Low Private Investment and Government Failure as the Binding Constraints to Pakistan’s Economy Growth Diagnostics Analysis

Abstract

This research targets the most binding constraints in the economy of Pakistan during the period from 2007 to 2013 using Husmann-Rodrick-Vilasco (2005) decision tree. The growth diagnostics proves that the economy of Pakistan undergoes and passes from the stages of dilemma and huge economic complexities during this period. The economic growth of Pakistan is continuously being affected by structural problems including domestic energy crisis, low investment, high inflation, and security issues. Growth diagnostics points out to four major constraints to economic growth of Pakistan and these are: energy crisis, inadequate market development, poor performance of institutions, and lack of efficient public sector management. Only two of these constraints are explained in this study including low level of private investment and government failure. For policy implications, several areas like private sector growth, good governance, institutional strength, market development, macroeconomic stability, infrastructure development are important to make considerable reforms.