WORKING PAPER, NO # 191

Structural Changes
in Pakistan’s Economy:
An I-O Based Analysis

MUHAMMAD ZESHAN
APRIL 2022
 ABSTRACT
This study builds on a nexus between the recent System of National Accounts (SNA) and the RAS framework.
The 2008 SNA is an important structural shift in the global accounting structure. However, many countries
are unable to update their national accounts for various reasons, which limits their national policy making
processes and and adversely affect the global environmental mitigation. Primarily, the input-output (IO)
models are used to analyze the impact of different sector specific economic policies. The extended IO
models have practical implications for the global environmental policies. The RAS technique is an advanced,
well-recognized, and widely applicable method to update IO systems globally. Building the SNA-RAS nexus,
this study develops the Pakistan input-output model in an industry-by-industry format, and provides a brief
analysis of the structural changes in the economy over the period 2011-19.

Keywords: Input-Output Framework, Demand, Supply, Pakistan

JEL Classification: C67, D57, E01, L16, R15

2 Structural changes in Pakistan’s economy: An I-O based analysis

CONTENTS

1.INTRODUCTION

2.LITERATURE REVIEW

3.METHODOLOGY

4.ANALYSIS OF IO MODEL RESULTS

5.CONCLUSION

REFERENCES

ANNEXURE

Working Paper, April 2022 3

 1. INTRODUCTION

Input-output (IO) models are used to analyze the Pakistan is hardly seen working on this part to update

impact of different economic policies on various national accounts, which is a significant limitation of

macroeconomic indicators such as employment level, the national statistical offices. It limits the country’s

consumption patterns, factor productivity, global real representation in national and global research

economic competitiveness, gross domestic product, activities because national and international

etc. (Rueda-Cantuche 2009). These models facilitate researchers need to rely on outdated IO databases.

a quantitative assessment of different policy actions Therefore, both the design of a strong national policy

at regional, national, and global levels. Further, the process and global environmental mitigation efforts

environmentally extended IO models have practical face serious challenges.

implications for the environment and sustainability.

For instance, Zeshan (2019) has developed an In this backdrop, this study provides the most

environmentally extended IO model to examine recent IO model for Pakistan to facilitate the sectorial

how different production activities in Pakistan add to policy development process at the national and

greenhouse gas (GHG) emissions in 2011. international levels. The Pakistan IO model 2018-
19 is in an industry-by-industry (36x36) format. For

One of the main constraints for applying a general convenience, it aggregates the original IO model

equilibrium analysis is the obsolescence of IO models. into a compact format of 12 sectors. The new IO

In most countries, IO models are usually published model is estimated using the GRAS method based

with a gap of five years or more. The construction on Junius & Oosterhaven (2003) and Lenzen et al.

of IO models using field surveys is a costly practice (2007). The updated Pakistan IO model 2018-19 is

that does not permit frequent updating of IO based on Zeshan (2020) and the Economic Survey of

models (Dewhurst 1992). However, data on large Pakistan (2020-21). Furthermore, it uses Zeshan and

macroeconomic variables and various sectoral Nasir (2019) for a comparative analysis of structural

aggregates are frequently published by national changes in the Pakistani economy over the period

statistical offices on a quarterly or annual basis. 2011-19.

Given that the obsolete IO models are inadequate for

comprehensive policy analysis, particularly in case of This IO model will provide a base for social

significant structural changes in data, there is a dire accounting matrix (SAM) framework and computable

need to update the obsolete IO models such that the general equilibrium (CGE) modeling for Pakistan. The

current economic structure of a country is mirrored embedded IO model in the SAM framework facilitates

in a new IO model (Buetre & Ahmadi Esfahani more detailed accounting transcations between

2000). different sectors of the economy, various social

segments, and different economic agents. SAMs are

The 2008 System of National Accounts (SNA) is an more suitable to examine the impact of an economic

important structural shift in the global accounting policy on social welfare whereas IO models primarily

structure. However, any government institute in focus on interindustry dealings. The important SAMs
developed for Pakistan include Burns et al. (2020),
4 Structural changes in Pakistan’s economy: An I-O based analysis
Debowicz et al. (2012), and Doros and Niazi (2006).
SAMs can be used to feed data to the CGE models.
The CGE models employ neoclassical economic
theory to produce a true representation of economic
structure and behavior of different economic agents.
The notable CGE models developed for Pakistan
are Zeshan (2021), Burns et al. (2020), Zeshan &
Shakeel (2020), Ahmed et al. (2013) and Ahmed and
O’Donoghue (2010).

The remainder of the study continues in the

following manner. The history of previous IO models
developed for Pakistan is provided in a compact form
in Section II. Section III refers to the methodology
and data used in this study. Section IV provides a
comparative analysis of the model’s findings followed
by a conclusion in Section V.
 

1DETAILED SECTORIAL DESCRIPTION

IS PROVIDED IN ANNEX A 1.

Working Paper, April 2022 5

 2. LITERATURE REVIEW

The IO models for Pakistan do not follow a persistent calendar as there is no public office responsible for
their regular publications. Sometimes, the development of an updated IO model took even more than a
decade. Further, it is hard to compare different IO models because they are based on different SNAs with
significant sectoral discrepancies. A brief history of various IO models developed for Pakistan is as follows.

No. Author(s) Publication Year Base Year Sectors Publication

1 Fei 1962 1962 Agriculture, mining, PDR
manufacturing; ignores
construction and ser-
vices
2 Ahmed 1964 1960 40 Industries Mimeograph
3 Norbye 1985 1960 30 Industries Mimeograph
4 Tims 1964 1961 30 Mimeograph
Industries
5 Planning Commis- 1965 1964 54 Planning Commission
sion of Pakistan Industries Mimeograph
6 Rasul 1965 1954 27 Industries PDR
7 Rasul 1966 1963 70 Planning Commission
Industries
8 Khan & MacEwan 1963 1963 35 Industries PIDE Research Report
9 Rasul & Jarrett 1969 1969 21 Planning Commission
Industries
10 Saleem et al. 1985 1976 118 Industries PIDE Research Report
11 PBS 1985 1985 Industry by Industry UNSIAP, Pakistan Country
Report
12 Pintz et al. 1987 1980 Energy IOT, 27 Indus- PDR
tries
13 PBS 1990 1990 82 Industries UNSIAP, Pakistan Country
Report
14 PBS 1991 1991 97 Industries UNSIAP, Pakistan Country
Report
15 Zeshan & Nasir 2019 2011 42 Sectors PDR
16 ADB 2018 2011-2017 35 Sectors ADB

6 Structural changes in Pakistan’s economy: An I-O based analysis

The previous work on IO models does not provide an intertemporal economic analysis of the Pakistan’s
economy for various reasons such as differences in SNAs, IO model construction method, aggregation
schemes, etc. Overcoming these shortcomings, this research work not only builds the most recent input-
output model for Pakistan, but also discusses the structural changes in the economy over the period 2011-
19, which previous mainstream literature does not provide. Further, it evaluates the effects of structural
changes on the different sectors of economy through various indicators provided in Appendix A4.

Working Paper, April 2022 7

 3. ABOUT PROBLEM

The mainstream literature provides three techniques to update the obsolete IO models, 1). final demand
technique, 2). value-added technique, and 3). iterative proportional (the RAS) technique (Khan, 1993). The first
two techniques presume constant IO coefficients of current and projected IO models and are less practical
whereas the RAS technique is more advanced, well-recognized, and widely applied to update IO models
globally. For instance, the Bureau of Economic Analysis of the US Department of Commerce employs an
adjusted RAS method to produce annual IO models for non-benchmark years in the USA (Miller & Blair 2009).
Similarly, the Eurostat Agency oversees the development of IO data for the EU member states. It generates IO
models for the non-benchmark years based on a modified RAS approach (Eurostat 2002). The RAS method
is explained in detail by Bacharach (1970), where the absorption matrix of the base year is modified to the
given row total and column total for the renewed year by successive iterations. Further, Junius & Oosterhaven
(2003) and Lenzen et al. (2007) claim that a generalized RAS method yields a superior solution with minimum
loss of information.
The RAS methodology iteratively adjusts the original technical coefficient matrix A(0) where row sums and
column sum of the interindustry transaction metrics are u0 and v0 respectively. The minimum loss information
criteria of the RAS methodology produces a new technical coefficient (target) matrix A2 where row sum and
column sum of the new IO model are represented by u(1) and v(1), respectively, (Stone & Brown, 1962).
Following Miller & Blair (2009), it becomes:

8 Structural changes in Pakistan’s economy: An I-O based analysis


In reality, it might require several iterations to get the
target matrix (A2 in the present case). The minimum
information loss criteria in the RAS algorithm work
efficiently if the matrix A(0) comprises only non-
negative values (Polenske, 1997). Although, Budavari
(1981) provides a more generalized RAS method
with a convex goal function and linear constraints,
this approach is also limited to non-negative A(0)
2A2 indicates the final target
estimate achieved in 2nd
iteration, and it does not
represent A squared.
and target matrices. Junius & Oosterhaven (2003)
develop a more flexible approach which deals with
both positive and negative values, known as the
generalized RAS method. This approach does not
overlook the negative entries in a matrix, rather it
considers the potential influence of such entries
while updating an IO model. It specifies a target that
minimizes information loss. Hence, the objective
Working Paper, April 2022 9
 funnction is written in the form of absolute values of the negative
entries of a matrix, it is as follows:

Junius & Oosterhaven (2003) set zij=0 for aij=0, nevertheless, it is not
possible to evaluate the target function at zij=0 given that is undefined.
To solve this problem, Lenzen et al. 2007 provide a revised target
function that evades this unwanted effect, it is follows:as follows:

In the last two equations, P and N represent a decomposition of into

such a matrix where comprises only the positive elements of matrix
while comprises absolute values of the negative elements of matrix A.

The GRAS method estimates the coefficients of the new IO model from
five pieces of information, (1) gross outputs of all the sectors, (2) total
value-added for each sector, (3) totals of all the components of final
demand, (4) trade accounts, and (5) net taxes. All the required data are
retrieved from the Economic Survey of Pakistan (2020-21) (Annex A 2).

10 Structural changes in Pakistan’s economy: An I-O based analysis

4. ANLYSIS OF IO MODEL RESULTS

The model results show that the backward linkages

of agriculture (Agri), manufacturing (Manu), energy
(EGWW), wholesale and retail (Wsale), public
administration (Public), and other services (OthSer)
sectors have become stronger during 2011-19
whereas the backward linkages of other sectors
become slightly weaker during the same period
(Table 2 - Table 3). The highest backward linkages
are witnessed in the energy and manufacturing
sectors in 2019, while the same sectors show the
highest backward linkages in 2011. The production
of an additional unit of output in the energy sector
requires around 0.4 units of inputs from the same
sector, while the mining (Mining), manufacturing,
whole-sale and retail, and transport (Transp) sectors
provide 0.16, 0.5, 0.6, and 0.4 units of inputs. In
case of manufacturing sector, the production of an
additional unit of output requires most of the inputs
(0.29 units) from the agriculture sector, whereas
manufacturing, whole-sale and retail, and energy
sectors provide 0.10, 0.9, and 0.4 units of inputs,
respectively.
The forward linkages of all the sectors improved
except agriculture, transport, post and
telecommunications (info), and other services sectors
(Table 4 - Table 5). Althouhg the combined share of
agriculture, transport, post and telecommunication
and other services sectors in total outpt is more
than 35%, the overall economic performance of
Pakistan is improving overtime and more jobs are
added to the job market. Further, mining, finance,
energy, and agriculture sectors have the strongest
forward linkages in 2019. All these sectors had the
strongest forward linkages in 2011 as well except the
finance sector, which improved its forward linkages

Working Paper, April 2022 11

 significantly. The sectorial output of the finance sector is mainly distributed to
whole-sale and retail, other services, public, and manufacturing sectors by 0.53,
0.09, 0.06, and 0.05 units, respectively. The finance sector is concentrating
mostly on the whole-sale and retail sector, giving better financing options to
the other sectors will provide them more business opportunities. Hence, the
government can play a key role to enhance the financing options for other
sectors. On the other hand, the output of the mining sector is mainly supplied
to the energy, and manufacturing sectors by 0.57, and 0.25 units, respectively.

From the Leontief multiplier, we can figure out the impact of a change in final
demand on the overall economy. The Leontief multipliers are higher for energy
sector (2.44), manufacturing (1.96), and construction (1.87) sectors in 2019 (Table
6). However, only agriculture, manufacturing, public and other services sectors
show improvement during 2011-19, while other sectors perform poorly (Table
6 - Table 7). These sectors improved their backward linkages during the period
of analysis, which helped them improve their Leontief multipliers, whereas the
opposite happened in the other sectors. The total demand improved the most
in energy, manufacturing, and construction (const) sectors where a USD million
increase in final demand increased the overall demand by USD 2.44, 1.96, and
1.84 million, respectively, in 2019. The stronger backward linkages in these
sectors generate a snowball effect. For instance, energy sector is the backbone
of all other sectors directly or indirectly. Investment is a componenet of final
demand, and investing more in green energy will not only add more value
to Pakistan’s GDP in the short run but will also lead towards environmental
sustainability in the long run.

The Ghosh multiplier shows the impact of a given increase in the primary
inputs of a sector on the total supply of output. In 2019, the highest Ghosh
multipliers are noticed in mining, energy, and agriculture sectors such as USD
2.81, 2.37, 2.04 million, respectively, which is consistent with 2011. However,
for the same respective sectors, Ghosh multipliers are around USD 2.48, 2.30,
and 2.12 million in 2011. Compared to 2011, the Ghosh multiplier improves
noticeabley only for mining, whole-sale, accommodation and finance sectors in
2019, whereas other sectors do not perform well (Table 8 - Table 9). Hence, if
the primary inputs in the energy sector increase by USD 1 million, the overall
supply of economic output in Pakistan increases by USD 2.37 million in 2019,
which is slightly higher compared to the economic output in 2011 (USD 2.32
million).
Finally, the primary input content analysis shows the final demand in terms of
primary inputs. In other words, it highlights the distribution of the primary input

12 Structural changes in Pakistan’s economy: An I-O based analysis

content to meet the final demand requirements. The
IO model results show that the primary input content
of the final demand has changed slightly over time.
Capital stock and labour, both have the highest
shares in all the categories of the final demand
(Figure 1). However, the share of the capital stock
has reduced over time, whereas the rising shares of
imports indicate that the productive capacity of the
country is reduced and the import dependency has
increased overtime. In the short run, it will incrase
the trade deficit but in the long run the country might
accumulate huge foreign debt. Besides, both the net
taxes and labour demand have increased in all the
components of final demand during the same period.
The higher labour demand and reduced capital stock
is reshaping towards a labour intensive economic
structure where the firms are less inclined towards
the state of the art capital stock, and dependency
on obsolete capital stock not only has higher capital
depreciation cost but it also increases the labour
cost. The cost of doing business inucreases and the
country might loose her competitive edge in the
international trade market.

Working Paper, April 2022 13

 Table 2. Backward linkages based on IO model 2018-19 (USD constant prices 2017 million)
Agri Mining Manu EGWW Const Wsale Transp Accom Finance Info Public OthSer
Agri 0.19 0 0.29 0 0.02 0 0.01 0.09 0 0 0.01 0
Mining 0 0 0.02 0.16 0.01 0 0 0 0 0 0 0
Manu 0.02 0.01 0.1 0.05 0.2 0.05 0.18 0.05 0.01 0.05 0.14 0.01
EGWW 0 0.01 0.04 0.4 0.01 0 0 0.05 0 0.01 0.04 0.01
Const 0 0 0 0 0.03 0 0 0 0 0 0 0
Wsale 0.07 0 0.09 0.06 0.1 0.02 0.08 0.03 0.01 0.02 0.04 0
Transp 0 0.01 0.03 0.04 0.08 0.03 0.05 0.01 0 0 0.04 0
Accom 0 0.01 0.01 0.01 0.04 0.01 0.01 0.02 0.03 0.09 0.03 0.14
Finance 0 0 0 0 0.01 0.07 0 0.01 0.02 0.05 0.01 0.02
Info 0 0.02 0.01 0 0 0 0.01 0.01 0.01 0.01 0.01 0.01
Public 0 0 0 0 0 0.01 0 0 0.01 0 0.03 0
OthSer 0 0.05 0.02 0 0 0 0.03 0.03 0.04 0.16 0.03 0.03
Back- 0.3 0.12 0.61 0.73 0.51 0.18 0.39 0.29 0.14 0.39 0.38 0.24
ward
Linkages
Source: Own Calculations

Table 3. Backward linkages based on IO model 2010-11 (USD constant prices 2017 million)
 Sector/ Agri Mining Manu EGWW Const Wsale Transp Accom Finance Info Public OthSer
Sector

Agri 0.2 0 0.3 0 0.01 0 0.08 0.12 0 0 0 0

Mining 0 0 0.03 0.07 0.03 0 0.01 0.01 0 0 0 0
Manu 0.02 0.02 0.11 0.08 0.23 0.06 0.15 0.17 0.03 0.06 0.13 0.01
EGWW 0 0.01 0.03 0.44 0.01 0 0 0.11 0 0.01 0.04 0.01
Const 0 0 0 0 0.02 0 0 0 0 0 0 0
Wsale 0.03 0.01 0.09 0.05 0.1 0.02 0.08 0.07 0.01 0.02 0.04 0
Transp 0 0.01 0.03 0.07 0.09 0.03 0.05 0.02 0 0 0.04 0
Accom 0 0 0 0 0 0 0 0.01 0 0 0 0
Finance 0 0.01 0 0 0.02 0.02 0 0.02 0.03 0.06 0.02 0.02
Info 0 0.02 0 0 0 0 0.01 0.02 0.02 0.04 0.01 0.01
Public 0 0 0 0 0 0 0 0 0.01 0 0.01 0
OthSer 0 0.07 0.02 0 0.04 0.03 0.03 0.08 0.09 0.23 0.06 0.05
Back- 0.27 0.16 0.61 0.72 0.56 0.17 0.41 0.62 0.18 0.43 0.35 0.12
ward
Linkages
Source: Own Calculations

14 Structural changes in Pakistan’s economy: An I-O based analysis

Table 4. Forward linkages based on IO model 2018-19 (USD constant prices 2017 million)
Agri Mining Manu EGWW Const Wsale Transp Accom Finance Info Public OthSer Forward
Linkages

Agri 0.19 0 0.4 0 0 0 0.01 0.03 0 0 0 0 0.63

Mining 0 0 0.25 0.57 0.02 0 0.01 0.01 0 0 0.01 0 0.88

Manu 0.02 0 0.1 0.01 0.03 0.02 0.08 0.01 0 0 0.05 0 0.33

EGWW 0.01 0 0.16 0.4 0.01 0 0 0.04 0 0 0.05 0.01 0.69

Const 0 0 0 0 0.03 0.01 0 0 0 0 0 0 0.05

Wsale 0.1 0 0.17 0.03 0.03 0.02 0.06 0.01 0 0 0.03 0 0.44

Transp 0 0 0.07 0.03 0.03 0.03 0.05 0.01 0 0 0.03 0 0.26

Accom 0.01 0 0.03 0.01 0.02 0.02 0.02 0.02 0.01 0.02 0.04 0.15 0.35

Fi- 0.01 0 0.05 0.01 0.03 0.53 0.03 0.03 0.02 0.03 0.06 0.09 0.88
nance
Info 0.01 0.02 0.1 0 0 0.01 0.08 0.04 0.02 0.01 0.06 0.05 0.41

Public 0 0 0 0 0 0.01 0 0 0 0 0.03 0 0.05

OthSer 0.01 0.01 0.1 0 0 0.01 0.05 0.02 0.01 0.03 0.04 0.03 0.33

Source: Own Calculations

Working Paper, April 2022 15

 Table 5. Forward linkages based on IO model 2010-11 (USD constant prices 2017 million)
Sector/ Agri Mining Manu EGWW Const Wsale Transp Accom Finance Info Public OthSer Forward
Sector 
Linkages
Agri 0.2 0 0.42 0 0 0 0.04 0.02 0 0 0 0 0.68
Mining 0 0 0.38 0.33 0.05 0 0.05 0.01 0 0 0.01 0 0.84
Manu 0.02 0 0.11 0.02 0.02 0.03 0.06 0.02 0 0 0.03 0 0.31
EGWW 0.01 0 0.11 0.44 0 0 0 0.03 0 0 0.03 0.01 0.65
Const 0 0 0 0 0.02 0.01 0 0 0 0 0 0 0.04
Wsale 0.04 0 0.18 0.03 0.02 0.02 0.06 0.01 0 0 0.02 0 0.4
Transp 0 0 0.07 0.05 0.02 0.04 0.05 0 0 0 0.03 0 0.27
Accom 0.02 0 0.01 0.01 0 0 0.01 0.01 0 0 0 0 0.06
Finance 0.01 0.01 0.06 0.01 0.03 0.13 0.02 0.03 0.03 0.04 0.06 0.09 0.51
Info 0.01 0.03 0.11 0 0 0.01 0.09 0.03 0.03 0.04 0.04 0.04 0.44
Public 0 0 0.01 0 0 0.01 0 0 0 0 0.01 0 0.03
OthSer 0.01 0.02 0.08 0.01 0.01 0.06 0.05 0.03 0.03 0.04 0.05 0.05 0.43

Source: Own Calculations

Table 6. Change in total demand based on IO model 2018-19 (USD constant prices 2017 million)
Sector/ Agri Mining Manu EGWW Const Wsale Transp Accom Finance Info Public OthSer
Sector
Agri 1.25 0.02 0.42 0.06 0.13 0.03 0.1 0.14 0.02 0.04 0.09 0.03
Mining 0 1 0.04 0.27 0.02 0 0.01 0.02 0 0.01 0.02 0.01
Manu 0.04 0.02 1.15 0.14 0.27 0.06 0.23 0.07 0.02 0.08 0.19 0.03
EGWW 0.01 0.02 0.09 1.69 0.05 0.01 0.03 0.09 0.01 0.04 0.08 0.03
Const 0 0 0 0 1.04 0 0 0 0 0 0 0
Wsale 0.1 0.01 0.14 0.12 0.15 1.03 0.11 0.05 0.01 0.03 0.08 0.02
Transp 0.01 0.01 0.04 0.09 0.11 0.03 1.07 0.02 0 0.01 0.06 0.01
Accom 0.01 0.02 0.02 0.02 0.05 0.01 0.02 1.03 0.05 0.12 0.04 0.16
Finance 0.01 0.01 0.02 0.01 0.03 0.07 0.02 0.01 1.02 0.06 0.02 0.03
Info 0 0.02 0.01 0.01 0 0 0.01 0.01 0.01 1.02 0.01 0.01
Public 0 0 0 0 0 0.01 0 0 0.01 0 1.03 0
OthSer 0.01 0.06 0.04 0.03 0.02 0.01 0.05 0.03 0.05 0.17 0.05 1.04
Total 1.43 1.18 1.96 2.44 1.87 1.28 1.65 1.49 1.21 1.58 1.67 1.37
demand

Source: Own Calculations

16 Structural changes in Pakistan’s economy: An I-O based analysis

Table 7. Change in total demand based on IO model 2010-11 (USD constant prices 2017 million)
Sector/ Agri Mining Manu EGWW Const Wsale Transp Accom Finance Info Public OthSer
Sector
Agri 1.27 0.02 0.44 0.09 0.14 0.03 0.17 0.24 0.01 0.03 0.07 0.01
Mining 0 1.01 0.04 0.14 0.04 0 0.01 0.03 0 0.01 0.01 0
Manu 0.04 0.03 1.16 0.19 0.31 0.08 0.19 0.24 0.04 0.08 0.18 0.02
EGWW 0.01 0.02 0.08 1.8 0.04 0.01 0.02 0.22 0.01 0.03 0.08 0.02
Const 0 0 0 0 1.02 0 0 0 0 0 0 0
Wsale 0.04 0.01 0.12 0.12 0.15 1.03 0.1 0.11 0.01 0.03 0.07 0.01
Transp 0 0.01 0.04 0.14 0.12 0.04 1.07 0.05 0 0.01 0.06 0.01
Accom 0 0 0 0.01 0 0 0 1.01 0 0 0 0
Finance 0 0.01 0.01 0.01 0.03 0.02 0.01 0.03 1.04 0.08 0.03 0.03
Info 0 0.02 0.01 0.01 0.01 0 0.01 0.02 0.02 1.05 0.01 0.01
Public 0 0 0 0 0 0.01 0 0 0.01 0 1.01 0
OthSer 0.01 0.08 0.04 0.04 0.07 0.04 0.05 0.11 0.11 0.26 0.08 1.06
Total 1.39 1.23 1.94 2.54 1.92 1.28 1.65 2.07 1.25 1.58 1.6 1.16
Demand
Source: Own Calculations

Working Paper, April 2022 17

 Table 8. Change in total supply based on IO model 2018-19 (USD constant prices 2017 million)
Agri Mining Manu EGWW Const Wsale Transp Accom Finance Info Public OthSer Total
supply
Agri 1.25 0 0.57 0.02 0.02 0.02 0.06 0.05 0 0 0.04 0.01 2.04
Mining 0.03 1 0.48 0.98 0.05 0.02 0.06 0.06 0 0.01 0.09 0.03 2.81
Manu 0.03 0 1.15 0.04 0.04 0.03 0.1 0.02 0 0 0.06 0.01 1.48
EGWW 0.03 0 0.33 1.69 0.02 0.02 0.04 0.08 0 0.01 0.11 0.03 2.37
Const 0 0 0 0 1.04 0.01 0 0 0 0 0 0 1.06
Wsale 0.14 0 0.27 0.06 0.04 1.03 0.09 0.02 0 0 0.05 0.01 1.72
Transp 0.01 0 0.11 0.06 0.04 0.04 1.07 0.01 0 0 0.05 0.01 1.39
Accom 0.02 0.01 0.08 0.02 0.03 0.03 0.04 1.03 0.01 0.03 0.06 0.16 1.53
Finance 0.09 0.01 0.24 0.06 0.06 0.56 0.1 0.05 1.02 0.04 0.1 0.11 2.43
Info 0.02 0.02 0.17 0.04 0.01 0.04 0.11 0.05 0.02 1.02 0.08 0.06 1.64
Public 0 0 0.01 0 0 0.01 0 0 0 0 1.03 0 1.06
OthSer 0.02 0.02 0.15 0.03 0.01 0.03 0.08 0.03 0.01 0.03 0.06 1.04 1.52
Source: Own Calculations

Table 9. Change in total supply based on IO model 2010-11 (USD constant prices 2017 million)
Sector/ Agri Mining Manu EGWW Const Wsale Transp Accom Finance Info Public OthSer Total
Sector supply
Agri 1.27 0 0.62 0.04 0.02 0.02 0.09 0.03 0 0 0.02 0 2.12
Mining 0.02 1.01 0.54 0.63 0.07 0.02 0.09 0.04 0 0.01 0.05 0.01 2.48
Manu 0.03 0 1.16 0.06 0.03 0.04 0.07 0.02 0 0 0.04 0 1.47
EGWW 0.03 0.01 0.25 1.8 0.01 0.01 0.02 0.07 0 0 0.06 0.02 2.32
Const 0 0 0 0 1.02 0.02 0 0 0 0 0 0 1.05
Wsale 0.06 0 0.26 0.08 0.03 1.03 0.09 0.02 0 0 0.03 0 1.62
Transp 0.01 0 0.11 0.11 0.03 0.04 1.07 0.01 0 0 0.04 0 1.42
Accom 0.03 0 0.03 0.02 0 0 0.01 1.01 0 0 0 0 1.11
Finance 0.03 0.01 0.14 0.04 0.05 0.15 0.05 0.04 1.04 0.05 0.08 0.1 1.78
Info 0.02 0.03 0.18 0.05 0.01 0.03 0.11 0.04 0.03 1.05 0.06 0.05 1.68
Public 0 0 0.01 0 0 0.01 0 0 0 0 1.01 0 1.04
OthSer 0.03 0.02 0.16 0.04 0.03 0.08 0.08 0.04 0.03 0.04 0.06 1.06 1.66

Source: Own Calculations

18 Structural changes in Pakistan’s economy: An I-O based analysis

Figure 1. Primary input content in the final demand (% shares)

Source: Own Calculations

Working Paper, April 2022 19

 5. CONCLUSION

IO models are used to design and analyze different sector specific

economic and environmental policies at regional, national, and
global levels. Generally, IO models are occasionally published,
normally with a gap of five years or more because of the huge survey
costs. However, data on important macroeconomic indicators and
different sector aggregates are frequently published by national
statistical offices on a quarterly or yearly basis, which can be used
to update the obsolete IO models such that the current economic
structure of a country is mirrored in a new IO model.

The present research work develops the Pakistan IO model 2018-19 in

an industry-by-industry (36x36) format. For the sake of convenience,
it aggregates the original IO model to a compact format of 12 sectors.
The new IO model is estimated using the GRAS method based on
Junius & Oosterhaven (2003) and Lenzen et al. (2007). It uses Zeshan
and Nasir (2019) for a comparative analysis of the structural changes
in Pakistan’s economy over the period 2011-19.

The IO model results show slight changes in the structure of Pakistan’s

economy over the period of analysis. For instance, the backward
linkages of agriculture, manufacturing, energy, wholesale and retail,
public administration, and other services sectors have become
stronger during 2011-19 whereas the backward linkages of other
sectors become slightly weaker during the same period. The sectors
with strong backward linkages have more potential to contribute
to the total demand whereas the sectors with weak backward
linkages reduce the pace of economic growth. The forward linkages
of all the sectors improved except agriculture, transport, post and
telecommunications, and other services sectors. The sectors with

20 Structural changes in Pakistan’s economy: An I-O based analysis

strong forward linkages have more potential to contribute to total supply whereas the sectors with weak
forward linkages reduce the potential to total supply in the economy.

The total demand improves the most in energy, manufacturing, and construction sectors where a 1 USD
million increase in final demand increases the overall demand by USD 2.44, 1.96, and 1.84 million in 2019,
respectively. The stronger backward linkages in these sectors generate a snowball effect, boosting the overall
economic activity in Pakistan. For instance, investment in manufacturing sector will increase the output of
this industry. To meet the required output, the manufacturing sector needs inputs from various other sectors
increasing the aggregate demand in the overall economy.

Finally, if the primary inputs in the energy sector increase by USD 1 million, the overall supply of output
in Pakistan increases by around USD 2.37 million in 2019. The model results show that the primary input
content of the final demand has changed slightly during 2011-19. Capital stock and labour, both have the
highest shares in all the categories of the final demand. However, the share of the capital stock has reduced
over time, whereas the rising shares of imports indicate that the productive capacity of the country is reduced
and the import dependency has increased overtime. It will incrase the trade deficit in the short run but the
country might accumulate huge foreign debt in the long run.

Working Paper, April 2022 21

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Working Paper, April 2022 23

 ANNEXURE
A 1. Sector details, Pakistan IO model 2018-19
Detailed sector description Short sector description

1 Agriculture Agri

2 Forestry Agri

3 Fishing Agri

4 Mining and Quarrying Mining

5 Food, Beverages, and Tobacco Manu

6 Textiles and Textile Products Manu

7 Leather, Leather Products, and Footwear Manu

8 Wood and Products of Wood and Cork Manu

9 Pulp, Paper, Paper Products, Printing, and Publishing Manu

10 Coke, Refined Petroleum, and Nuclear Fuel Manu

11 Chemicals and Chemical Products Manu

12 Rubber and Plastics Manu

13 Other Nonmetallic Minerals Manu

14 Basic Metals and Fabricated Metal Manu

15 Machinery, nec Manu

16 Electrical and Optical Equipment Manu

17 Transport Equipment Manu

18 Manufacturing, nec; Recycling Manu

19 Electricity, Gas, and Water Supply EGWW

20 Construction Const

21 Sale, Maintenance, and Repair of Motor Vehicles and Motorcycles; Retail Sale of Fuel Transp

22 Wholesale Trade and Commission Trade, Except of Motor Vehicles and Motorcycles Wsale

23 Retail Trade, Except of Motor Vehicles and Motorcycles; Repair of Household Goods Wsale

24 Hotels and Restaurants Accomo

25 Inland Transport Transp

26 Water Transport Transp

27 Air Transport Transp

28 Other Supporting and Auxiliary Transport Activities; Activities of Travel Agencies Transp

29 Post and Telecommunications Info

30 Financial Intermediation Finance

31 Real Estate Activities Accomo

32 Renting of M&Eq and Other Business Activities OthSer

33 Public Administration and Defense; Compulsory Social Security Public

34 Education Public

35 Health and Social Work Public

36 Other Community, Social, and Personal Services OthSer

37 Imports Imports

38 Taxes Less Subsidies Net Taxes

39 Compensation of Employees Labour

40 Capital Stock Capital

41 Household Final Consumption Expenditures C

42 General Government Final Consumption Expenditures G

43 Gross Capital Formation I

44 Net Exports of Goods and Services X

Source: Own Aggregation Scheme

24 Structural changes in Pakistan’s economy: An I-O based analysis

 A 2. Gross value-added at basic prices (PKR million)
Sectors 2016-17 2017-18 2018-19 2018-19

(Current Prices) (2016-17 prices, calculated)

Important Crops 1,827,252 1,890,555 1,803,359 1,616,634

Other Crops 811,971 874,378 909,337 815,182

Cotton Ginning 187,240 199,961 175,975 157,754

Livestock 4,180,531 4,615,565 5,119,066 4,589,023

1 Total Agriculture 7,006,994 7,580,459 8,007,737 7,178,592

2 Forestry 172,578 183,199 202,162 181,230

3 Fishing 138,893 148,121 158,732 142,296

4 Mining & Quarrying 644,686 755,778 1,004,203 900,225

Manufacturing: Large Scale 3,044,603 3,331,305 3,722,568 3,337,122

Manufacturing: Small Scale 457,088 506,839 572,034 512,804

Manufacturing: Slaughtering 328,520 379,542 435,412 390,328

5 Total Manufacturing 3,830,211 4,217,686 4,730,014 4,240,255

6 Electricity Generation & Distribution & Gas Distribution 529,040 435,889 530,908 475,936

7 Construction 679,609 791,191 745,106 667,956

8 Wholesale & Retail Trade 5,792,701 6,232,618 6,902,928 6,188,179

9 Transport, Storage & Communication 3,697,932 3,523,539 3,866,033 3,465,733

10 Finance & Insurance 594,362 684,623 908,121 814,091

11 Housing Services 1,668,521 1,848,594 2,059,629 1,846,369

12 General Government Services 2,263,393 2,629,924 2,968,885 2,661,478

13 Other Private Services 2,958,640 3,351,401 3,812,745 3,417,962

14 GDP (Total of GVA at basic prices) 29,977,559 32,383,021 35,897,203 32,180,302

15 Household Final Consumption Expenditures 26,148,647 28,400,347 31,547,687 28,281,147

16 General Government Final Consumption Expenditures 3,599,000 4,054,823 4,457,033 3,995,539

17 Investment 4,644,867 5,449,469 5,345,373 4,791,897

18 Change in Inventories 510,757 553,861 609,380 546,283

19 Net taxes 1,944,744 2,233,281 2,189,029 1,962,371

20 Export of Goods and Non-Factor Services 2,635,927 3,105,763 3,842,425 3,444,569

21 Imports of Goods and Non-Factor Services 5,616,894 6,947,961 7,715,666 6,916,763

Source: Economic Survey of Pakistan 2020-21

Working Paper, April 2022 25

 A 3. Aggregated Pakistan IO model 2018-19 (USD constant prices 2017 million)
No. Sector/ 1 2 3 4 5 6 7 8 9
Sector

1 Agri 18,675 39 39,274 156 350 121 589 2,943 11

2 Mining 13 12 2,483 5,627 208 4 138 106 8

3 Manu 2,112 143 13,956 1,926 3,840 3,265 10,319 1,545 131

4 EGWW 418 78 5,638 14,292 225 40 147 1,537 17

5 Const 635 251 17

6 Wsale 7,329 47 11,671 1,982 1,827 1,242 4,289 869 46

7 Transp 167 66 3,916 1,600 1,574 1,904 2,934 299 5

8 Accomo 426 81 966 198 707 497 552 715 312

9 Finance 105 44 447 61 250 4,798 239 235 162

10 Info 76 148 682 30 9 95 555 244 120

11 Public 2 191 1 359 63 25 46

12 OthSer 252 485 3,355 93 84 339 1,832 809 409

13 Imports 8,209 59 9,494 4,043 1,664 1,696 4,611 519 98

14 Net Taxes 260 33 6,044 84 1,037 1,135 774 88 31

15 Labour 20,126 145 10,818 720 3,153 16,150 8,704 6,425 2,902

16 Capital 41,089 8,469 25,761 4,762 3,390 38,807 20,131 15,738 4,838

17 Total input 99,256 9,853 134,697 35,574 18,954 70,703 55,893 32,096 9,136
at basic
prices

No. Sector/ 10 11 12 C G I X Total output at basic

Sector prices

1 Agri 2 406 32 23,958 2,974 9,728 99,256

2 Mining 21 71 27 914 23 199 9,853

3 Manu 347 6,473 431 63,318 373 10,327 16,193 134,697

4 EGWW 74 1,683 369 11,032 3 5 17 35,574

5 Const 18,020 31 18,954

6 Wsale 106 1,891 144 31,480 4,658 3,119 70,703

7 Transp 20 1,906 107 39,559 187 1,648 55,893

8 Accomo 591 1,335 4,832 20,795 0 89 32,096

9 Finance 319 534 834 1,070 0 38 9,136

10 Info 76 396 329 3,752 57 108 6,676

11 Public 1 1,457 65 7,789 35,210 0 870 46,078

12 OthSer 1,037 1,414 1,057 19,007 856 1,731 816 33,575

13 Imports 185 2,623 293

14 Net Taxes 84 79 104

15 Labour 682 13,933 3,016

16 Capital 3,129 11,878 21,938

17 Total input 6,676 46,078 33,575

at basic
prices

Source: Own Calculations

26 Structural changes in Pakistan’s economy: An I-O based analysis

A4. RELATED THEORETICAL CONCEPTS