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Finance and industrial policy in unsuccessful developmental states: the case of Pakistan

Naqvi, Natalya ORCID: 0000-0003-0821-070X (2018) Finance and industrial policy in unsuccessful developmental states: the case of Pakistan. Development and Change. ISSN 0012-155X

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Identification Number: 10.1111/dech.12424

Abstract

While a large body of research indicates that state-directed finance worked for successful East Asian developers, the dominant assumption remains that countries with a weak state capacity, where corruption is rife, should not ‘try this at home’. In this article, that narrative is questioned through a case study of the role of the financial sector in Pakistan, which is widely considered to be a successful case of financial liberalization, contrasting the role of the publicly controlled financial system in the 1970s and 1980s with that of the liberalized financial system in the 2000s. Utilizing archival firm-level and aggregate data, historic government documents, and interviews with policy makers, financial sector employees and industrialists, it is argued that in the Pakistani case, the withdrawal of state control over the financial sector led to a deterioration of outcomes. This resulted in the allocation of credit away from the productive sectors, namely industry and agriculture, towards unproductive sectors, for speculative purposes; and in the health of the financial sector not improving as expected, with non-performing loans and corruption remaining a problem, and banks actually becoming a greater burden on government finances. This indicates that even states with weak capacity and flawed industrial policy may be better off with some degree of public control over finance.

Item Type: Article
Official URL: https://onlinelibrary.wiley.com/journal/14677660
Additional Information: © 2018 International Institute of Social Studies
Divisions: International Relations
Subjects: H Social Sciences > HG Finance
J Political Science > JZ International relations
Date Deposited: 22 May 2018 11:13
Last Modified: 17 May 2024 16:24
URI: http://eprints.lse.ac.uk/id/eprint/88043

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