The China-Pakistan Economic Corridor (CPEC): Infrastructure, Social Savings, Spillovers, and Economic Growth in Pakistan

This paper is about a package of infrastructure investment, the China-Pakistan Economic Corridor (CPEC). This paper uses a range of theoretical perspectives (buttressed by historical and contemporary evidence) to think about the likely impact of CPEC on economic (especially industrial) growth in Pakistan. The theory includes crowding in of private by public investment, social savings, spillovers and the leading sector, and industrial policy. Theory points to some likely growth promoting effects of CPEC, on corporate logistics, shorter transport routes to China, and greater local production of cement. The impact of CPEC is unlikely to be transformative. There is little evidence that CPEC has improved corporate logistics in Pakistan. CPEC may reduce physical distances for overland trade with China but trade is likely to remain seaborne. CPEC construction activity has generated positive spillovers in local construction employment and cement production but no spillovers in either bitumen or steel production. Pakistan lacks a capable state and commitment to an industrial policy that historically have proved important in leveraging transport infrastructure into domestic industrialisation. The most important reason is that Pakistan is a middle-income country and CPEC is too small to create more than modest economic growth benefits for Pakistan.