The Annals of Regional Science

, Volume 59, Issue 1, pp 189–208 | Cite as

Economic geography and misallocation in Pakistan’s manufacturing hub

  • Theresa Chaudhry
  • Muhammad Haseeb
  • Maryiam Haroon
Original Paper

Abstract

In this article, we explore whether localization of industries can reduce economic distortions and dispersion in total factor productivity (TFP) among firms in Punjab, Pakistan’s largest province economically. We consider two types of misallocation: (i) dispersion in the distribution of output-based TFP (TFPQ), in particular the survival of low productivity firms in the left tail; and (ii) dispersion in revenue-based TFP (TFPR), indicative of allocative inefficiency. The results are mixed: On the one hand, we find that the distribution of TFPQ is less dispersed in more agglomerated areas, measured by the localization quotient, local productive concentration, and average firm size. At the same time, we find that average TFPQ is also positively related to localization, especially the presence of small firms in the same sector, even though own-firm TFP is lowest for small firms. On the other hand, we do not find evidence that agglomeration improves allocative efficiency measured as deviations in TFPR from the sector average, concluding rather that greater localization of small firms is associated with firms being more output and capital constrained.

JEL Classification

D24 R12 L11 L25 L6 

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Copyright information

© Springer-Verlag Berlin Heidelberg 2017

Authors and Affiliations

  • Theresa Chaudhry
    • 1
  • Muhammad Haseeb
    • 2
  • Maryiam Haroon
    • 3
  1. 1.Department of EconomicsLahore School of EconomicsLahorePakistan
  2. 2.Department of EconomicsUniversity of WarwickCoventryUK
  3. 3.Centre for Research in Economics and BusinessLahore School of EconomicsLahorePakistan

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