Important restrictions, both tariff and non-tariff, have been
the main policy instrument in implementing the import substitution
industrial strategy which has been pursued by almost all the developing
countries. The strategy was visualised as a means of realising higher
growth of output and foreign exchange earnings, conservation of foreign
exchange and stability of the economy. Efficiency in resource use and
income distribution considerations did not assume much significance in
the development strategy. The industrial sector of Pakistan, protected
from imports through severe quantitative restrictions and even bans,
suffered from inefficiencies and rigidities. However, this was realized
only by the mid-Sixties when Soligo and Stern (1985), on the basis of
effective protection rates reached a very startling, though not entirely
correct, conclusion that in most of the industries in Pakistan, value
added at world market prices was negative! . The study aroused interest
in the examination of efficiency levels, both inside and outside
Pakistan, through the computation of effective protection rates. These
studies include among others, Balassa (1971); Little, Scitovsky and
Scott (1970) and the NBER series on the import regime in many countries.
Studies relating to effective protection in Pakistan include Soligo and
Stern (1985); Lewis and GUisinger (1968); Kemal (1978); Khan (1978) and
Naqvi, Kemal and Heston (1983).