at IFPRI and participants at the seminars and conferences for helpful suggestions and comments. We hope workshops can be organized in 2009 for representatives of industry, government, and academe in Islamabad, in collaboration with IDS, and in New Delhi, in collaboration with the National Council of Applied Economic Research. x Acronyms and Abbreviations ATC Agreement on Textiles and Clothing CEC Cotton Export Corporation CES constant elasticity of substitution CET constant elasticity of transformation CGE computable general equilibrium xii summaryhigher productivity. Simulation 4 examines cases of higher industry TFP in raw cotton, cotton lint and yarn, and textiles in both the short and long run using a dynamic-recursive version of the CGE model. The increase in TFP is welfare-increasing, with dynamic effects and the level of impact among the cotton-textile sectors and across household groups depending on whether productivity improves in one or more of these highly interdependent sectors.Overall the results of simulations 1 and 2 demonstrate different effects arising from two largely external positive shocks: the increase in foreign savings strengthens the currency and creates a boom in the nontrade sectors, whereas an increase in world cotton or textile prices improves Pakistan's terms of trade and generates a boom in these sectors in particular. An inflow of foreign savings depresses traded sectors but stimulates investment and expanded production of nontraded goods. Because of the large share of the cotton-related sectors in overall exports, an export boom in these sectors also strengthens the currency, which negatively affects other tradables and the domestic currency value of household income from any given level of foreign remittances.These different effects must be understood by policymakers trying to assess, for example, the performance of the cotton, yarn, and textile sectors and their impacts on employment and poverty. These impacts must be evaluated in light of more liberalized trade rules, the capital inflow or increase in foreign remittances that occurred during 2000-06, the decline in world cotton prices in the 1990s, and the reversal of these circumstances that has recently been evident. Simulations 3 and 4 are relevant to policymakers who must direct limited domestic resources to capacity-building public investments but who also face calls for more direct support from industry lobbies.
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