Economic Growth

Indonesia is the leading producer and exporter of palm oil across the globe. Oil palm is of high economic status throughout Indonesia, Africa, and most of the East because of its abundance in the region, richness of nutritional and mineral components, and high yields of edible and technical oils. The extensive development of oil palm industries in many tropical countries is due to its extremely high potential productivity. The steady demand of the oil has existed for integration into processed oods, personal care products, and home-cooked meals.

Correspondingly, with increased interest in substitution of fossil fuels, palm oil is being demanded for biofuel energy production. The issues with palm oil extraction are many; One including that the high demand from developed nations has lead to the push of cultivation into the rainforests, destroying habitat. Additionally, the production and extracting gives opportunities for small land-holders to participate in the cash economy, but often time big banks and companies acquire their land without notification or compensation. Migrant workers and imported laborers are said to legally conflict with extraction processes.

Regardless, a large majority of the rural- poor, working class of Indonesia relies on income from palm oil production. With that, the entire population could be lifted out of poverty. The central obligation Indonesia holds is to lift their unemployed and impoverished majority from those circumstances and boost sustainable economic growth. Since the economy of the country is heavily dependent primarily of the agriculture, forestry and mining sectors, the opening up of forests and further extraction of their natural esources are the most reliable sources toward reaching their financial goals.

In relation, externalities and social costs must be taken into account because local production, global markets, and climate change are ever connected in the race to seize reproductive function of renewable resources. With that in mind, Indonesia is the third largest emitter of greenhouse gases in the world as a result of their deforestation, peat land degradation, and forest fires for their expanding industry of palm oil extraction (Business Watch Indonesia, 2007).

Meanwhile, Indonesia is a low-lying coastal area and is vulnerable to the climate ffects that they, in fact, are contributing their greenhouse gases to. Additionally, with Indonesia’s longitudinal positioning on the equator, it is most susceptible to the sink dynamics resulting from climate change. However, because there is an influx of demand for palm oil for food and industrial consumption, Indonesia has Jumped onto the opportunity to expand their already leading production to meet demand and bring rise to each worker’s GDP.

Indonesia holds close to 50 percent of share-hold global production on palm oil and to keep up with their plans on extending the ountries production from 22 million tons to 40 million tons by 2020, they are using this opportunity to establish programs for promotion of biofuels (Buschmann, The Case of Indonesian Palm Oil, 2011). While rich countries put forth effort to specialize in environmentally friendly production and are implementing boundaries of sustainability in their own economies, they are attracted to productions that are environmentally harmful in developing regions.

This shifts the environmental costs from importer to exporter and ultimately leads to unequal ecological exchange from ttempting to make the shift to renewable energy and meet the standards of the Kyoto and Montreal Protocols within their own boundaries. Wealthy nations are continuously working to cut emissions with increased awareness of global climate change. However, the Kyoto Protocol fails to commit those high producing developing nations to those same standards, (BWI, 2010). This is an issue in that rich nations emission reduction is based on their economic development and status.

What such nations are not willing to assist in is the sustainable development and growth of the eveloping nations they are importing from through fair trade, technology transfer, and overall financial and technical assistance. Without respect to the natural capital or the environment, Indonesia is doing quite well in terms of progressing as an economically sustainable country. Palm oil and its global importance in the newer- found relation to biodiesel is a valuable asset in providing a brighter quality of life in regards to revenue for more than three million Indonesian workers and their families (Waltermann & Streubel, BWI, 2010).

Commonsensically, more people working in a rowing biofuel-centered sector would lead to increasing incomes and overall economic achievement. In the case of Indonesian palm oil, there is a central assumption that represents complex, crisscrossing issues that encompass the different levels of action from a varying range of contributors with multiple interests. This means that although the local production is paying the native workers, local production, international trade, and global climate change are all interconnected.

The directives put in place by developed economies look to reach a final level of renewable energy consumption. Palm oil is seen for its energetic, technically renewable “biofuel” use and can have a positive effect on economic growth for both palm oil producers as well as energy producers, at the expense of exploited natural resources and forest habitats. There are undoubtedly counterproductive consequences accompanying the demand for sustainable crude palm oil and the general switch from fossil fuels to “renewable” fuels.

By converting national accounts to “green economies” (budgets with money for renewable energy allotted into them), there is an alleviation on the debate of translating environmental concerns into conomic variables, but only when applied to sustainable concepts. This is faulty because it rides on the idea that all forms of capital can substitute each other regardless of how the stock of the capital is composed. This means that well-off the while overextending a resources productive capacity (OECD, 2005) The concept of environmental Justice or “strong sustainability’ has limitations on the previously noted substitution of capital.

Because there are boundaries on forests’ reproductive capacity, the continuity of economic systems are at risk. Most “westernized” overnments have reached the manufactured and natural capital equilibrium, where they have the ability to access both forms of the goods, and any rise in one will have an expense on the other. Forest products, and in this case palm oil from the Indonesian forests, are shown to have short-term economic gains by conversion of forest to agricultural use in the over-exploitation of the products. This typically leads to long-term loss in income and biological productivity.

Also in the case of Indonesian palm oil and forest loss, the production is exceeding the value of ready-for- production, mature sources. The graph below demonstrates the progression of palm oil production and how Indonesia was able to reliably supply roughly 57 percent of the annual increase with its vast land resources and a suitable climate. However, it is clear that production has extended beyond the mature supplies and gone into areas beyond suitability to reach demand from international markets and an increased interest by native small farm-holders to erect their own private plantations (USDA, Foreign Agricultural Service, 2009).

Social and external costs are largely associated with export and import rates, overnment investment and tax systems in the international market. One abrogating externality is the non-tariff trade barriers applied by developed importers. To assure some security when and if free trade is effective and ecological standards go down, these barriers work to restrict the exporters in the market when supply cannot meet demand. On the other hand, for small farm-holders to establish their plantations, they must qualify for subsidizing credit provided by the Government of Indonesia and prioritize with other startup costs.

Because of this possibility the palm oil roduction sector has experienced strong development and expansion across the country, with an average of 8-13% annual growth rates in palm areas over the last decade (USDA, 2009). The Indonesian government, over the past decade, has provided these loans to encourage smallholders’ expansion, at rates below market interest. Alongside the enabling of non-commercial plantation ownership, the Government has advocated ownership with programs that provide smallholders with improved seed, fertilizers, and techniques for growth.

Additionally, land-use permits ave been reevaluated to allot more time for companies to control profits earned by a plantation. These interventions have brought positive change in the market significantly; non-commercial palm oil farms now account for 44 percent of the total area in the country, second to private commercials (Foreign Agricultural Service, 2009). A major effect of these implementations is the establishment of processing plants. Because fresh fruit bunches require processing within 48 hours of harvest, oil refining plants have been constructed near major concentrations of harvest land.

Construction and operation of each plant represents a significant fixed cost for the developer, and typically ends up servicing both commercial and smallholder palm producers that surround it” (Foreign Agricultural Service, 2009). The investment in in contributor in the success of Indonesia’s palm oil business. At the expense of the environment’s health, and with the push from changes in government economic and political policies, historical highs have been reached leading Indonesia to the number one spot in exporting and producing of palm oil.

Nonetheless, without regard to its ommunal use and benefits to the servicer, service emissions are still added to the atmosphere, more resources and forests are eliminated, reducing the amount of the fruit available for use by the farmers and ruining the habitat of accompanying wildlife. Further success rates in the palm oil sector I believe, at this point, rely on the clarification of one all-encompassing issue. That is, whether or not ecological economies can lead to different assessments of how economic growth, open trade, and the environment can be positively or negatively associated.

Investors and roducers have optimistic expectations of improving their economies despite being built on the depletion of a natural capital and possibly misleading those civilians toward a downward trend.

BUS 421 Final: Case Scenario #1 Thomas Edison State College October 2012 Emily Schemelia Executive Summary Case Scenario # 1 Given the increasing regulations of the Internet and email by the Government of China, recommend to the CEO of Google whether the company should continue to operate in China, the world’s fastest and among the largest growth markets. Google should definitely continue operations in China, even if it means limiting the amount of information that is disseminated to Google China.

While filtering information is the opposite of everything Google stands for, Google can still disseminate information to the Chinese public while abiding by the information laws set up by the Chinese Government. The fact is that if Google doesn’t provide its information services to China, not only will a competitor step in and abode by the Chinese Government limitations on information, but the information that it would disseminate may be far less superior.

Therefore, in the hope that the Chinese Government decrease its information limitations, Google should provide its service to China as China comprises over 1. 3 billion people and has the power of not only furthering Google, but the world as well. In my research, the point of discussion is whether Google should move out or not, and why or why not. In this paper I will be presenting issues in regards to the markets in China and the advantages that these markets have for Google in order to continue its operations.

I will also discuss in the various challenges and problems that Google faces in China. Marketing in Chain: China is a very large country and the population of the country is also very large. China provides various business opportunities around the world and that Google is one of them. Many companies had taken the chance of venturing into the Chinese markets and most of them are making great progress. They are all there for the purpose of making sure that they achieve their targets to a higher level (Bracker, 2011).

The Chinese markets are very unique and China has the ability to attract all different kinds of companies on a larger level. Because of this, there is a case that companies like Google, look forward to making sure that they penetrate the market in order to produce better outcomes, which also leads to a fast growth for the organization. The economy in China is doing well. China has in its recent years reached financial stability. This is due to the fact that there is a high level of domestic demand. Because of this, many companies around the world begin to invest in the Chinese market.

China is also one of the fastest growing when it comes to Information Technology and has been able to attract companies such as Google and even Microsoft. It has been forecasted that the Internet industry in China is expected to increase at a rate of about ten percent within the next five years. This is great news because Google will be able to benefit. Advantages of Doing Business in China: As mentioned previously, there are many organizations around the whole world that perform their business in China. They do business in China due to the fact that China has a reliable market.

It is also expected that the organizations doing business in China will continue to grow. Some advantages of doing business in China are that it is a major emerging market around the world. Also there are a lot of opportunities for organizations to invest in China for a longer period of time due to expanding of technology and resources. Another advantage is that there is cheap labor, which helps many companies succeed. With the availability of cheap labor can result in the reduction of cost for the companies that invest in Chain.

Challenges of Working in China: Like any other country, there are some challenges associated when doing business in China. An organization intending on conducting business in China should consider various important things prior to moving forward in actually doing business. If they do not consider certain things, then the company may be lead into trouble, which can endanger the companies investments. One major challenge in doing business in China is the difference in culture. Most Chinese people do not speak English, and the few that do have a very unique accent.

Because of this, Google needs to be able to respect and try to hire employees who are familiar in this accent so that they will be able to communicate with people domestically. Another challenge in relation to conducting business in China is intense competition from domestic companies. In addition to this, a company should perform their activities in a manner that attracts the acceptance of its products by the customers in the domestic market. Based on when was mentioned above, it can be said that there is a definite case of certain challenges for foreign companies like Google in China.

If success has to be achieved, then Google need to work against these challenges in a proper manner so that Google can stay in China and wont be put in jeopardy. Decision to Continue Working in China: Putting all these factors into consideration, Google has to take a make a firm decision in whether they should continue to operate in China, or not. Google has to consider that there is huge growth in their markets and that even with the limitation on some information available, that they can still make progress in their growth. Because of this, Google should continue operating in Chine into the future (Weiss, 2008).

Google needs to do a thorough review of the Chinese markets and take into consideration of all the financial implications associated with the potential of moving their business out of this market. The market in China is one of the strongest and largest in the world and if Google continues to operate in the country, then it is obvious that that they will have various benefits that will be available for its growth now as well as in the future. All the new progress being made in China will help Google to stay in the market. Though there are restrictions doesn’t mean that Google cannot operate in the country.

Google has to consider the financial benefits it will gain if it decides to stay in the market. Taking this into consideration, Google should always continue its business on China. Google needs to expand its operations so that the benefits of China and its services can be appreciated to its full extent. Conclusion: In conclusion, Google should strongly consider continuing their business relationship with China. On the basis of the above discussion, it can be said that though there are various problems for Google in China, the financial benefits of working in China are much higher than if they were to move out.

With all the factors to consider, Google should definitely continue its operations in China now and in the future. References Thompson, A. A, Peteraf, A. A. , Strickland, L. Gamble, E. J. ( 2012). Crafting and Executing Strategy: The Quest for Competitive Advantage-Concepts and Cases 18th ed. New York: McGraw-Hill/Irwin. Bracker, H. (2011). Restrictions of Internet Provided Services in the People’s Republic of China: A Threat for Foreign Companies’ Internet Launch? GRIN Verlag.. Weiss, J. W. (2008). Business Ethics: A Stakeholder and Issues Management Approach. (5th ed. ). Cengage Learning.

dyCASE STUDY Case 1: Haier in India: building presence in mass market beyond China 1. Why did Haier enter India? What did it plan to achieve in this new market? At First, Haier started as a small refrigerator factory in China. Zhang Ruimin put great emphasis on product quality, so he never tolerated any faulty refrigerators. By creating products under the value of quality awareness, Haier became the world’s biggest appliance seller by retail volume. In 1990s, Haier marched into global markets and used internationalization strategy.

Haier made a great effort to break the bias that “made-in-China” products are of low quality. As Haier achieved success in the US and Europe by creating high quality brand image, it widened its scope more and more. At the time of 1980s, India was not a good target market for Haier to approach because the Indian government was acting very defensive to foreign companies. However in 1991, as India experienced payment crisis, the country had to liberalize and open up the market to foreign investments. As China encouraged companies to go overseas by subsidizing by policy banks’ loans, Haier decided to enter the Indian market.

China chose Indian market as a target because India had the world’s second most populated economy and was experiencing rapid economic growth. The growth rate was similar to the one seen when Haier first achieved success in china. Also, Haier could expect several advantages from Indian market such as rising disposable income, an expanding middle class, and a relatively low entry barrier in the white good market. Banerjee, Haier India’s president, noticed that as the company was already gaining power as a major player in global market, appropriate strategy and direction would give Haier huge opportunities in the expanding market of India.

Banerjee made specific targets for the company – to garner 20% of India’s white goods market in five years and to become one of the top three industries in seven years. Also he wanted to build an integrated manufacturing facility. The background of entry to Indian market was quite attractive. India’s white goods market, where Haier wanted to penetrate and achieve in top rank, was a growing piece of pie. From the materials offered in the case, [EXHIBIT 3], the home appliance sector was growing between 11% and 14% annually and Consumer Electronics sector was growing from 11% to even 30% in 2003.

Economic growth brought increase of household income and middle-class. This is a positive situation for Haier because there would be more double-income and nuclear families which means more demand for house appliances. As Haier was already a global brand, it tried to expand its market more widely. As a result, India seemed to be suitable because its gross population was huge, and India was a developing country where more people would demand appliance as time goes by. Haier regarded India as a chance to generate disposable income for electronics purchases.

With anticipation of the high market demand, Haier had plans for new plants, new production lines, capacity expansions, and even Greenfield investments. 2. Evaluate Haier’s entry strategy in India. What was and was not working? Why? Although many Chinese companies choose to first enter developing countries and then later more developed countries, Haier approached in an opposite way. So at the time when Haier entered Indian market, the company already had experience in high-end markets in the US and Europe.

Because US and Europe market is mature market and competition is more fierce, Haier would have already known some strategies to appeal customers. Although Haier had experience and sources to attract customers, the entry strategies used in India were not all successful. Their production anticipation turned out to be too hasty. On the other hand, image setting strategy was quite successful because their global branding strategy made Indian people believe Haier as a high quality brand, not many knowing Haier as a Chinese brand.

The price strategy that Haier first adopted was a premium price strategy, which seemed to be appropriate when considering other giant brands such as LG or Samsung were adopting low pricing strategies. It could be a way to set the cost higher than major brands if entering company thinks price would not be a competitive factor in the market. One entry strategy that Haier and other company weren’t successful at first was the anticipation of high market demand in 2004. As Indian market was a growing market, companies expected the demand would rise significantly.

As a result, they increased the production capacity. However, they were over-reacting to the market trend. Market demand could not catch up the production amount, so the refrigerator industry should have been overstocked. As an entry strategy, Haier adopted a global branding strategy in 2004. Before, Haier usually had an image as an export-based company, but Zhang wanted to create a name brand in the host market so that they could create an image as a global brand. In fact, Haier wanted to hide its “Made in China” image which implicates cheap and low-quality products.

This branding exercise worked quite well, because people perceived the company as a Germany or the US brand. It seems that market positioning strategy adopted by Haier when entering the Indian market was quite tactical. Korean giants such as LG and Samsung took low pricing strategy, and Haier could have felt burdened to lower the price even lower than them. It is because if quality of Haier’s appliances turns out to be similar to those companies, and the price is similar or higher than them, not many customers would challenge to buy Haier’s.

Nonetheless, Haier was confident because they already had experiences in Europe and the US market, and was quite well known as a global brand. As a result, instead of participating in a “price war” with other giant companies, Haier took premium price strategy in India. Haier rather decided to emphasize their quality in the market, which seemed to be the strategy of fighting in a “value war” The premium price strategy could be seen as both a success factor and failure factor. Overall, Haier succeeded to implant an image of global and premium brand in the Indian market.

The perception of customers about Haier was homogeneous to what the company wanted their customers to have about them. However, image does not always make the company become successful. Haier showed quite disappointing revenue growth until 2009, which demonstrates that after all the company might not have won in the “value war”. Maybe the premium price strategy was not an option but an unavoidable plan, considering that giant brands were placed rigidly in the market already. 3. Discuss Haier’s localization model in India and other markets. Were they different? If so, why?

As the [EXHIBIT 1] in the given material shows, Haier adopted different strategy models through timeline. In the early stage of the company, about 1984, Haier adopted Brandbuilding Strategy. The company itself was not settled yet so it had to build a brand image and notify to customers. Then from 1990, the company started to take diversification strategy. It is also the beginning of global strategy, when Haier started to export their products to the US and Germany. From 1998, Haier selected internationalization strategy, which means not merely exporting to overseas but marching to global market worldwide.

From 2005, which was right after the company entered Indian market, the corporation took global brand strategy. Haier wanted to appeal itself as a global brand image with high quality and confidence. This flow of strategies proves that Haier incessantly worked hard to broaden its market strategically. From the stage when the company used internationalization strategy, when the company starts to actually find market abroad rather than merely exporting, Haier consistently adopted a “Three-in-One” localization strategy. Three-in-One” localization means that Haier would position itself as a local brand, produce locally, carry out a local sales strategy and create products tailored to locals’ needs. Basically, localization means adapting the production system and product itself to the circumstances of local industry. Through “Three-in-One” localization strategy, Haier could realize true localization which means the company could follow the local’s needs at maximum level. Haier’s localization strategy was rather tactical than other localization strategies. When Haier began operations in India, the company did not execute rapid localization.

Instead, it took a step-by-step approach, starting from outsourcing. When sales volume grew large enough, it was right time to start acquiring local assets and doing local production on its own. Haier’s approach in the US was similar to the one later chosen in India. When sales grew large enough, the company began “Three-in-One” plan. By building design centre, Haier realized true localization. The material given states that Haier also replicated this model in Europe. After all, Haier’s localization method seems to be basically similar in India and other countries.

The difference of localization model in India and other countries would be more developed localization strategies adopted in India from the experiences of other countries. For example, Haier used factory in India to serve as a sourcing hub to markets in Africa, the Middle East, and Southern and Western Asia. Maybe it was the geographical advantage of India that could utilize this localization strategy. Mostly, the localization strategies were similar in various countries, starting from “Three-in-One” localization. According to the situation of each country, Haier tactically and slowly accessed to the market.

After building factories which means actual production being fully held in the specific country, Haier built centers such as showrooms in retail outlets or design centers to make customers feel close to their products. Localization model used in India might not be regarded appropriate because for six years since its launching, the overall result was not satisfactory. However, from the point of arrival in India to the point of becoming as a brand well known in the country, the “Three-in-One” localization skill seems to be worked effectively.

FISCAL DECENTRALIZATION AND ECONOMIC GROWTH IN PAKITAN A Thesis Submitted to the Faculty of Institute of Management Sciences, Peshawar In Partial Fulfilment of the Requirements for the Degree of MBA (Finance) (2009-2011) Institute of Management Sciences, Peshawar Chapter 1: Introduction According to James Edwin Kee, Fiscal decentralization is the devolution of certain administrative and fiscal powers and functions to the sub-national governments.

It also means the shifting of responsibility to the low-level governments with concomitant accountability. The extent of Fiscal devolution can be measured in terms of the powers of low-level governments to raise revenue or to incur expenditures. Fiscal devolution in the public sector has received great attention during the last two decades for many reasons. The implications of financial autonomy on the performance of sub level government and economic growth has been studied widely both for the developing and the developed world.

In transition countries, with the disintegration of centralized system, fiscal federalism emerged; and in many developing countries, like India, Brazil and Argentina, financial decentralization was debated regarding its effects on economic stabilization. Some studies have, however, suggested that the relationship between the two has not been conclusive. [Financial devolution] is reckoned as a key policy tool that ensures economic efficiency and good governance through financial autonomy of the [federating units].

It leads to the integration of provinces and enhances their participatory role in the economic development of a country. It relieves the central government from paying attention to the details of financial matters, thereby enabling it to undertake the tasks at national level in a more effective and efficient manner. Also, if the central government for some reasons becomes inefficient, then devolution can be a possible solution. It accelerates growth and empowers the low-level governments through financial autonomy and administrative empowerment.

The devolution makes the federating units more responsible as it brings the government closer to the people. Decentralization policy has a positive effect on economic growth as it helps implement social policies in a better manner. In decentralized set ups, the lower tiers of governments know more about the necessities and developmental needs of the people, which leads to economic efficiency in service delivery, thereby accelerating the growth rate at national and regional levels. This is also called the “Oats Decentralization Theorem”.

It says that if the people in one municipality are not provided with adequate public services, they may opt for shifting to other municipalities having more facilities. Financial autonomy reduces the wasteful utilization of resources by the central government. According to Bird and Smart (2002), for effective service delivery it is important that the recipient of funds has clear mandate, sufficient resources and powers to make decisions. Through decentralization, responsibilities as well as resources are devolved to the lower level governments (Rondinelli,1981).

In this way , the federating units are empowered which enable them to use the resources to good effect , raise living standard of the people and distribute the work load (Gordin, 2004). In Pakistan’s case, the significance of Fiscal devolution cannot be overemphasized. Pakistan is a federation having a centralized taxation system. The major chunk of revenue is collected by the central government, which is then distributed among the provinces to remove financial disparities.

Article 160 of the constitution empowers the president that he shall constitute National Finance Commission after every five years for the distribution of funds, taxes and other monetary assets among the federating units. The decision of the commission is called National Finance Commission Award. The commission is comprised of the finance ministers of the federation and the provinces and such other persons as may be appointed by the president in consultation with the governors of the respective provinces. So far, seven NFC Awards have been announced, the latest being the 7th NFC Award of 2010.

Except for the 1974 Award, there has been a growing tendency in the transfer of revenue from the centre to the provinces. The 4th NFC Award was a significant move forward towards fiscal decentralization as it enhanced the share of the provinces by 18% and accepted their right over hydel profit, developmental surcharge and excise duty on crude oil. The 7th NFC Award accepted the demands of Baluchistan, KPK, Sindh by devising a formula, wherein poverty, inverse population density and under development have also been given due weightage.

Moreover, the provincial share has been enhanced from the previous 47. 5% to 56%. The provinces were also given the powers to collect Sales Tax on their own. Following this decision, the Sindh Province has already undertaken this task and claims to have collected 50% more Sales Tax in the first five months of the financial year compared to the corresponding period last year [Dawn, Dec 10, 2011]. The 8th Financial Award is scheduled to be held on 16th Dec, 2011.

Apart from the resource distribution Through NFC Award, Article 161 of the Constitution provides for transfer of Royalty on natural resources to the respective provinces in the shape of surcharge on gas and crude oil. This will lead to greater transfer of funds from the centre to the provinces. With the 18th Constitutional amendment, the concurrent list has been abolished, and with it entry No. 49 in the 4th Schedule to the Federal Legislative list has also been amended. As a result, the GST Services in Federal Excise mode have been assigned to the provinces.

Despite the presence of this constitutional mechanism for resource distribution, the smooth allocation of funds was interrupted due to deadlocks among the provinces over the distribution formula, and, resultantly, the NFC Award failed to narrow down the vertical and horizontal resource gaps. At the district level, The National Reconstruction Bureau launched a decentralization programmed through Government Plan 2000, wherein it was acknowledged that without Fiscal Decentralization no authority is devolved, which further emphasizes the importance of transfer of funds to the lower tiers of government.

The above paragraphs portray only one side of the picture. There are many studies which suggest that there is no direct relationship between fiscal devolution and economic growth and efficiency at the level of sub-national governments. As a matter of fact, there is also a strong case against the Fiscal federalism. It may lead to social inequalities as for instance, incomes and taxes may not be equitably distributed among the various regions of a country. Also, fixed costs are associated with running administrations of low-level governments.

So, in low-income countries it may not be justified to spend substantial amount of the available funds on these expenses (Homme,1995). The relationship of Fiscal devolution and economic growth has been studied extensively in recent years. So, large volume of literature is available on the topic. Different relationships were studied to establish any clear relationship between Fiscal devolution and economic growth, but inconsistent results were obtained both for the developed and the developing economies.

Some studies have shown positive relationship, others negative and still others no relationship at all between economic growth and fiscal autonomy. For Pakistan, too, studies have yet to find any clear relationship between financial decentralization and economic growth. Important contributions on this subject have been made by Zang and Zou(1998) ,Xie , Zou and Davoodi (1999) , Lin and Liu (2000) , Thieben (2001) , Martinez-Vazquez , McNab(2001) , Felenstine & Iwata (2005) and Kardar (2006) etc.

This study identifies strengths and weaknesses of the existing Resource Distribution System (RDS) through historical review. It is generally believed that that proper information about the existing RDS will lead to better policy formulation, which will ultimately put the country on the road to prosperity. In this connection, it is also worthwhile to analyze the implications of the current resource distribution policies on the economic growth of the country. Thus, this study helps ascertain the extent of financial autonomy of the provinces and measures its long term benefits.

Rest of the study is arranged as follows: Chapter 2 pertains to Literature review i. e. study conducted previously by other researchers on this topic; In chapter 3 theoretical background and econometric methodology for our estimation is being discussed; chapter 4 discusses sources of our data and construction of variables; chapter 5 covers results and interpretation thereof results and chapter 6 is about the conclusion of research. Chapter 2 Literature Review 2. 1 Introduction

In this chapter, we discuss the empirical studies related to our study i. e. work done previously by other researchers on this topic. 2. 2 Previous empirical studies The significance of relationship between the financial autonomy and economic growth can be gauged from the volume of literature available on this topic. Various important relationships were studied to establish clear relationship between the two, but inconsistent results were obtained both for the developed and the developing economies.

For Pakistan too studies have yet to find any clear relationship between financial decentralization and economic growth. On leafing through the pages of available literature, one comes across valuable work on the topic, some of which is discussed in the following paras: Davoodi and Zou (1998) developed a theoretical model for studying the relationship between Fiscal autonomy and economic growth on the basis of averaged panel data of 46 countries. The study showed a negative relationship between the two for developing countries.

Zhang and Zou (1998), while using China’s provincial panel data for the period 1978-1992, found a negative association between provincial economic growth and the degree of financial autonomy over the past fifteen years. Philips and Woller (1997) studied the above referred relationship for seventeen developed and twenty three less developed countries on the data collected for the period 1974 to 1991. A negative weakly significant relationship was found for the developed world. However, no such relationship could be proved between the two variables for the less developed countries.

Xie , Zou and Davoodi (1999) observed that there is a highly insignificant relationship between Fiscal Decentralization and economic growth for the United States, which the authors attributed to the fact that the country had already reached optimal level of fiscal autonomy and thus no further progress on this line was possible. Thieban (2001) made use of OECD countries cross sectional data for the period 1975 to 1995, but the study failed to establish any link between revenue decentralization of the low-level governments and economic growth of these countries.

Martinez –Vazquez and Mc Nab (2001) concluded that the relationship between fiscal decentralization and economic growth is still unclear, and that little attention has been paid to indirect factors through which fiscal devolution may influence economic growth. In contrast to the above findings, Lin and Liu (2000), while using panel data of 28 provinces for the period 1970 to 1993, arrived at the conclusion that there exists a positive relationship between fiscal decentralization and economic growth in China. The authors noted that the impressive growth of china for the last twenty years can be linked to fiscal reforms.

Ebel and Yilmaz (2001), observed that Fiscal design of OECD countries is unable to explain Fiscal decentralization in true sense. Martinez –Vazquez and Mc Nab (2003), on the basis of panel data, covering the period 1972-1997, studied the direct and indirect relationship between fiscal decentralization, economic growth and macroeconomic stability . They arrived at the conclusion that devolution minimizes the inflation rate, has no direct influence on economic growth, and has positive indirect effect on growth as it results in on macroeconomic stability.

Justin Yifu and Zhiqiang (2000), investigated the implications of fiscal decentralization of economic growth in China, and found that it has made remarkable contribution to economic growth. This finding is in conformity with the hypothesis that Fiscal devolution enhances economic efficiency. Fielstentein and Iwata (2005), while using VAR (Vector Auto regressive) model found that there is a relationship between decentralization and macro economic performance in China. They concluded that Fiscal decentralization is positively related to growth in the period after the war, and has negative effects on the inflation rate after the 1970s.

While using the cross country data for 78 countries, Mello and Barenstein (2001) observed that as the share of receipts, including non-tax revenue, grants and transfer of funds, from the federal government increases in the total provincial revenues, the relationship between financial devolution and governance grows stronger. Shah (1991) pointed out that poor performance in most of the developing countries in the last 40 years can be attributed to highly centralized regimes.

Huther and Shah (1998) noted that good governance and fiscal decentralization are positively related, which in turn may enhance economic growth. Akai and Sakata (2002) used single country data and predicted that fiscal decentralization plays a role in economic development. They pointed out that in the United States, high government spending was required in the initial phases of economic development, therefore, any analysis that took into consideration this period is bound to overestimate the role of central government in the economic development.

This led Xie et al (1999) to declare that decentralization has adverse effect on economic development. Jorge Martinez-Vazquez and Mark Rider (2006) pointed out the structure of financial system plays a pivotal role in determining the conduct and performance of low-level governments, which indirectly influence economic growth of a country. According to them, though both China and India show great financial decentralization, the central governments restrict the fiscal autonomy of the sub-national governments through conditional grants and inadequate powers to raise revenue.

Thus, the regional governments are forced to use extra budgetary allocations to overcome their financial constraints, which results in waste of resources. These structural infirmities in the financial systems entail profligacy and unproductive expenditure policies, which may hamper the growth rate in the future in both the countries. Nobuo Akai, Yukihiro Nishimura and Masayo Sakata (2007), while using panel data of the fifty states of the US, showed that fiscal decentralization minimizes the variance of GDP growth due to decentralization among various levels of government.

They also observed that there exists a negative relationship between fiscal devolution and economic volatility. Hiroko Uchimora and Yurika Suzuki (2009) studied Fiscal Decentralization in the Philippines after the promulgation of Local Government code (1991) . This study examined the fiscal relationship between the central and sub national governments by using the indicators of Fiscal decentralization. According to their findings, in the Philippines, the responsibility to incur expenditures by the local governments is not accompanied by corresponding strengthening of the fiscal capacity.

As a result, local governments rely heavily on fiscal transfers from the central government and Internal Revenues Allotment, which render the local finance unstable. Atushi Alimi(2004) Although , in theory, decentralization promises efficient provision of public services at local level, empirical evidence gives a mixed picture regarding its implications on economic growth. They attempted to resolve this inconsistency by using instrumental technique on the data for the period 1997 to 2001.

In this study, fiscal decentralization is measured in terms of the ratio between local expenditure to total government expenditure. The result showed a significant positive relationship between per capita growth rate and Fiscal decentralization. Perraton, J. and Wells, p. (2003), in their paper, ‘Multi level governance and Economic cohesion’ noted three general trends in economic policy making: the transfer of powers to supranational institution in economic policy formulation, e. g. he formation of the European Union and World Trade Organization; secondly, almost all developed countries have established regional organizations, to which powers of economic policy-making have been devolved. In the transition states, there is a growing tendency towards decentralization to curtail expenditures and to make the governments more accountable; thirdly, the governments are now inclined to reduce their sizes and make alternate arrangements for governance through NGOs. This concept of governance is referred to as multi-level governance.

In Pakistan’s case, Fiscal Federalism has been studied in detail. According to Anwar Shah, World Bank (Dec, 2006), there are two ways of transferring funds from the Centre to the provinces: assigning share of the federal revenues to the provinces at a pre-determined rate and direct transfer of funds (other than revenue) from the Centre to the provinces. According to him, the revenue sharing system in Pakistan affects the transfers in a lump sum and predictable manner to the federating units, which are at liberty to use these funds the way they choose.

The author further argues that NFC places greater responsibility of revenue collection on the Federal government, thereby making the tax machinery efficient and tax compliance cost effective. The Revenue sharing system may have its merits, but it is also associated with certain demerits. For example, the provinces enjoy vast discretion in the utilization of funds, but have no control over the amount of funds they receive from the centre ; the federal government cannot influence the provinces to set priorities for achieving uniform standards in reas like health and Education; the provinces receive the funds without any strings attached to it , therefore, they feel less accountable while spending the funds; the share received by the provinces have no relation with the expenditures they incur, as usually the expenditures outgrow the rate at which the Federal revenue grows. Nighat Bilgrami and Mahpara Sadaqat (2006) have given an account of evolution and working of NFC Award ever since its introduction in 1951. According to the authors, with the exception of 1974 Award, there is a growing tendency in increase of revenue transfer to the provinces.

The major step forward in this direction was the 1991 NFC Award, wherein new taxes were included in the divisible pool. In addition, as envisaged in Article 161 of the Constitution, royalty on crude oil and surcharge on gas were also transferred to the provinces. This caused greater decentralization of funds, which over a period of time played a pivotal role in improving service delivery in health, education and irrigation etc sectors. The paper identifies various forms of fund transfers from the Federal government to the provinces.

These include Revenue Sharing Transfers, Straight transfers, Recurring Grants, Development Grants and loans. The authors have also elucidated that how resources are transferred in Pakistan from the federal government to the provinces in four ways: from the centre to the provinces, from provincial to local governments, from the federal government to the local governments and from local to local governments. The paper also gives a rationale for transfers of resources from the federal to provincial and municipal governments.

At the end of the paper, the authors have suggested that smaller provinces be provided with soft loans and factors like backwardness and poverty be also considered while allocating the resources. Moreover, the provinces should be allowed to generate revenues that fall within their domain. Iftikhar Ahmed, Usman Mustafa and Mahmood Khalid (2007) have dilated upon the evolution of resource distribution over time. According to them the divisible pool has been expanded by the inclusion of more taxes.

However, as population is the sole criteria for the distribution of resources through NFC awards, it has given birth to serious differences among the provinces. The paper says that resources are transferred from the centre to the provinces in two ways: Systematic or Formula Based transfer, comprising of revenue sharing and Random transfer, including grants, executive discretionary funds and Parliamentarian funds etc. According to the authors, with the passage of time the federal government has become more centralized, thereby adversely affecting the efficiency of the provincial governments.

The federal government has got engaged in activities that purely fall within the purview of provinces. These include irrigation, roads, culture, tourism, youth affairs etc. This has increased the burden on federal government. The Federal government collects 93 % of the revenue but expends only 72%, whereas the provinces generate just 7% but spend 28%. The argument behind greater revenue collection by the centre is that it is more efficient in revenue collection than the provinces. But this argument is flawed as the provincial and local governments are left with lesser opportunities to collect revenue.

This results in the dependency of the provinces on the federal government for transfer of resources. In this paper, NFC Award has also been criticized in that the criteria for resource distribution are mainly population. Elsewhere in the world, other factors like backwardness, population density, and revenue generation are also considered while devising a formula for distribution of resources. According to the authors, the major shift towards fiscal decentralization appeared in the 1996 NFC Award, whereby all duties and taxes were included in the divisible pool.

By so doing transparency and predictability in resource distribution was though enhanced, yet the resource distribution formula between the federal and provincial governments changed little. The paper says that resources distribution has never been taken seriously. Only one criterion, that is population, has been followed for resource distribution, that’s why the NFC Award has failed to resolve the problem of Fiscal Decentralization. Usman Mustafa (2011) has highlighted the importance of federal form of government and has argued that even European Union has the characteristics of federalism.

While referring to works of notable authors on the subject, it has been argued that Fiscal Decentralization increases efficiency, transparency and accountability. According to the author, in Pakistan’s case, there are pre-federalism (from 1947-71) and post federalism (from 1973 onwards) periods. In the first perid, the authority was centralized (one unit), whereas the second period is characterized by the march towards decentralization of powers from the centre to the provinces. In this context, the author argues that NFC Award is a step forward towards decentralization.

He, however, criticizes population being suitable criteria for resource distribution between the centre and the provinces. In order to remove the grievances of the smaller provinces, a historical decision was taken in the 7th NFC Award on Dec, 2009 at Gawadar, to which all the provinces agreed. In this award, the demands of the smaller provinces were accepted, and a multifactor formula was devised. In the formula, factors like poverty, underdevelopment and inverse population density were also included for resource distribution. Moreover, the Federation sacrificed more that 10% of its share in favour of the provinces.

It was also agreed that collection charges received by the Federal government on revenue would be curtailed from the existing 5% to 1%. This will increase the volume of net transfer of revenue from the federal to the provincial governments. All these decisions taken in the 7th NFC Award will contribute favourably towards Fiscal Decentralization in Pakistan. According to Kardar (2006), local governments have significance both in the context of Devolution plan and failure of central and provincial governments to deliver quality services to the masses ever since the emergence of Pakistan.

He further argued that though legislation on devolution is a landmark achievement, the biggest challenge is to settle the row over powers between the provinces and district governments. Dr. Shahnawaz Malik, Mahmood-ul-Hassan and Shahzad Hussein analyzed the relationship between Fiscal decentralization and economic growth for the period 1971-2005. They obtained mixed results on the basis of different variables used in analysis. The study further showed that with the continuous rise in the share of provincial government revenues and expenditures, economic growth slows down.

Naeem-ur-Rehman Khattak, Iftikhar Ahmed and Jangraiz Khan, while using time series data, for the period 1980 to 2007, analyzed the resource distribution, and studied the impact of financial decentralization on the economic growth of Pakistan. According to them, the divisible pool has expanded over the years by the inclusion of more taxes in it. They pointed out that the resource distribution mechanism failed to affect economic growth positively, and suggested that the distribution formula be revisited, having regard to factors like tax collection and backwardness of the provinces.

They further suggested that more powers be delegated to the provinces to raise their own revenues. Chapter 3 THEORETICAL BACKGROUND AND ECONMETRIC METHODOLOGY 3. 1 Introduction In this chapter we discuss the theory which guides our research, variables of our model, type of statistical relationship and the model we will use for estimation. 3. 2 THEORETICAL BACKGROUND Various forms of Decentralization. It refers to the delegation of powers and functions from the central to low-level governments. There are three main forms of decentralization (JICA 2008): . 2. 1. Decentralization It is the weakest type of decentralization, and refers to the transfer of decision making powers along with financial and management responsibilities from the officials in the centre to those serving in the local /regional offices. 3. 2. 2. Delegation Here the powers are delegated to the autonomous bodies, including corporations, housing authorities’ etc. , working under the supervision of the central government. These organizations enjoy vast discretion and decision making powers. 3. 2. 3.

Devolution It is the gradual transfer of administrative, financial and political authority to the local bodies, which exercise their powers and functions within certain geographical confines. It has three main constituents, as discussed below: a) Political decentralization It refers to the shifting of powers and authority to local bodies, run by local political representatives. It has a well-established system of political decision-making and accountability at the local level. b) Administrative decentralization

It is the form of devolution whereby staff of line ministry is dissociated from their corresponding ministries and brought under the control of the local administration. This is done through establishing local pay roll, which empowers them to reward and punish the staff. c) Fiscal decentralization It refers to the shifting of authority and responsibility to the sub-level governments with regard to decision-making on distribution of financial resources. This also includes the powers to raise local revenue.

Fiscal decentralization has attracted great attention, among the economic circles, especially for improving service delivery at the local level. The main objectives of Fiscal decentralization include efficient utilization of resources, effective service delivery, macroeconomic stability and economic growth. With these objectives in view, the developing world is following the principle of Subsidiarity, which emphasizes that authority should rest with the lower tiers of government for effective use, and that the responsibility of incurring expenditures should match with adequate financing.

Decentralization leads to efficient utilization of funds through improvement in governance, as lower strata of government can better assess people’s problems and know their priorities. Decentralization enhances participation of local population as the beneficiaries are directly involved in planning the allocation of funds. Increased decentralization gives birth to democratization, which keeps the government close to the masses, thereby making it more accountable. 3. 3 Various theories regarding decentralization

The above narrated advantages, and many more not discussed here, emphasize the importance of Fiscal decentralization. But it was since the publishing of Tiebout’s article, “A pure theory of local Expenditure” that this concept has gained great popularity among the theorists, and the volume of literature on this topic has increased tremendously. According to Tibeout (1956), Fiscal decentralization improves production efficiency through greater mass mobilization. In 1959 Musgrave pointed out that the role of government is to bring stability to the market and effect the redistribution of income.

He further argued that efficient utilization of resources can be secured only when local tastes and choices are taken into consideration. Oates (1972) pointed out that people living in different localities have peculiar tastes and preferences for public service, therefore, local governments, as against central government, being better informed, will provide better services to its citizens. This concept is called Oates “Decentralization Theorem”, according to which economic efficiency can be enhanced by decentralizing the availability of public goods and services.

Thus, the central government should be responsible for devising a national policy and providing efficient levels of government for distribution of goods . (Oates,2005) So, equipped with the requisite paraphernalia , the sub-national governments are in a better position to put in place welfare-maximizing policies. Cremer, Estach and Seebright (1994), stated that government at the centre cannot reach the information about local tastes and choices. Thus, it is through Fiscal Decentralization that local agents can bring about efficient supply of goods and services to their constituencies.

Almost identical views were expressed by Qian and Weingast (1997), who opined that decentralization puts a check on budget expansion by promoting competition and strengthening accountability, which effects supply of goods and services in an efficient manner. Having said this, there is always a tendency among the local political agents to enlarge the scope of public goods and services at the cost of other jurisdictions. Rodden (2003) attributed this predilection to the type of decentralization being followed.

If decentralization is dependent on self-generated tax revenue, smaller governments emerge; and if transfer of funds occurs from the centre, it results in budget expansion. Though from economic and political point of view there are many benefits of Fiscal decentralization, yet it is not a cure for all ills. For instance, Fiscal Decentralization entails loss of Economies of Scale and loosens control over scarce resources. From it follows that centralization and Decentralization are not alternatives, rather the countries should find a balance between the two as per their requirements. . 4. Rationale for Fiscal Transfer in Pakistan The first reason is the general perception that the federal government is better equipped to collect major taxes, but is inefficient to collect smaller taxes. Also, the federal government may undertake major projects, but fail to deliver on smaller projects. Hence, the efficiency criteria must be followed while deciding allocation of means and responsibilities. The second reason for resource transfer from the centre to the provinces is that the latter lack the resources to finance the provision of even basic services.

In the last ten years, the average revenue generated by the centre, provinces and municipalities stand at 89%, 5% and 6% respectively. As against the revenue generation, the share in recurring expenditure of the federal, provincial and municipal governments is 74%, 23% and 4% respectively. As regards developmental expenditure, the share of these governments is as follows: Federal government 65%, provincial government 25% and municipal governments 6%. These figures indicate that the provinces have limited resources vis-a-vis the amount of expenditure they incur.

This necessitates the transfer of resources from federal to lower-tiers of government. Another reason that can be attributed to the allocation of resources among the different levels of government is Adequacy of Revenue. This concept refers to the capability of government not only to generate the initial revenue required to start a project but also to its ability to sustain it. In Pakistan’s case, Adequacy of revenue does not exist; hence transfer of resources to the lower tiers of government is necessary if they are to undertake any such projects.

The fourth reason of transfer funds from the centre to the provinces is that there are taxes which though provincial in nature but is collected by the federal government, for example Sales Tax. Another rationale for transfer of funds is that federal government uses certain taxes for the overall stabilization of the economy; hence they should be under the control of the federal government. [NFC AWARDS Commentary and Agenda, Nighat Bilagarami, Jaffery and Mahpara Sadaqat (2006)]. 3. 5 ECONMETRIC METHODOLOGY 3. 5. 1Augmented Dicky Fuller (ADF) Test In this study a time series data is being used.

Since this kind of data is usually non-stationary in nature, we first test it for stationarity or non-stationarity. For this purpose, an enhanced version of Dicky fuller Test, known as Augmented Dicky Fuller Test, is being employed. The ADF includes extra lagged terms of the dependant variable so as to remove auto-correlation. The following equations denote the three possible forms of ADF Test. i) Without any constant and trend ?yt=? *yt-1+i=1p? i? yt-i+et ii) Constant with non trend ?yt=a+? *yt-1i=1p? i+? yt-1+et iii) Constant with trend ?yt=a+? t+? *yt-1+i=1p? i+? yt-1+et

Of the above equations, (iii) represents a more generalized form of ADF Test. Mackinnon(1991) gave critical values for the DF test The critical values for the ADF Test are the same as those for Dickey Fuller Test. If the DF Statistical value is smaller than the critical value, Null hypothesis of a unit root is rejected, which suggests that the yt is stationary process or the variables are stationary. If on running the ADF Test the variables are found non-stationary in their original levels of series, the variables are made stationary in their first difference level of the series. . 5. 2 Ordinary least square model (OLS) Once the variables are made stationary, estimation is made by employing Ordinary least square model (OLS). This model is suitable for ascertaining linear interdependencies in a time series data. Here it is also worthwhile to discuss Regression model. A multiple linear regression model estimates value of dependant variable (also called response variable) on the basis of independent variables (also called explanatory variables). But there is always a difference in estimated and observed values.

Therefore, a Regression model also possess unexplained variable, also called error term, which measures the difference between observed and estimated values. y= b+b1 x1+ b2 x2+ b x3 …… +ei A regression model will be “best fit” if the difference between observed and estimated value is minimum. We cannot take error term by simply adding all the difference between observed and estimated value because it may contain both positive and negative values which can cancel the effect of each other. So, we take the square of error terms which leads us to OLS . i. e. minimum squared difference.

OLS is useful for structural inference and policy analysis. For the purpose of Structural Analysis of data, certain assumptions regarding the causality of data are made. These are : error term (i) is normally distributed (ii) has zero expected value of mean (iii) has constant variance in each time period and for all values of X and (iv) its value in one time period is unrelated to its value in another time period. OLS is a very simple technique by which we can calculate the coefficient of each variable in other words it gives us the impact of one variable on another variable, which is summarized by impulse response function. | | | | | Chapter 4 DATA AND VARIABLE 4. 1 INTRODUCTION This chapter covers how data is collected, what are sources of our data and how variables have been constructed variables for our estimation. 4. 2 Data type For the purpose of studying the relationship between Fiscal decentralization and economic growth, secondary data is being utilized. 4. 3 Sources of data For the purpose of this study the following sources have been utilized. i) Issues of “Economic survey of Pakistan” ii)World Development Indicators iii)Ten years in Pakistan Statistics” (1983) iv)UNDP Human Development Report, 2007. )Hand book of Statistics on Pakistan Economy (2005)” 4. 4 Construction of variables Economic growth of the country is taken as dependant variable. It is measured in terms of per capita Log of per capita gross domestic product (LYP), which is rebased by the year 2000 market prices. The variable is expressed in real terms using GDP deflator to ascertain the pattern of economic growth over the years. The Fiscal decentralization is captured on the ratio of Provincial share in Total Revenue to the Total Revenue (PRFR). The data source for these variables is “Economic survey of Pakistan and covers the period from 1964 to 2008.

As regards investment, it is captured by the Gross Fixed Capital Formation (GFCF) and data is taken from “Pakistan Economic Survey” Moreover, a variable for trade openness (OPN) is also used in the estimation model. This variable is obtained by adding imports and exports and dividing the same by LYP (at market prices). Here, too, the source of data is “Economic Survey of Pakistan” Other variables in the estimation model are Tax to GDP ratio (TGDP) and GINI co-efficient, the latter being used to calculate income equality and its source is UNDP Human Development Report. Chapter 5 RESULTS AND DISCUSSION . 1 INTRODUCTION The section consists of results and their interpretation. In para 5. 1, 5. 2 and 5. 3 Stationarity of data, Autocorrelation and the results of OLS model respectively have been discussed. 5. 2 Unit Root test In a time series data, the major problem is the non-stationarity of variables. So, before estimation, a test is applied to make the variables stationary. For this purpose various tests can be employed, but in our case we have used Augmented Dickey Fuller test, the results of which are shown in table 5. 1 below. Table 5. 1 UNIT ROOT TEST| Non stationary variables| ADF-value| 5% Critical value| Gfcf| -1. 693492| -2. 9303| Gini| -2. 462911| -2. 9303| Lpy| 0. 863730| -2. 9303| PRFR| -2. 206432| -2. 9303| TGDP| 0. 158213| -2. 9303| Stationary variables| | ADF-value| Critical value| Gfcf| -3. 997577| -2. 9320| Gini| -4. 766215| -2. 9320| Lpy| -4. 632922| -2. 9320| OPN| -3. 453532| -2. 9303| PRFR| -3. 662186| -2. 9320| TGDP| -3. 01612| -2. 9320| Gfcf- Gross fixed capital formation, Gini- Income inequality, Lpy- Log of GDP, OPN- Openness to trade (export+import/GDP), PRFR- Ratio of provincial shares in total revenue to total revenue, TGDP- Tax to GDP ratio.

At the level, all the variables except “OPN” were found non-stationary, and were, therefore, stationarized at First difference level by using ADF Test. 5 . 3 TEST FOR AUTOCORRELATION Autocorrelation tells about the relationship between two or more error terms in the model. For unbiased estimation, autocorrelation must be zero. If there exists problem of autocorrelation, it has to be removed. For this purpose, two hypothesis are constructed : one, H0: Co-Var(u,u+1)=0,there is no autocorrelation between the error terms and second, Ha: Co-Var(u,u+1)not equal to zero, meaning there is a problem of autocorrelation.

To check autocorrelation in our model, we have used Breusch-Godfrey Serial Correlation LM Test (BG TEST), as shown in table 5. 2. According to the table, probability of F-statistic is significant at 5%, so we reject the hypothesis that cov (ut, ut+1) is equal to zero. In other words, there is autocorrelation problem in our model. In order to remove the autocorrelation problem, we have applied ARMA model with autocorrelation through AR (1), AR (3) and MA (2). Breusch-Godfrey Serial Correlation LM Test:| F-statistic| 4. 781666| Probability| 0. 001241| Obs*R-squared| 20. 50376| Probability| 0. 002252|

Probability of F-statistic is significant at 5%, so we reject the hypothesis that cov (ut, ut+1) is equal to zero. It means there is autocorrelation problem in our model. 5 . 4 ESTIMATION The results of the estimation with OLS are tabulated in Table 5. 3 below: Dependent variable:LPYMethod: Least Squares| Date: 03/25/12 Time: 11:13| | | | | | Variable| Coefficient| t-Statistic| Prob. | | GFCF| 0. 004693| 3. 806074| 0. 0006| | GINI| -0. 324275| -2. 919698| 0. 0065| | OPN| 0. 000254| 0. 468847| 0. 6425| | PRFR| -0. 000173| -0. 517278| 0. 6086| | TGDP| -0. 003194| -0. 809929| 0. 4242| | | | | | | R-squared| 0. 97793| Prob(F-statistic)| 0. 000000| Adjusted R-squared| 0. 997081| | | Durbin-Watson stat| 1. 705104| | | | | | | In the model ‘’R^2’’ shows strength of the regression line, which means how much important variables are covered by a model or how well variation in independent variables explains the variation in dependent variable. For time series analysis “R^2’’ value must be greater than 0. 70 or 70%, which means the model must explain at least 70% of the total variation in dependent variable. In our results, “R^2=99%” value is greater than 70%, so 99% of variation LPY is explained by our variables i. . GFCF, GINI, OPN, PRFR, TGDP. But the values in the 3rd column against each variable show “t” values. If the t value, in absolute form, is greater than “2”, the relationship between the variables is significant. In our case, the financial autonomy is measured in terms of “Ratio of Provincial share in Total Revenue (PRFR)”, whereas the Economic growth is captured on the variable LPY. It is evident from the table that the relationship between LPY (dependent) and PRFR (independent) is insignificant because the “devalues, in absolute form, are less than “2”.

It implies that LPY is not influenced by PRFR. In other words, in Pakistan’s case, Fiscal decentralization has no bearing on economic growth. The model shows that GFCF and GINI with variables have ‘’t’’ value greater than 2 in absolute form affect economic growth. Durbin-watson value in the table tells us about the problem of auto-correlation in the model. If the value of Durbin-watson test is between 1. 7 and 2. 2 there will be no auto-correlation. In our table its value 1. 7, so we say that the problem of auto-correlation has been removed.

CHAPTER NO: 06 CONCLUSION This study focuses on identifying the impact of fiscal decentralization on economic growth through compilation of its historical trends. It is generally believed that that proper information about the existing fiscal decentralization system will lead to better policy formulation, which will ultimately put the country on the road to prosperity. In this regard, it is also worthwhile to analyze the implications of the current fiscal decentralization policy on the economic growth of the country.

Thus, this study helps ascertain the extent of financial autonomy of the provinces and measures its long term benefits. In this study secondary data has been used, which covers the period from 1964 to 2008. Provincial share in total revenue (PRFR), GFCF- Gross fixed capital formation, Gini- Income inequality, OPN- Openness to trade (export+import/GDP), PRFR- Ratio of provincial shares in total revenue to total revenue, TGDP- Tax to GDP ratio are dependant variables, whereas LPY (Log of GDP) is dependent variable in the data.

We used OLS model for our estimation, the results of which revealed that only GFCF and GINI have significant impact on GDP growth. On the other hand the influence of, OPN, TGDP and PRFR on economic growth (LPY) are insignificant. As PRFR and LPY measure the extent of fiscal decentralization and Economic growth respectively, we conclude that economic growth in Pakistan does not depend on fiscal decentralization. This may be due to the fact the Resource Distribution Formula has been mainly based on population. The results of other factors, included of late in the NFC Award, are yet to be seen.

It is, therefore, proposed that not only the impact of population in the distribution formula be diluted by the inclusion of other factors, being emphasized by the smaller provinces, but also the powers of the provinces with regard to revenue generation be enhanced. ——————————————– [ 1 ]. The words, Financial devolution, financial autonomy and Financial /fiscal decentralization are being used interchangeably in this study. [ 2 ]. In this discussion ,the words, federating unit, unit, province, sub-national government and low-level government will be used interchangeably.

Term 4 Economics Essay –Jack Stickley East Timor is a country surrounded by a picturesque and untouched landscape that has inhabited people for centuries. In today’s society however, East Timor has been economically left behind in comparison to other western world super powers. As the country attempts to rebuild its national identity following their separation from the Indonesia regime, certain obstacles threaten to stop their progress to become a developed nation.

Least Developed Countries (LDC’s) can be commonly categorized by their lack of infrastructure and residential development, and visibly through the contrast to well developed countries of the Western world. The United Nations use the following criteria to identify LDC’s. Firstly, a low-income criterion based on a three-year average estimate of the GDP per capita, East Timor’s is under the required amount of $750 at $500. Secondly, a human resource weakness criterion involving a composite Augmented Physical Quality of Life Index (APQLI), currently in East Timor the adult literacy rate is at 58. % a meek figure in comparison to Australia, a developed country, whose figure is 99%. Finally, there is an economic vulnerability criterion focusing on the instability certain factors including exports and agriculture. East Timor’s trade is out of balance with exports reaching $10 million as apposed to a large import figure of $202 million and, while the Timorese use their land effectively there is only 8. 2% of land area considered to be arable land for agriculture.

These figures display that East Timor has the characteristics of a LDC as they continue to be economically undeveloped. East Timor is struggling to emerge onto the global stage as the country has been troubled by past incidents that interfere with the nations attempt to develop economically. The country faces immediate obstacles including agricultural difficulties, the lack of infrastructure due to their previous destruction and political unrest and corruption.

There is a significantly small amount of skilled Labor in East Timor especially in the urban areas, which is why it is difficult to rebuild many parts of the country destroyed at the end of the Indonesian regime. The country is divided by different religions, traditions and language spoken making it difficult to have an equal economic system. Although primarily an agricultural country, in the past 30 years the economy has been structured to be dependant on external transfers, even for food.

East Timor has serious problems of illiteracy; malnutrition and disease, problems that will be intensify in the future due to the anticipated rapid population growth of this youthful population. 70% of the population support themselves by subsistence agriculture including crop farming and fishing, meaning much of the exchange is in the form of barter. Due to East Timor’s relatively poor and fragile soils, constant population relocation and disruption due to colonial laws, production is low but marginally within the bounds of sustainability.

East Timor is now faced with the challenges of the decrease in the flow of foreign direct investment (FDI) to developing countries, the decrease in global official development assistance (ODA) and the decrease in trade preferences. A major dilemma for East Timor is to regain an adequate standard of living and with a greater degree of self-sufficiency; a rather difficult task. For East Timor the challenge of achieving economic stability and development is certainly a daunting prospect.

When taking steps forward economically it is essential that innovative strategies are produced and an alternative non-western development culture is created. With the world gripped by oil shortage The Timor Sea Treaty, which is split 90% to 10% in favour of Timor, will be useful in the development of the country. Accessing income is currently difficult for workers and therefore they don’t have the capacity to invest or save what they do earn, but income can be earned and received through providing services and withholding this income from third parties that may interfere. East Timor is in desperate need of foreign dollars.

A dependence on aid in the short term with an increased reliance on services in the medium to long term rather than the export of agricultural and manufactured commodities may be an optimum strategy for East Timor. Entrepreneurial skills need to be developed through a strong education system. Continued external support is required as the building blocks for East Timor to develop economically. The Government also has a significant role to play as it is crucial that the country adopts Macroeconomic policies which also generate productive work and income opportunities to develop sustainable livelihoods.

It is important that the poor are assisted in their efforts to improve their farming and commodity production. East Timor is currently a country with economic, social and political difficulties and is a country that is fighting back following a difficult phase in the countries political life. However, if assistance is gained from other supporting countries, service and non-production activities gain majority in the economy the nation should be able to develop and be considered as a developed country.

Case #9

1. Is it proper to multiply the average order size, $42? 33, by the number of addresses (1,300,000) in the target mailing?

• a. No, there is far too much variability in responses, including a massive outlier, to have any confidence in this average. The response rate is very low, one would be concerned as to why the rate of response was only 9. 2%. The question would therefore be whether the remaining 90. 8% will follow the same pattern or will they buy anything at all.

2. There is also the question of whether the sampling frame is representative of the population in this case the target mailing list. Is it better, as suggested, to multiply the endpoints of the confidence interval by the target mailing size?

• a. No, it doesn’t show how the data is spread within the range, from the minimum to the maximum. Instead, it only provides the two extremes. Even if the endpoints were within said a 95% Confidence Interval from the mean, the mere fact that we are using the target mailing population makes it improper as the sample mean does not seem to be representative of the population mean.

3. Would it be better to multiply by the size of the frame used to select the random sample? It’s better but, there was not enough of a response to multiply against the entire 600,000 frames. Of that frame, less than a thousandth of a percent responded. 600 samples would have been a better number, unfortunately, the amount of response was less than 10% of the mailings, resulting in an even more minuscule amount of information to represent a large population. In the end, the response is simply not enough to ascertain any real information.

4. Should anything else trouble you about this situation?

• a. The survey forces far too many assumptions on the analysts. There was a very low response rate for the questionnaire, causing the sample to be far too low. As for those who replied with an affirmative answer, the numbers are far too varied to make any real conclusions. There are no insights as to whether the numbers placed to represent the buyer’s wealth, intent to buy, or if it’s simply a number placed in jest. If there was a higher response rate, the mean could be trusted. The targeted mailing market is not well defined. It is unclear whether the 1. 3 million targeted addresses are wealthy, poor, or a mixture of both. It is also unclear as to whether these are new targets or if the 600,000 addresses used to choose the random sample are included.

5. What is your best estimate, with confidence limits, for potential catalog sales?

• a. We are 95% confident after removing the outlier at $228. 26 that sales will fall between $11. 57 and $42. 10. This is because the removal of the outlier vastly affected x? The mean was reduced from $42. 33 to $26. 83, while the standard deviation went from $60. 41 to $24. 02, a difference of $36. 39.

The debate over Native American mascots in both the NCAA and in professional sports leagues has stirred up plenty of emotions in all sides over the last few years. Individuals with all different perspectives from all different walks of life have come out in support and in protest of the inclusion of Native American mascots for certain universities and teams. The side that opposes the use of these mascots has been the most interesting, because their perspective is something new and foreign to most. In their arguments, they have used plenty of examples for why the use of such mascots is degrading and harmful.

Though their reasons are many, these people have not taken a keen interest in proving that the use of Native American mascots might damage the American reputation abroad. Their efforts have been centered more on what effect these representations might have on individuals within the United States, as opposed to worrying about what others might think of the United States. There is, however, an accommodation in the critical statements that indicate that such mascot representations do not follow the American ideals of equality, in light of social movements that have happened over the last few decades.

The primary basis for argument seems to remove itself entirely from such assertions. After all, the majority of these special interest groups appear to be heading their own agenda and not holding dear the reputation of the American people. Along those lines, the people in charge of stirring up the commotion have set their focus onto other aspects of the debate. The reasons for that decision are many, but most feel that this sort of strategy is the most effective way to present the argument.

Among the most popular arguments against Native American mascots are those that assert the misrepresentation of the Native American people. A telling article by Anil Adyanthaya of the Boston Globe speaks to this fact and outlines the motivation for the infighting. In particular, the article suggests reasons why people are against Native American mascots, not why folks are in support of them. In the 2005 article, Adyanthaya writes, “The two main arguments against the continued use of Native American mascots are that they are racist and demeaning to Native Americans.

A review of the mascots used by the 30 schools under NCAA review lends credence to that position, as the Savages of Southeastern Oklahoma State University and the Redmen of Carthage College seem particularly troublesome” (Adyanthaya). This quote is representative of the entire article. In this article, the author asserts that the question of racism is a much more important one than any of the other arguments. He even goes so far as to give examples of how the racism is present in some of the names. Though this article is not the only one on the topic, it is a good representation of how protesters of Native American mascot names are feeling at the moment.

After some research, it is easy to see that the majority of dissenters are spending their time focusing on how the Natives themselves feel about the issue. Along these lines, one can easily see how the focus of the entire ordeal is much more domestic than it is broad. In fact, there is little evidence from any of the protesting groups to suggest that they have any care for the reputation of the United States abroad. Where do the Native Americans stand on the issue? Depending upon where one might go or who they might choose to ask, the answer could be very different.

According to that same Boston Globe article, the results are surprising. Though perception is that Native Americans have been opposed to the use of Native American mascot representations, the actual opinions offer something of a contradictory view. In that same article, Adyanthaya writes, “One poll on this subject suggests strongly that Native Americans reject this implied fragility. In a 2002 survey published by Sports Illustrated, 81 percent of Native Americans responding disagreed with the suggestion that schools should stop using Native American mascots” (Adyanthaya).

That is not where the focus of the protesters exists, though. There is significant evidence to say that those against the mascot uses are not to be swayed by overriding statistics such as the one mentioned in the Boston Globe article. Instead, these are people that set their primary focus to the individual stories. This provides another indication that they do not worry about what the American reputation might look like on a global scale. An eSports Media article by Dr. Jessica Johnson speaks to this focus on the individual. In her article, Johnson specifically describes the plight of the Sioux Indian tribe.

She writes, “Members of the Spirit Lake Sioux tribe recently presented a resolution demanding modification of the University of North Dakota’s Fighting Sioux logo. Tribal members said the school’s Indian-head emblem is ‘dishonorable and an affront to the dignity and well being’ of its community” (Johnson). The Spirit Lake Sioux tribe is one of the few tribes that are leading the fight to ban Native American mascots and their cries are primarily focused on respecting their ancestors. Never in the reading material provided by the tribe is there any mention of the stigma that the United States might have to fight as a result of keeping a hold of Native American representations as mascots.

The American Indian Movement is another group that has made their presence felt throughout the entire debate. Since the beginning of the controversy, they have taken a hard line stand on Native American mascots and have done what they could to make sure that derogatory names are done away with before it is too late. By all accounts, this is one of the leading groups to look to in order to see the overriding reasons behind the debate. According to this group, the concern has much more to do with the young men and women that might be affected by the misrepresentation of different Native American tribes.

According to the American Indian Movement, risk exists that Native Americans could become a running joke if the mascots are allowed to continue. An article by Phyllis Raybin Emert of the New Jersey State Bar Foundation has published a comprehensive breakdown of this group’s stance on the issue. In her article, she writes, “Opponents of Native American mascots and nicknames are not concerned about the cost and use words such as disrespectful and hurtful, degrading and humiliating to describe what they believe is racial stereotyping. They regard the mascots as caricatures of real Indians that trivialize and demean native dances and sacred Indian rituals” (Emert). This, in effect, sums up the stance of those that want the Universities to drop their Native American mascots.

There is another side to this debate that should be addressed, as well. Individuals that stand by the use of Native American mascots have their own reasons for their stance, as well. For the most part, these people have no reason to resort to citing American reputation around the world, either. For the most part, they stand by traditions and the fact that the usual representation that is given by these mascots is a decent one. In many cases, the mascots are used to pay homage to a tribe of American Indians in the area where the school operates.

One excellent example of this is Syracuse University, home to the newly named “Orange”. For decades, Syracuse had given its athletic teams free use of the nickname “Orangemen”, but in the last few years, that has changed. This is one university where the origin of the nickname was done in order to honor the tribe that occupied the area where they now study and play. According to According to C. Richard King in his book, Team Spirits: The Native American Mascot Controvery, Syracuse even went so far as to name its school newspaper after the native tribe. In his book, King writes, “The frequent use of Indian images and metaphors, allusions to the local landscapes natural beauty, and even an illustration of natives resting reverently in front of a distant silhouette of the fine arts building demonstrate a student-generated image centered on Indianness” (King).

For Syracuse and many of the other universities that are now being forced to defend their long standing traditions, the challenge is to get people to get in line with that their intent was when the mascots were put into place. There is no time, nor is there a desire to care for the American reputation abroad.

Everyone involved in this debate has their own motives which must be kept in mind when studying the ordeal. For those that want the Native American images banned, the goal is to protect the image of American Indians, so that those who come after can see these people in a realistic sense. For them, it is also about fighting off racism and making sure that the American Indian tribes are not angered by the representations.

On the other side of the debate, a different motive exists for people who have an interest in protecting their long standing traditions. For them, it is much more about protecting the University or team’s image and not cowering under the pressure presented by the activist groups. As Carol Spindel wrote in her popular book, Dancing at Halftime: Sports and the Controversy Over American Indian Mascots, “However long time fans and alumni are being asked to give up an identity they’re attached to. Fans assert that naming teams after Indians is a positive way to honor them” (Spindel).

As this author indicates, there are strong feelings on both sides of this debate, with each side having a vested interest. Nowhere, however, is there a mention of people caring what other countries think about America when considering the mascot controversy. Though plenty of highly diverse reasons exist within this complicated dynamic, there is no evidence that exists which shows that the reputation of America is on the mind of any of the people involved.

Works Cited

Adyanthaya, Anil. The Boston Globe. Sports, Mascots, and Native Americans. 5 June 2005.

Emert, Phyllis Raybin. Native American Mascots: Racial Slur or Cherished Tradition?

Johnson, Dr. Jessica. eSports Media. Native Americans have Right to Protest Mascots. 11 September 2005. http://www.e-sports.com/articles/822/1/Native-Americans-have-right-to-protest-mascots/Page1.html

King, C. Richard. Team Spirits: The Native American Mascot Controversy. 1 February 2001. Lincoln, NE: University of Nebraska Press.

Spindel, Carol. Dancing at Halftime: Sports and the Controversy over American Indian Mascots. 1 October 2002. New York, NY: NYU Press.