Page 21 - Jan-Mar 2016 The Pakistan Accountant

Pakistan is uniquely placed in South Asia. It connects most of the countries of the region that do not have contiguous borders. Its economies have flourished, becoming more Given the rapid growth of regional economic activities closely intertwined with each other and the rest of in South Asia, economic corridors have become a the world. South Asia has the largest economy in strong catalyst to regional economic integration. the world and plays an increasingly important role The development of infrastructure across the region, in the global economy. Being the largest economy, it especially transport links and energy pipelines are will encourage more fragmentation of production and under way and this is expected to contribute to services between regions, if the regional economy is integration by reducing transportation costs and adequately supported by cross-border infrastructure facilitating intraregional trade and services. facilities. A well-planned regional infrastructure would not only reduce trade costs but also encourage Economic Corridors, Institutions, efficiency-seeking industrial restructuring. On the one hand, economic corridors are meant to fill regional and Growth: Empirical Linkages infrastructure gaps and on the other, promote pro- Economic corridors are important determinant of poor socio-economic development. They help increase economic growth and income levels, since they trade flows, create employment and reduce poverty. affect, for example, transaction costs. Transaction costs are high, if economic actors cannot fully trust In view of the above, the broader objective is to property rights or the rule of law. They then operate investigate the role of institutions and governance in economic corridors. In particular, it attempts to on a small scale, use inexpensive but less-efficient identify the potential of and the obstacles to South technologies, and are less competitive. They may Asia’s road to economic corridors and presents a even retreat to the black market economy and rely vision for South Asian economic corridors, including on corruption to facilitate operations. Overall, the the tasks needed to achieve this. impact of institutional quality on income levels can be explained through three different channels. Role of Economic Corridors i. Information asymmetries, as institutions channel Economic corridors play a key role in integrating information about market conditions, goods and economies across regions. Some of their environmental participants; effects notwithstanding, well-functioning and ii. Reduced risk, as institutions define and enforce efficient economic corridors are essential for the property rights; and development of a region. For example, reducing iii. Restrictions on the actions of politicians the costs of transportation, both within and across and interest groups, as institutions make them regions, improves international market access, accountable. increases income and reduces poverty. Regional infrastructure relations to welfare can be seen in both There may also be a reverse influence from income direct (through changes in distribution) and indirect levels on institutions and governance, since (through wider growth effects and stimulating citizens in richer countries are likely to have a economic activity) terms. Therefore, economic stronger preference (as well as the knowledge and corridors have been viewed as major determinants of resources) for high quality institutions and good economic integration. governance. January - March 2016 The Pakistan Accountant 19