2010 IABR & ITLC Conference Proceedings Orlando, FL , USA

Impact of Globalization and Economic

Recession on Growth of Telecom Industry
Growth in Pakistan by Using CGE Model
Faiz.M.Shaikh, SZABAC-Dokri, Sindh.Pakistan
Dr.Madad Ali Shah, SZABAC-Dokri, Sindh.Pakistan
Nazeer Ahmed Gopang, University of Sindh, Jamshoro

Abstract

This research investigate the impact of Globalization and economic recession on growth of
Telecom industry and in reducing poverty in Pakistan.. Pakistan is one of the developing countries
that adopted the economic policies similar to India and other South-East countries and tries to
evaluate these policies with the passage of time. Recent wave of globalization has a positive
impact on the Pakistan’s economy and economic growth has been increased. The main objectives
of this research are to provide detailed overview of growth in telecom industry and its impact on
poverty alleviation by using the General Equilibrium Model. It was revealed that from last
decade, globalization has positively revolutionized the economy of Pakistan. The Global trade
analysis Purdue (GTAP) model is used to analyze the possible impact of Globalization on
Pakistan’s economy in a multi-country, multi-sector applied General Equilibrium frame work.
After employing the simplified static analysis framework based on simulations reveal that
Globalization and FDI have influenced positively on the on Telecom industry in Pakistan. The
general inflation rate is decreased and living standard is increased in urban areas. Employment
opportunities are also increasing due to the FDIs in the Telecom industry and as for as cultural
context is concerned, Pakistani people are more reluctant to reduce the traditional cultural
barriers.

Key Words: Globalization, Economy, CGE Model, Pakistan.

Introduction

The term describe the phenomenon of global flux in which trade as represented by capital and material can
move freely across the world with lesser restrictions with respect to national boundaries. Globalization though it has
been essentially can not with economic issues synonymous with multi national companies (MNC) and their policies
that directly or indirectly affect populations across the world. Globalization has often been seen as being a subtle
factor that tries to undermine welfare policies of governments across the world and individual choices.

Globalization has led increasingly positive relationship among the business growth of entrepreneurs and
professional managers around the World. Globalization has led increasingly positive relationship business firms and
private entrepreneurs and professional managers around the World. International Business growth and engaged in
the Global net work where you marketed your products and services and production activities. Globalization has an
impact on the Business growth opportunities for the organizations in Pakistan (Dicken et al). Asian SMEs firms are
more dynamic in find out the right choice for the business opportunities. Globalization growing importance in the
SMEs sector because government has eliminated the trade barriers to boost up the business activities of SMEs
sector. In Globalization the competition and innovation increases because every firm want to increase their market
share.

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2010 IABR & ITLC Conference Proceedings Orlando, FL , USA

Globalization requires developing countries to improve the skills and developing the Human resources for
the further growth of business. In Developing countries accounts for steady of increasing share of world
manufacturing (partly driven by lower wages and cost), low cost competitive advantage trasitionary (Koike et al).

Globalization also underline the trends of market that what people they like and what is recent trend or
fashion is going on and how we marketed the products and services to those countries. The first is declining
barriers to the free flow of goods, services, and capital that has occurred since the end of world war 11.
Globalization has also encourage the business growth opportunities in Pakistan.

As a Global competition increases in domestic Asian markets and the Asian firms are compelled to venture
into Global market place, in two way process of Globalization Asian business in brining organizational learning and
transformation to some of the regions most successful operations (Back man et al). The globalization of norms and
practices that fundamentally shapes the ways the firms are organized and managed in a Global economy. The
Globalization of norms and practices does not occur accidentally; different countries and regions in the Global
economy are often dominated by different mode of SMEs organization and business system (Ohmae et al).

Globalization has also opened access to international capital markets and financial institutions for
companies around d the world. The internationalized of Finance is not something very new or surprising (Pain and
van Welsum et al) The Greater reliance of TNCs on international capital markets and financial institution
fundamentally reshapes international business activities. (Rybczynski et al) SMEs business opportunities are
increased due to fact that Global competition in , retailing, whole selling and also in the service sector covering
both, rural and urban areas, servicing local and international. SMEs production capabilities are in the more
advanced engineering sectors such as computer and chemical machinery usually run by a person or few individuals
as a partnership.

Sector and Country-wise Analysis of FDI (2000-2006)

During FY04-06, Pakistan has cumulatively attracted $8 billion foreign investment flows - 26.5% was sale
proceeds of public assets and 49.2% from FDI, with remaining coming from foreign portfolio investment. These
foreign inflows have come into banking, telecom and oil and gas sectors primarily. Prospects are that Pakistan will
attract about US$6.0 billion in FY07 – an all time high annual flow advent of deregulation, privatization, and
liberalization policies initiated at the end of the 1980s. The amount of foreign investment rose from a tiny $10.7
million in 1976/1977 to $1296 million in 1995/1996, thus growing at the annual compound growth rate of 25.7
percent. However, it declined to $950 million in 1996/1997.1 With overall liberalization program (1991/1992

Power Oil& Gas, Min.&

Others Quarrying
Other 5%
Germany 23% 13% 21%
2% USA
32%
Manufacturing
Japan
23%
4%
UAE
17% IT & Comm.
Saudi Arabia U.K
19%
Services 26%
3%
28%

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2010 IABR & ITLC Conference Proceedings Orlando, FL , USA

onwards) the inflow of foreign investment grew at the compound growth rate of 15.2 percent. Investment inflows in
1995/1996 were increased by 93.3% mainly due to the inflow of investment in power sector.

2001- 2002-
Country 2000-01 2003-04 2004-05 2005-06 July-Jan. 2007 Total % of Total
02 03
USA 92.7 326.4 211.5 238.4 326.0 516.7 512.9 4,293.8 28.8
U.K 90.5 30.3 219.4 64.6 181.5 244.0 488.2 2,457.7 16.5
Japan 9.1 6.4 14.1 15.1 45.2 57.0 34.3 522.4 3.5
UAE 5.2 21.5 119.7 134.6 367.5 1,424.5 295.9 2,607.6 17.5
Germany 15.5 11.2 3.7 7.0 13.1 28.6 21.6 306.7 2.1
Korea 3.7 0.4 0.2 1.0 1.4 1.6 1.0 201.3 1.3
Saudi Arabia 56.6 1.3 43.5 7.2 18.4 277.8 9.5 489.9 3.3
France 0.7 -6.9 2.6 -5.6 -3.6 3.2 -1.5 81.3 0.5
Netherlands 4.8 -5.1 3.0 14.0 36.7 121.1 62.5 318.5 2.1
Hong Kong 3.6 2.8 5.6 6.3 32.3 24.0 26.2 168.1 1.1
Italy 1.3 0.1 0.2 1.9 0.4 0.0 0.0 17.7 0.1
Canada 0.1 3.5 0.5 0.5 1.9 4.8 1.6 24.1 0.2
Other 38.6 92.8 174.0 464.4 503.2 817.7 643.8 3,434.0 23.0
Total 322.4 484.7 798.0 949.4 1,524.0 3,521.0 2,096.0 14,923.1 100.0
Foreign Direct Investment Inflow (Country wise) from 2000-01 to January 2007.
Country-wise FDI: Sources of FDI (1990-2007-08)

Country wise Distribution of FDI in Pakistan (1990-2007).

2002-03 2003-04 2004-05 2005-06 2006-07

Country
% age % age % age % age % age
U.S.A. 26.51 25.1 21.4 14.7 24.5
U.K. 27.49 6.8 11.9 6.9 23.3
U.A.E. 15.00 14.2 24.1 40.5 14.1
Switzerland - 21.6 9.0 4.8 6.2
Netherlands - - 2.4 - 3.0
Mauritius - - - - 2.1
Saudi Arabia 5.45 - - 7.9 -
Norway - 15.4 - 7.2 -
Japan 1.77 1.6 3.0 - -
Others 23.78 15.2 28.2 18 26.8
Total 100 100 100 100 100.0
Soucre-ABD-Reports-2007-08

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2010 IABR & ITLC Conference Proceedings Orlando, FL , USA

Description of the Model

Model.1: Globalization and Telecom Sector in Pakistan

Model. 2. Globalization and its impact on Economy of Pakistan
Model.3. Globalization and its impact on rural Household.

MODEL: 1- GLOBALIZATION ECONOMIC RECESSION AND TELCOM INDUSTRY.

The dynamic growth on the telecom sector has been supported by prudential government policies.
Telecommication has improved many folds in the last couple of years. The growth in the telecom industry has
showed that the number of customers is increasing day by day.

Years Fixed Cellular WLL TOTAL

1998-99 1.55 0.60 2.05
1999-2000 1.33 0.70 2.03
2000-01 1.65 0.80 2.45
2001-02 2.50 1.16 3.66
2002-03 2.69 1.62 4.31
2003-04 2.94 3.31 6.25
2004-05 3.43 8.29 0.17 11.89
2005-06 3.37 22.16 0.66 26.19
2006-07 3.32 35.79 1.06 40.17
Source-PTA-Annual Report-2007-08

TELCOM INDUSTRY GRWOTH IN

PAKISTAN

100%
80% TOTAL
60% WLL
40% Cellular
20% Fixed
0%
9

7
-9

-0

-0

-0

-0
98

00

02

04

06
19

20

20

20

20

4.1Telecom Growth in South Asia

Pakistan 34.5 20.8 278%
Bangladesh 11.6 7.9 211%
India 108.0 9.9 202%
Sri-Lankana 107 7.7 200%
China 426.4 32.5 158%
Sources:http://blogs.nmscommunications.com/communications/2006/08/telecom_growth_.html

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2010 IABR & ITLC Conference Proceedings Orlando, FL , USA

Series7
China
Srilanka 200%
India 202%
Bangladesh 211%
Series2
Pakistan 278%

0.8
0.6
Series1
0.4 Bangladesh
0.2 India
Srilanka
0 Srilanka
S1
Pakistan
278%

China
202%
India

158%
China

MODEL-2. SN-MODEL FOR TELECOM INDUSTRY

The system of equations estimated was based on SN-model as Appears below:

e i iyi
i , Pr(Yi  yi | xi )  , yi  0,1,2,...
yi !

zi 
 y  ˆ 
i i
2
 yi  on w j 
g ˆ i 
;i
2 ˆ i 2 ˆ i

Description of the Model

i = Measures the I value based services in Telecom Industry by Entrepreneurs

Yi = Marketing services
Pn = Facilitation in term of mobile security services
Pni = Individual tracking (GPS, Galileo)
Yi = Sim-Activation

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2010 IABR & ITLC Conference Proceedings Orlando, FL , USA

Zi = Information
Var = Link to net work
µi = Quality of Service
g = Incentives for customers
a = Free telephone set
b = free mints, phone calls & SMS and MMS.
C = free entertainment calls
D = video conference facility

SN=Shaikh, Nazar

RESULTS AND DISCUSSION

i = Measures the I value based services in Telecom Industry by Entrepreneurs, the ideas which
develop the link and effectiveness of the SN model and it also measure the traditional approaches of the present
telecom industry, Yi = Marketing services, which can offer by the entrepreneur in SN-model, the new and innovate
ideas are linked with different mobile industry to boost up their sale, in this model we will achieve the maximum
possible results of sale of the different businesses of telecom industry. Pni= Individual tracking (GPS, Galileo) this
offer is given to all consumer on their request. In current scenario this is an innovative and new approach for those
who want to contact with their mates. Pn = Facilitation in term of mobile security services. In Pakistan many people
are snaching mobile phones and on gun point they snatch mobile in big city, to handle all these thing SN model help
the entrepreneurs that they can easily provide services which is associated with the security of mobile phones in
Pakistan by adopting the different codes and this offer is giving every one who so ever wanted the services. g=
Incentives for customers, In SN model we will provide the quality of services to the customers and it help the new
small business firm to get addressed the issues of customers. a = Free telephone set, we give free mobile
sets for the customers that attracts the new customers as well as existing custmers, b= free mints, phone calls &
SMS and MMS. Currently we have very few mobile service providers; no one is offering this service if we will
provide this to the customers in Pakistan, definitely the number of customers and image of the entrepreneurs will be
increased. C= free entertainment calls, free call facility is given to the customers but time limit will be given. D=
video conference facility, currently no one is providing this facility but this SN model is giving this opportunity to
all the customers who have access to mobile.

Four out of five GSM operators perform well during the year exhibiting tremendous growth in their
subscriber base and provided the market with new and innovative services which were discussed in the SN model
and these innovative approaches create a long term customer‟s relationship. SN model is the link between the
Mobile industry, Telecom industry and end users, and it was revealed that this model has significant role in build up
customer relation as well as develop the market share in the mobile communication which very healthy development
in the competitive era. The above models help the customers to get the best quality of service. The paper reviews
the nature and extent of the take-up of these technologies by small firms, and the digital devices that have emerged.
SN-Model of e-business adoption by SMEs are examined, the model being contrasted with the more realistic
approaches of customer‟s satisfaction Barriers to the adoption of e-business technologies and techniques are
discussed, together with factors that promote successful adoption, of e-business and the major role played by the
entrepreneurs to facilitate the customers. The challenge for many entrepreneurs business in deploying e-business
solutions has been the complexity and cost of putting the hardware and the appropriate software and middleware
together. Not anymore. The recent SN Model helps the consumers to solve all the problems in the world of e-
business.

Results Analysis of Globalization and its impact on Economy of Pakistan

We only performed one simulation to illustrate the approach‟s contribution. Different simulation has been
tested to verify weather the conclusions reached in terms of impact of Globalization on Pakistan‟s economy.

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2010 IABR & ITLC Conference Proceedings Orlando, FL , USA

Model-2. Globalization and Impact on Economy of Pakistan

Variables Base Value Model Rural Mode Urban Mode Change
.1-AR l2 Poverty l
RH U-C
W1 Formal Wages 0.5 -0.76 -.05 -0.5 +0.1 0.5 0.5
W2 Informal wages 0.1 NA NA NA NA NA NA
Mps Marginal 0.1 0.5 -0.2 0.3 +0.5 + 0.6 0.6
propensity to save
FDI Foreign direct 20900000 0.3 -0.4 -0.6 +0.54 0.58 0.5
investment
GDP Gross domestic 15265435.1 0.01 -0.2S -0.5 +0.57 0.57 0.33
Product
Rh Rural household 1455676776 0.25 0.24 -0.25 +0.787 0.56 0.44
consumption
Uc Urban house hold 324355455 0.55 0.88 -.25 +0.75 0.88 0.55
consumption

Policy Implications

The results provide significant implication of Globalization on Telecom industry and its impact on the rural
poverty in Pakistan. In recent years the Telecom growth especially in cellular phones there is remarkable increasing
in the growth of this sector in Pakistan. Pakistan is one of the top in usage of mobile phone service in the World.
Telecom growth has impact on alleviate poverty because providing ample opportunities to the `local people.

No single policy can be prescribed for reducing the rural poverty in Pakistan which is tend to be increasing
even though a lot more investments are made by the FDI. On the contrast urban population are getting benefit of the
FDI, huge employment and investment in the different sectors provide the positive results for the urban population
and there are significant changes in the production and consumption of urban population.

Conclusion

The purpose of this paper to analysis the impact of Globalization on Telecom industry in Pakistan by using
CGE frame work. We started with the comparative exercise of Globalization and its role in reducing poverty in
Pakistan. The Household Model this model limited only capture the heterogeneity element in household behavior
and their impact on the Telecom industry. There are two main factors Globalization and their impact on GDP and
economic growth. In the second model linear expenditure system (LES) replaces the demand of system derived
from Cobb-Douglas utility function. This exercise highlighted the contribution household disaggregating in the
context of CGE modeling exercise and marginal contribution of introducing the heterogeneity elements. According
to the results Globalization has significant impact on the economy of Pakistan. CGE Model has been gaining
importance in policy analysis of the inequalities of poverty. Globalizations policies can affect in not only improve
the economic growth but also help in poverty reduction policies. The task of the policymaker is to coordinate
policies affecting the two areas in such a way as to optimize the contribution of Globalization to alleviate poverty in
Pakistan.

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