INDUSTRIAL GROWTH IN PAKISTAN: REVISITING THE ROLE OF TECHNOLOGY, HUMAN CAPITAL, AND POLICY INCENTIVES

Abstract

Following a period of intense inflationary pressure, Pakistan’s industrial sector has entered a phase of stabilization, with headline growth reaching 4.77% in FY 2025. However, this recovery is marked by structural heterogeneity, where high-performing sub-sectors like wearing apparel (7.6% growth) contrast sharply with contracting segments like mining (-3.4%) and sugar (-7.1%). While the adoption of Industry 4.0 technologies such as Big Data and Smart Factories offers a pathway to increased efficiency, its implementation remains uneven and often leads to skill-biased labor displacement. Long-term growth is further constrained by a critical human capital deficit, evidenced by a Human Capital Index of 0.41 and a record-low education expenditure of 0.8% of GDP. This study argues that sustainable industrial expansion requires resolving the energy circular debt crisis, harmonizing Special Economic Zone (SEZ) policies, and diversifying exports beyond the traditional "textile trap"