developed countries the alternative for the control post of growth is suitable to lie between a military dictatorship and a left-wing citizen dictatorship, the logic of events points towards the formation of economic systems and political regimes which seek towards development for the people (Dick, 1974).

Democracy exerts a positive impact on economic growth by engaging its positive consequence upon liberty (Abrams and Lewis, 1995). Quibria (2006) also confirmed that a positive association of democracy with another attribute i.e. poverty reduction.

Barro (1996, 1997) measured the positive association of good governance with economic growth. It was identified that the quality of institutions and fiscal policies describe a fairly valued component of the variation in growth rates across countries. Clague, Keefer, and Knack (1995) also pinpoint that the quality of governance and institutions is noteworthy for delineating rates of investment.

Benavot (1996) contended that the connection between economic and political development was curvilinear other than linear: at smaller grades of economic development, there is a powerful affirmative connection with democracy; at higher grades (i.e., after a particular threshold point), the power of the association declines appreciably and finally becomes negative.

Curle (1964) highlighted that trend for greater grades of growth are related with competitive models of governments.

Williamson (1994) analyzed the government, which is classified as authoritarian and concluded that democratic authorities are poorer than non-democratic ones at carrying out reform. The evidence indicates that the democratic-authoritarian with distinction itself fails towards explaining economic prosperity and endure its political fallout (World Bank, 1991).

Mulligan, Gil, and Martin (2004) found that holding constant nation age and profits, the average democracy is alike to the average non-democracy in terms of using on retirement benefits, welfare, unemployment and health.

Some supporters to the compatibility outlook contend that a democratic government is best matched to foster maintained and equitable economic development. According to them democratic procedures and the reality of public liberties and political privileges develop the situation most favorable for economic development.


Description of Data

To investigate the structure and growth/ performance of the economy of Pakistan in the democratic and non-democratic regimes, the data for the period of 1980 - 2010 is used. The variables involved for the investigations for measuring the performance of the economy of Pakistan includes GDP Market Price, GDP Per Capita, Direct Taxes and Indirect Taxes, Exchange Rates and Unemployment Rates, Exports and Imports, Net Exports, FDI, Government Expenditures on Health and Real Wages for both the democratic and non-democratic regimes.

Econometrical Models and Econometrical Test

To do the comparison between democratic and non-democratic regimes in connection with the structure, growth and performance of economy, the following econometrical model is used, while independent T-test is applied for investigating following models.

GDP mp Democratic - GDP mp Non Democratic ≠ 0 Equation 1

GDP per capita Democratic - GDP per capita Non Democratic ≠ 0 Equation 2

Direct Taxes Democratic - Direct taxes Non Democratic ≠ 0 Equation 3

Indirect Taxes Democratic - Indirect Taxes Non Democratic ≠ 0 Equation 4

Inflation Rate Democratic - Inflation Rate Non Democratic ≠ 0 Equation 5

Exchange Rate Democratic - Exchange Rate Non Democratic ≠ 0 Equation 6

Unemployment Rate Democratic - Unemployment Rate Non Democratic ≠ 0 Equation 7

Net Exports Democratic - Net Exports Non Democratic ≠ 0 Equation 8

FDI Democratic - FDI Non Democratic ≠ 0 Equation 9

Exp. on Health Democratic - Exp. on Health Non Democratic ≠ 0 Equation 10

Exp. on Education Democratic - Exp. on Education Non Democratic ≠ 0 Equation 11

Real Wages Democratic - Real Wages Non Democratic ≠ 0 Equation 12

Scores for Law and Order - Scores for Law and Order

Conditions Democratic Conditions Non Democratic ≠ 0 Equation 13




Players/ Indicators




Sig value




GDP market price





GDP per capita





Direct Taxes





Indirect Taxes





Inflation Rate





Exchange Rate





Unemployment Rate





Net exports










Expenditure on Health





Expenditure on Education





Avg. Wages per month





Scores for good Law and Order conditions





The primary focus of this paper is to investigate the growth/ performance of economy of Pakistan by pondering over main economical players of democratic and non democratic regimes. This study investigated that GDP market price (4063040.83Demo> 1539671.58NonDemo at P< 0.05), GDP per capita (25137.35Demo> 12417.58NonDemo at P< 0.05), and Expenditures on health (63056.6906Demo> 10421.9758NonDemo at P< 0.05) were found significantly better in democratic rules than the non democratic governments. While, indirect taxes, FDI and Avg. wages per month were better during democratic governments than non democratic rules but the differences were not significant. The non democratic government was also found better than the democratic regimes in few cases which include direct taxes (2.5529NonDemo < 2.9094Demo at P > 0.05), inflations rate (6.0167NonDemo < 9.6217Demo at P > 0.05), Exchange rates (27.8000NonDemo < 42.7956Demo at P > 0.05), unemployment rates, and (4.9292NonDemo < 5.7556Demo at P > 0.05). The expenditure on educations (98564.2319NonDemo > 69055.8750Demo at P < 0.05), Net export (50302.75 < -325575.11Demo at P < 0.05) and law and order conditions (4.98732NonDemo > 1.0029Demo at P < 0.05) are also found significantly better during the non democratic regimes than the democratic rule.


The empirical investigation of the Economic growth or performance during different Governmental regimes concludes that the overall Performance and Structure of Economy of Pakistan is better in the Non- Democratic Government as most of the driving players of economy shows better performance in Non-Democratic regimes than the Democratic rule. Though in contrast, various studies analyzed and concluded that there is a positive correlation between Growth and political competitiveness i.e. democracy (Coleman, 1960; Cutright, 1963; Rustow, 1970; Huntington, 1984).

Similar to the finding of this paper there are also several studies which have confirmed and analyzed that the democratic authorities are poorer than non-democratic ones at carrying out reform (Williamson, 1994) and the economical growth lies somewhere around the military dictatorship in the under developed nations ( Dick, 1974; Schmitter & Karl 1996). Several researchers found that there is a negative or no relationship between Economic Growth/ performance and Democracy (Sirowy & Inkeles, 1991). Moreover, Democracy with distinction itself fails towards explaining economic prosperity and endures its political fallout (World Bank, 1991).

In the both cases, whether the non democratic regimes pave the way for growth in economy or democracy has the positive relations with the economical growth, the relationship was only prominent in long-term. The long-term economic performance of countries relies upon the establishment and good governance (Clague, Keefer, & Knack 1995), no matters if the good governance is an exercise of democratic authority or a non democratic rule. Only good governance enables an economy to produce strong markets, private scheme, and a competitive business environment, and they are all inside a framework of rule of law.


The developmental implications of these findings focus a require for relentless efforts on the part of authorities and people to start and/or accelerate a method of setting up preconditions for the emergence of good governance. This paper provides a base for establishing credible policies in Pakistan. A well-functioning democracy, with its checks and balances and periodic elections may provide a satisfactory framework for credible polices or else non democratic regimes are always more fruitful for a nation like Pakistan.

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