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Complex Multiplier Pakistan
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2. Demand for private goods: As demand for private owned goods increases the demand for complementary government goods also increase like rise in ownership of cars would mean more roads required.
3. Changes in technology: As improvements in technology are taking place so the government expenditure is raising for example purchase of computers have raised expenditure on education.
4. Political Cycles: Government spending tend to rise before elections e.g. on health and education to prove popular.
9. Fast track development of State of the Art Infrastructure by the government. (Economic Survey of Pakistan 2006-07) Some of the implemented policies (exports and imports): Facilitation for leather exportsIMPLEMENTEDR&D Support for Footwear SectorIMPLEMENTEDProvision of support for cool chain and cold storage for horticulture productsIMPLEMENTEDIn house/on-job skill development trainingIMPLEMENTEDModified Freight Subsidy SchemeIMPLEMENTED Export Initiatives: The government has planned to take export initiatives in order to increase the amount of exports and rectify the problem of the imbalance in trade. These initiatives include the facilitation of leather exports. A lot of research and development needs to be done in order to compete in the international global market arena and be updated. Many Expo centers have been setup in different cities so that delegations can come to attend the different exhibitions. Import Initiatives: The government has also taken import initiatives , these majorly include the import of medical instruments ,machinery by industrial areas so that the old machinery can be updated and to increase the efficiency and productivity level different sectors. WTO and Pakistan : WTO has played a positive role in promoting growth of trade in its member countries which include Pakistan. Following the liberization policy the country has been able to have a positive impact on the economy. Our GDP has grown and our international trade participation has increased by more than 15% per annum. The government is trying its level best to make export market access easier. The Governor of the State Bank of Pakistan has introduced various policies regarding the macroeconomic stability of Pakistan. Structural reforms like tax reforms , tariff reforms , privatization, deregulation have been introduced which have helped Pakistan to overcome and rectify many problems that were prevalent in Pak Chapter 6 COMPLEX MULTIPLIER Complex Multiplier ROUNDSΔINVESTMENTBILLION $ΔINCOMEBILLION $ΔCONSUMPTIONBILLION $ΔSAVINGBILLION $ΔTAXESBILLION $ΔIMPORTSBILLION$1884.81.60.80.824.82.880.960.480.4832.881.7280.5760.2880.28841.7281.03680.34560.17280.172851.03680.622080.207360.103680.103686TOTAL82012422 This process will come to a halt when the total withdrawals are equal to original change in investment. K= 11-MPC = 11-0.6 = 2.5 The table shows the complex multiplier calculation for the increase in telecom investment in Pakistan. For this calculation the MPC is 0.6, MPS is 0.2, MPT is 0.1 and MPM is 0.1. According to the calculation the value of the multiplier is 2.5 which means that due to an increase in investment in telecom sector by 8 billion $ it has increased the national income of Pakistan by 20 billion $ which is actually a great change in the national income of Pakistan. Since at present except the service sector in Pakistan there is no other sector which is contributing so much to the national income of Pakistan. The major players which are involved in contributing to the national income are mobilink, ufone, warid, telenor, ptcl etc, whose inial increase in investment has contributed so much to the economy of Pakistan. According to an article in daily times the telecom industry has emerged as the largest recipient of FDI in Pakistan during the last few years. During 2005 to 2006 telecom sector received over 1.8 billion $ Foreign direct investment and emerged as the only sector of the economy to attract such huge investment where its share in total FDI crossed 54%. In the last 2-3 years the telecom sector has attracted record in flows of FDI. The multiple increase in national income due to investment I telecom sector can be seen graphically. From the figure we can see that due to an increase in investment by 8 bn $ the aggregate expenditure function has shifted upwards due to which there is a multiple increase in national income. Chapter 7 ARTICLES & LITERATURE REVIEW ARTICLE I PAKISTAN'S CONSUMPTION CLIMATE BRIGHTENS. by EDIMAX USA PUBLICATIONS Market Asia Pacific • June 1, 2004 • Private sector demand for goods and services is on the rise in Pakistan thanks to increased availability of financing and improved affordability of household goods. During the early months of this year, private sector borrowing showed growth of over 100 percent as confidence firmed and more attractive financing packages emerged. The beneficiaries of this trend include agencies that sell new cars and residential real estate. The construction sector should benefit this year and next from government incentives aimed at making it easier for Pakistanis to purchase their own home. At present, Pakistan has a housing shortage estimated at 4.3 million dwellings and there is a demand for about 570,000 additional homes per year. The increasing pace of residential real estate construction this year and next will contribute to strong demand for construction materials, and cement in particular. Although most of the new homes in Pakistan will be low-cost units with repetitive floor plans, there will also be an increase in demand for custom homes in more affluent districts of major metropolitan areas. Demographic factors weigh in favor of medium- to long-term growth in household consumption. Demand for food and beverages should rise steadily for the foreseeable future because Pakistan has one of the highest population growth rates in Asia. The majority of Pakistani families have an unsatisfied appetite for household consumer goods. Living standards are slowly improving in rural areas and that bodes well for a gradual increase in sales of low-end durables over the next few years. In addition, sales of agricultural equipment and supplies will rise as agricultural incentive programs give farmers access to more capital to upgrade their operations. Pakistan's ability to create new jobs and improve the lifestyle of the average consumer hinges on the government's ability to reverse the recent downturn in foreign direct investment. DEMOGRAPHIC EXPANSION POSES A JOB CREATION CHALLENGE The population growth rate for Pakistan is higher than the regional average, due in part to a birth rate of 37 per thousand inhabitants, which is well above the average of 27 per thousand for South Central Asia. Job creation has not kept up with growth of the labor force in recent years, and it is unlikely that the situation will improve during 2004. Official unemployment is running about 8 percent, but high underemployment is putting downward pressure on consumer confidence. PakistanAEs population reached 149 million people during 2003, which amounted to just over 9.5 percent of South Central AsiaAEs 1,563 million inhabitants. According to data released by the Population Reference Bureau (PRB), PakistanAEs population will reach 250 million people in 2025, or 68 percent more than the level in 2003. By the year 2050, Pakistan's population should reach 349 million. The PRB revealed that a scant 34 percent of PakistanAEs population lived in urban areas during 2003, and that the countryAEs population density stands at 485 people per square mile. By the year 2050, PakistanAEs population density should reach 650 people per square mile. Another source of demographic data, the CIAAEs World Factbook, indicates that 39 percent of PakistanAEs population was birthu14 years old in 2003, while 57 percent was 15u64 years old, and 4 percent of the populace was 65 years of age and over. CIA statistics revealed that the countryAEs population growth rate was 2 percent in 2003 and the net migration rate was -0.75 migrants per 1,000 people. According to the United Nations Population Division, in the year 2050, 23 percent of PakistanAEs population will be birthu14 years old, while 65 percent will be aged 15u59, and 12 percent of the populace will be 60 years of age and over. COPYRIGHT 2004 Media Contact Resources, Inc. Reproduced with permission of the copyright holder. Further reproduction or distribution is prohibited without permission. Copyright 2004, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company. NOTE: All illustrations and photos have been removed from this article. ARTICLE II Daily Times - Site EditionSunday, November 25, 2007 Telecom investment grows to $8bn in 4 years * Telecom sector has emerged as the largest recipient of FDI in Pakistan during the last few yearsBy Romail KennethKARACHI: Telecom companies have invested over $8 billion during the last four years in Pakistan particularly in the mobile sector whose investment share accounts for 73 percent official sources said here Saturday. In 2006-07, cellular mobile sector has invested over $2.7 billion, which becomes about 66 percent of total investment by the sector, sources at Pakistan Telecom Authority (PTA) said. Local loop segment of the industry is also taking off and in 2006-07 about $7.8 million were invested by this sector. LDI operators have invested about $603 million in 2006-7, which is about 15 percent of total investment by the sector.During 2005-06, telecom sector received over $1.8 billion foreign direct investment (FDI) and emerged as the only sector of the economy to attract such huge investment where its share in total FDI crossed 54 percent. During 2006-07, telecom sector has received above $1,824 million FDI, which was about 35 percent of total FDI in the country.Telecom sector has emerged as the largest recipient of FDI in Pakistan during the last few years. Liberalization and competition in the sector has compelled many companies to expand their infrastructure across the country, which requires more investment from foreign sources. In the last two to three years the telecom sector has attracted record inflows of FDI. PTA has created a conducive and investor-friendly environment in the telecom sector by awarding licenses in a fair and transparent manner. All operators are rolling out their networks rapidly all over the country, which requires huge investments. It is expected that the trend of investment may continue in the next five years because large potential market still exists in Pakistan and all operators intend to grab their share. China mobile has acquired Paktel, which has contracted out $500 million worth of project to renowned companies like Ericcson, ZTE and Alcatel to roll out their networks. Similarly, Mobilink also plans to invest $500 million in 2007-08 for improvement of quality of service and infrastructure expansion. Wateen Telecom, which has already laid out 5,400 km of optical fiber across the country, has announced to invest $600 million in next two years.During the last four years Pakistan’s telecom sector has experienced unprecedented changes with respect to technology, regulation and growth. The liberal FDI policy by the government of Pakistan and deregulation and privatization of the sector has triggered a wave of international acquisitions in the sector. During the last year about $2 billion worth of acquisitions were made in the telecom sector.It is viewed that stiff competition, squeezing profit margins and lack of investment resources have forced some players in the industry to rethink whether to go on their own thus convincing them to offer their shares to other players who can invest more and heavily and introduce innovation with their experience. Renowned companies from Gulf and East Asian region with in-depth experience in telecom sector are looking at Pakistan as a lucrative market to invest who have purchased shares in different telecom companies worth $1.7 billion. Orascom from Egypt, already owning the majority stake in the leading cellular mobile operator of Pakistan has purchased the remaining 11.31 percent shares of Mobilink from the local partners from $290 million. China Mobile, which is the largest cellular mobile operator in the world, has also made its first international venture by acquiring 100 percent shares of Paktel from Millicom and the local partner for $477 million. Similarly, Warid Telecom has sold about 30 percent shares to Singtel, a well-reputed company of Singapore. PTA has facilitated these developments and is taking steps for further growth of the sector. PTA is however, vigilant to ensure that no cartels or monopoly situation is created that can harm competition. Apart from international acquisitions, there are some local acquisitions where leading companies have taken over some small companies. Mobilink has purchased Zarco, which has Wireless Local Loop (WLL) license for Faisalabad and Lahore regions having frequency of 3.5 GHz. Similarly, it has also been purchased Dancom Online, which also has frequency of 3.5 GHz all over the country. Besides, a small ISP and WOL have also been purchased by the subsidiary of Mobilink. LITERATURE REVIEW Article I The article “Pakistan Consumption Climate Brightens” by Edimax USA publications on June 1st 2004 talks about how the consumption expenditure grew over the years. According to the article the household consumption expenditure has increased for all the sectors due to which we can see that there was a boom in the construction sector which has led to a housing shortage of 4.3 million dwelling. The consumption expenditure also grew due to increase in population size as a result the household expenditure of each house got increased. The consumption expenditure also grew due to increase in availability of finances. This increase in consumption brought an inflationary pressure due to which the price of all household goods rose. Therefore government should take notice of this problem so that it can be corrected. Article II The article published in daily times on November 25th 2007 by Romail Kenneth talks about a boom in telecom sector. According to the article the telecom sector has now emerged as the major sector which is contributing a lot to the economy of Pakistan. The article talks about the major players who are playing an important role in the telecom sector. These players are from all around the world who have their stake in the telecom sector of Pakistan. According to the article the boom in the telecom sector is due to the business friendly policies of the PTA. It was due to these policies that the economy received such a huge inflow of cash in the form of FDI. Apart from these policies the PTA should introduce more consumer friendly policies so that from the success of telecom sector the consumer can also get benefitted. Chapter 8 COMPLEX MULTIPLIER REGRESSION ANALYSIS ----------------------------------------------------------------------------- CONSTANT -1.44462E11 2.54225E10 -5.68245 0.0000 CONSUMPTION 1.65241E9 2.6852E8 6.15376 0.0000 INVESTMENT 4.5849 0.762225 6.01515 0.0000 GOVERNMENT EXPEND 1.1643 0.826121 1.40935 0.1791 EXPORTS 4.78094 0.672373 7.11054 0.0000 IMPORTS -3.57051 0.794395 -4.49463 0.0004 ----------------------------------------------------------------------------- Analysis of Variance ----------------------------------------------------------------------------- Source Sum of Squares Df Mean Square F-Ratio P-Value ----------------------------------------------------------------------------- Model 5.30559E21 5 1.06112E21 348.20 0.0000 Residual 4.57111E19 15 3.04741E18 ----------------------------------------------------------------------------- Total (Corr.) 5.3513E21 20 R-squared = 99.1458 percent R-squared (adjusted for d.f.) = 98.8611 percent Standard Error of Est. = 1.74568E9 Mean absolute error = 1.00264E9 Durbin-Watson statistic = 1.1138 The StatAdvisor --------------- The output shows the results of fitting a multiple linear regression model to describe the relationship between GDP and 5 independent variables. The equation of the fitted model is GDP = -1.44462E11 + 1.65241E9*CONSUMPTION + 4.5849*INVESTMENT + 1.1643*GOVERNMENT EXPENDITURE + 4.78094*EXPORTS - 3.57051*IMPORTS 99% confidence level. To further sound our project we have run a multiple regression model. I our model the dependent variable is GDP and the independent variables are consumption, investment, government spending, exports and imports. From the analysis of variance we can see the P value and the F ratio. Both the P value and F ratio shows the level of significance of the model. The P-value should be lie between 0 to 0.05. If the P value is between this limit, it means it is the best fit model. The F ratio should be as high as possible. So from our analysis of variance we can see that the P value is 0 and the F ratio is 348.20. This shows that our model is a best fit model as our P value is 0 and the F ratio is very high. The R square which is the coefficient of determination is 99.1458% which means that 99.1458% variation in the dependent variable is due to independent variable and remaining due to other factors. Since our value of R square is very close to 100% so our model is a best fit model. Adjusted R square which is calculated by increasing the sample size is 98.8611%. As the value of adjusted R square is less than the value of R square it means that there is no chance of further improvement. The standard error of estimation which is the sum of all the error terms in the regression model is 1.74568. The mean absolute error in which we simply add the value of error terms is 1.0024. The Durbin Watson test whose value is 1.1138 shows that it is not a good model as the value of D test should be greater than 1.4. From the further ANOVA table we can see that the most significant variable is the consumption as its P value is 0 and the F ratio is 883.38 which is better among all variables. This shows that consumption is more contributing more to the GDP. Overall from the multiple regression model, our model of complex multiplier is a best fit model.