Pakistan’s balance of payments problems have clear microeconomic roots in an economy where inefficient resource allocation and a failure to attract new investment are undermining export competitiveness, labour productivity and the possibility of sustained growth in per capita incomes. A key issue is Pakistan’s failure to link its large labour force effectively into global supply chains.

Pakistan’s growth has suffered from severe political instability related to ongoing conflicts in Afghanistan and insurgencies in border regions. But its long-term poor performance cannot be attributed solely to these political conflicts. Pakistan’s South Asian neighbours share many of the same problems and are doing much better in terms of both growth and stability.

Over the past decade and a half, Bangladesh has outperformed Pakistan on key economic indicators despite Bangladesh’s continuing problems of poverty, corruption and political instability. Most notably, Bangladesh’s participation in the global manufacturing system has transformed its export sector and improved its external accounts.

Between 2003 and 2014, Bangladesh’s ratio of exports as a capacity to import — a typical measure of balance of payments stability — rose from 0.2 to over 1.2, while Pakistan’s ratio declined from 1.2 to 1.0. Over that period, Bangladesh’s share in world exports rose, while Pakistan’s share declined.

Bangladesh’s export growth comes almost entirely from its dynamic and labour-intensive garment manufacturing sector. This industry alone accounts for over 93 per cent of its export revenues, compared with 75 per cent in the case of Pakistan.

From 2003 to 2017, the dollar value of Pakistan’s apparel exports doubled from US$2.7 billion to US$5.5 billion. But other Asian exporters grew much faster: Bangladesh increased its apparel export revenues more than fivefold from US$5 billion to US$27 billion over the same time period. This rapid export growth enabled Bangladesh to reduce its ratio of external debt servicing costs to export earnings to 5 per cent, while Pakistan’s ratio remains around 15 per cent.

The performance differential in labour-intensive export industries is directly related to how each country has utilised its labour endowment. One glaring difference is in the access of women to formal labour markets and especially those in export-oriented manufacturing.

In both countries, women’s access to employment is constrained by purdah — a set of practices that impose gender segregation in public spaces and the seclusion of women. Purdah constrains women’s ability to work outside their home or immediate locale, which limits their labour force participation and occupational mobility.

The influence of social institutions such as purdah on women’s participation in education, paid employment and public life in Bangladesh has changed much in recent times, with the direction of change being sanctioned by legislation and supported by a wide range of non-government groups. But these changes have been less pronounced in Pakistan where seclusion of women is more widespread and stringent. By world standards, both Pakistan and Bangladesh still have very low female labour force participation rates (FLFPR). Bangladesh’s FLFPR was 32 per cent in 2016 — lower than the average for low- and middle-income countries (48 per cent) but substantially higher than Pakistan’s (23 per cent).

Pakistan’s extraordinarily low FLFPR means that it is a far less labour-rich economy than its demographic structure would suggest. The propensity for Pakistani women to join the paid labour force in response to higher wages is also very low: one study finds a FLFPR elasticity in Pakistan of just 0.16, compared with 0.31 in Bangladesh and much higher rates in other developing countries.

In urban areas, Pakistan’s FLFPR is only 10 per cent. This low FLFPR has an especially strong impact on Pakistan’s garment industry, which is a highly female-labour intensive industry globally, and is arguably a major reason why Pakistan attracts such low levels of foreign investment into its labour-intensive manufactures.

Pakistan’s restrictive interpretation of purdah leads to other economic costs. Pakistani women are disproportionately employed in low-productivity, informal occupations in rural agriculture. They are systematically underpaid relative to men, have lower job security and almost no financial independence.

Lower female earnings are likely to inhibit efforts to limit — let alone abolish — the dowry system (the practice of marriage payments by the bride’s family to the groom’s family to ‘compensate’ for lower female earning capacity). In countries where the dowry system operates, dowry disputes are associated with the mistreatment, physical abuse and even murder of women. Such ‘dowry deaths’ are more frequent in Pakistan than anywhere else in South Asia.

Historical and contemporary evidence from South Asia shows that neither the prevalence nor the strictness of female seclusion are immutable. Restrictions on female labour force participation have weakened in Bangladesh and Sri Lanka as they opened up their economies to global production networks.

The same positive dynamic of new employment opportunities, foreign investment inflows and higher FLFPR could occur in Pakistan. By drawing in the huge proportion of the labour force that is currently shut out from modern manufacturing, Pakistan can exploit its strong underlying comparative advantage in labour-intensive exports, develop a dynamic pattern of export growth, attract greater foreign investments and promote a more stable long-run macroeconomy.

Ian Coxhead is Professor of Agricultural and Applied Economics at the University of Wisconsin-Madison and an Honorary Professor at the Arndt-Corden Department of Economics at the Australian National University.

Sisira Jayasuriya is Professor of Economics in the Department of Economics at Monash University and an Honorary Professor at the Arndt-Corden Department of Economics at the Australian National University.