Impact Of Political Connections On Total Factor Productivity In Pakistan'S Manufacturing Sector

Abstract

This study aims to measure the productivity and efficiency of non-financial firms in Pakistan. Moreover, the study decomposes the productivity and efficiency of non-financial firms into different components, namely technological change, technical efficiency, mix efficiency, and residual scale efficiency. Furthermore, the study identifies the empirical determinants of the total factor productivity (TFP). Finally, the study also examines the impact of political connection on the productivity and efficiency of firms. The study uses secondary data of Pakistani firms listed at the Pakistan Stock Exchange for a period of 20 years from 2001 to 2020. DPIN approach proposed by O’Donnell (2010) is used to measure and decompose the TFP in to different components. In addition, to investigate the determinants of TFP and impact of political connection on TFP and total factor productive efficiency (TFPE) and its further determinant we employ the system GMM estimator. The estimates show that TFPE progress is major component of productive growth during the examined period, which decreases the negative impact of technological regress on TFP. In addition, the estimates show that the TFP of firms increases over time in Pakistan except in last few years. Overall, the findings recommend that the government is required to provide incentives and cost-effective technologies that enhance the productivity and efficiency of firms because productivity enhancement is a prerequisite condition for sustainable economic development.

Key words: Productivity, Political, Growth

JEL Classification: D24, D27, O40