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Cover -- Half Title -- Title -- Copyright -- Contents -- List of Tables and Diagrams -- Foreword -- Acknowledgments -- 1 INTRODUCTION -- 2 ANALYTICAL FRAMEWORK: FIXED-COEFFICIENT INPUT-OUTPUT TECHNOLOGY -- Introduction -- Analytical Framework -- Assumptions -- Domestic Price Determination -- The Crude Oil Sector -- Geometrical Exposition of the Supply-Side of the Model -- Demand Considerations -- Macro-Economic Context -- Appendix 2A: Disaggregating the Input-Output Table -- Appendix 2B: Derivation of Price and Quantity Equations under Finite Supply Elasticities -- Appendix 2C: Exchange Rate Changes, Total Spending Constant -- Appendix 2D: Exchange Rate Changes, Domestic Output Constant -- 3 ESTIMATED DOMESTIC PRICE EFFECTS: FIXED-COEFFICIENT MODEL -- Introduction -- The Import Price Shock -- Empirical Results -- Conclusion -- Appendix 3A: Proportional Change in Domestic Prices -- Appendix 3B: Data Sources -- 4 ANALYTICAL FRAMEWORK: ALLOWING FOR INTERFUEL SUBSTITUTION -- Introduction -- Analytical Framework -- Substitution Relations -- The Complete Model -- Infinitely Elastic Domestic Supply Curves -- Finite Domestic Supply Elasticities -- Solving the Model -- Appendix 4A: Exchange Rate Changes -- 5 ESTIMATED DOMESTIC PRICE EFFECTS: MODEL INCORPORATING INTERFUEL SUBSTITUTION -- Introduction -- Data Requirements -- Empirical Results -- Conclusion -- Appendix 5A: Proportional Change in Domestic Prices -- 6 CONCLUSION -- BIBLIOGRAPHY -- INDEX.

Imports play a key role in the economy of Pakistan, especially
since they provide a large share of the nation's industrial raw
materials and most of its capital goods. Scarce foreign exchange is
rationed and allocated among different types of commodities through an
elaborate licensing system. To cope with the needs of the economy there
has been liberalisation of imports in recent times. Proposals for
further liberalisation and alternative proposals for rationing foreign
exchange through an import surcharge system or an exchange auc¬tioning
system have also been put forward. But, in the absence of empirical
evidence regarding scarcity value of foreign exchange and the domestic
prices of imports, the impact of these changes on the import sector and
there from on the economy could not be definitely estimated. Different
assumptions have been made regarding these magnitudes resulting in very
different conclusions about the impact of various policies. A study of
the facts is necessary under these circumstances, and so we have
embarked on an empirical study regarding the determinants of the
domestic prices of imports.

The main purpose of this study is to supplement the empirical
findings of an earlier paper by the author on the domestic prices of
imports in Pakistan [8]. In order to determine the factors which
influence the prices of imports in Pakistan, some selected commodities
were studied in the earlier paper and it has been found that, due to the
presence of direct controls on supply, the im¬ porters could earn an
excess profit and the licensing system was the main deter¬ minant of the
domestic prices of imports at the margin. Changes in duty levels did not
have any effect on domestic prices up to a limit defined by the extent
of the excess profit" " Since the study cited was completed, there have
been some significant changes in the import policy of Pakistan.
"Liberalisation" of imports was broadened with the expansion of the
"free list". In Section I of this paper an attempt has been made to
determine the effects of free list imports on the supply and prices of
imports, and on the mark-ups of importers.

Rarely a month passes-by in Pakistan without complains on the state of basic commodity markets, be it wheat or sugar, cotton or rice. Prices are too high for the consumers, or too low for the farmers; and often the government is asked to intervene, buying for or selling from stocks, prohibiting export or import, increasing or reducing import duties, introducing/withdrawing export taxes, or taking other measures to protect the consumer or producer. It is as if domestic prices can have a life on their own, with the government asked to guarantee "fair" prices for everbody. The resulting on-and-off policy intervention by the government is likely to have had a deleterious effect on the development of the domestic and international trade for these commodities. This is because of the uncertainty so generated, with the private traders always facing the risk of a regime change at a time when import or export contracts have already been signed. As a result too, the role of the state-owned Trading Corporation of Pakistan self-perpetuates, even if the government would like to see it minimised, as it is always being asked to intervene because of the private sector's "failings".

A system of effective quantitative restrictions on the supply
of imported commodities will raise domestic prices of imports to levels
well above their landed cost, i.e., price plus taxes, tariffs, and a
normal markup. In 1965, Pal estimated the magnitude of such scarcity
premia for a number of important commodities for East and West Pakistan
[1; 2]1. His study has proved very useful both in measuring the
influence of quantitative restrictions on the price of imports and,
equally important, in showing the structure or incidence of
restriction-induced profits—their distribution among consumption,
intermediate and capital goods and their incidence relative to import
policy. Pal's study was unavoidably static in nature and does not allow
us to trace the changes over time. The purpose of the present paper is
three-fold: first, to provide a comparison with Pal's study using data
collected after two years and after a number of changes in Pakistan's
import policies. This part of the analysis Is based strictly on Pal's
commodity list. Second, in order to examine the impact of changing
import composition, we shall recompute the scarcity premia on the basis
of a new list of commodities and a changed set of weights (value of
imports). Finally, we shall analyse the significance of the results for
import control policy.