How is an economic effect apparent on the economical environment of Pakistan?

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Karen P.L. Hardison eNotes educator| Certified Educator

This is a very broad and detailed question with very little of detail in it to go on. Let's start with some definitions, then cover some areas that produce economic effect, then comment on some economic effects on the recent economic environment of Pakistan. If you wish, subsequent eNotes Questions you post can ask for more specific areas of help.


Economic Effect

Economic effect is defined by economists as a change in the economic environment as the result of an event (e.g., an oil spill or terrorism), a governmental public sector policy change (e.g., tariff, taxation, prime rate, privatization, etc), or a market trend shift between up and down investment prices called a bull or bear markets. Economic effects, these changes resulting from events, policy, market trends, have economic impacts on the economic environment.

Economic Impact

Though closely related and almost interchangeable, economic impacts are different from economic effects in that they are the results of economic effects. Economists define economic impact as consequences of economic effects on the level of economic activity. Impacts can be felt in business output, called sales volume; in gross regional product; in wealth accumulation and property values; in personal wages and other income; and in jobs and unemployment (Glen Weisbrod and Burton Weisbrod, "Measuring Economic Impacts of Projects and Programs").

Economic impact may be positive, affecting economic development and growth, or economic impacts may be negative, affecting economic loss and contraction. Examples of areas of economic impact are such as these:

  • economic losses or economic gains experienced by industries and individuals in business activities and sectors 
  • the cost to access capital from investors
  • capital flow
  • higher or lower economic growth rates
  • job creation or rising unemployment
  • long term (e.g., oil spill, flood or terrorism) or short term (e.g., tax rebate) economic impacts
  • rising or falling stock market confidence and stock market price values
  • public funds for poverty, health, education and sanitation programs delivered according to promised policy or diverted on account of catastrophes (e.g., the 2010 floods in Pakistan)

Economic Areas Producing Economic Effect in the Economic Environment and Their Relation to Pakistan

Some common economic areas that generate economic effects on the economic environment are tourism, natural catastrophes, terrorism, and emerging country liberalization. These are readily related to Pakistan's economic environment over recent years.

Tourism: Tourism has a positive impact on Pakistan's economic environment. For instance, tourism's 2013 contribution to Pakistan's gross domestic product (GDP) was 3.1% with an expected increase of 5.3% between 2014 and 2024. In addition, tourism contributes 1,484,500 jobs, which is 2.6% of Pakistan's total employment.

Natural Catastrophes: Natural catastrophes have had a negative impact on Pakistan's economic environment. For instance, the devastatingly catastrophic floods of 2010 resulted in economic and social loss. One economic impact that reverberated to social impact was that funds allocated for poverty alleviation and the "rehabilitation" of people displaced by military conflict had to be diverted to flood relief emergency uses. In addition, Pakistan changed economic policy by affixing a flood-relief surcharge to personal income and imports, making Pakistan's participation in the global market less attractive to other countries. Pakistan's national budget deficit, already at $8 billion, increased by an additional $2 billion, a gap to be filled by foreign, IMF and World Bank loans, while more than 20 million people were victims of infrastructure failure, crops loss, loss of livelihood, and demographic shift resulting from the destruction of homes and work places. 

Terrorism: Terrorism has a negative impact on Pakistan's economic environment just as natural catastrophes do. Direct and indirect impacts of terrorism effect social structure, economic growth and political stability while damaging infrastructure and economic opportunity. Economic losses due to terrorism amounted to $102.51 billion over the last thirteen years.

Country Liberalization: Emerging country liberalization can have a positive impact on economic environment. For instance, loosening of tariff regulations, the privatization of property and deregulation of publicly owned business or sectors encourages foreign investors increasing cash flow and reducing the cost of attaining capital (cost of attaining capital is the percent of interest required). In this sort of liberalized economic environment, stock market performance is increased, threat to foreign investors is reduced and diversification of investment partners is encouraged.