The History Of The Socio Economic Growth

Published Date: 02 Nov 2017

Literature shows that global competiveness of economies for growth and to compete in the international market has become the area of concern at international forums and is a dire need of the day (Zia, 2007). Economists and scholars are in effort to develop implementable frameworks for sustainable growth and increased competitiveness for nations. Socio-economic growth is not only directly related to the governance system but is result of the national intellectual resources of a nation. This research attempts to prove that National Governance does not affect the Socioeconomic Growth directly; rather it exerts its effect on sustainable SEG thorough effective use of National Intellectual Capital.

This study develops a structural model connecting National Governance (NG), National Intellectual Capital (NIC) and Socio Economic Growth (SEG) of Pakistan by applying structural equation modeling on data retrieved from World Bank, Pakistan Development Review and Human Development Index. Rule of law, regulatory quality and voice & accountability have visualized for national governance of Pakistan. National intellectual Capital has been calculated through Skandia Navigator that includes, financial, market, process, human and research & development capital. Human development index, services and industrial sectors have been taken for socioeconomic growth of Pakistan.

This study endeavors to draw the structural links between National Governance (NG), National Intellectual Capital (IC), and Socioeconomic Growth (SEG) of Pakistan. This study is quantitative and based on 7 years data gathered from Worldwide Governance Indicators, Pakistan Development Review (PDR), Human Development Index (HDI) and Economic Survey of Pakistan covering period from 2006 to 2011. Worldwide Governance Indicators have been selected by keeping in view that these are the only indicators depicting the closest governance practices in Pakistan. Moreover, for National Intellectual Capital, data has been taken from research work done by (Sandhu et al., 2011). This study is the extension of Edvisson and Malone (1997)’s model. This model provides comprehensive analysis of national knowledge assets and particularly task of detecting and correcting by aligning the input, process with output and finally outcomes (Malhotra, 2003).

By considering the limitations of LISREL, Statistica and AMOS, the data have been analyzed using Smart PLS 2.0 M3 that is applicable to analyze both formative and reflective type of indicators. Validity and reliability of measurement model has been confirmed before path coefficients, coefficient of determination and test of predictive relevance for structural model are analyzed.

This Study highlights that so far single dimensional models are available to measure the impact of NG and NIC on SED. However, this study develops three-dimensional approach to investigate the impact of NG & NIC on SED having flexibility of the indicators to be applicable for other developing nation as well.

In 21stcentury, sustainable socio-economic development is the prime concern challenge for underdeveloped, developing, and developed countries of the world. Countries having natural and human resources are striving hard to improve their socio-economic status by reforming their national strategies (Bontis, 2004). Moreover, global competiveness of economies for growth and to compete in the international market has become the area of concern at international forums and is a dire need of the day (Zia, 2007). Pakistan since its independence in 1947 has a weak infrastructure and declining socio economic growth leading towards political instability and bad governance (Haq, 2000). Pakistan’s human and natural resources are wasted because of improper polices implementation by the national policy makers.

Pakistan is facing a number of critical challenges. Energy deficiency crises, which is one of the severe challenges and a main hurdle in socio economic growth of Pakistan. In Pakistan, the policies on energy sector are merely focusing on natural gas production. Other energy resources such as utilization of coal, wind and solar as alternative source of energy are ignored (Rahman, 2008). Economic principles of scarcity are the only solution to stop the misallocation of the resources. Moreover, in Pakistan per unit of GDP energy utilization is higher than other developing countries because of inefficient production process, high energy consuming equipment and poor demand side management. To fulfill the current energy requirement gap, almost 28 percent of total commercial energy is imported from various resources. In near future, the situation will get worse because of demand for imported fuel will increase many folds (Malik 2007). At present in Pakistan, there is no diversified policy action plan for energy to cope with the upcoming challenges. Globally, with escalation of oil prices, Pakistan’s energy sector relies solely on domestic gas.

Another biggest challenge resulting from lack of good governance is improper and inappropriate policies that are directly hitting the textile and clothing industry of Pakistan. Due to this, there is decreasing trend of foreign direct investment and insufficient export processing zones. Likewise, implementation and control on schemes is not proper. Working plans prevail on paper but due to bureaucratic procedural complexities, execution is ineffective.

With respect to the youth, many developing countries have youth employment challenges and in case of Pakistan, challenges are multifaceted. Especially role of women is worse as there is very low employment rate across the country. On the other hand, women presents 52% share of population of Pakistan and can play positive role in economic uplift of the country (Kolev and Saget, 2005). These challenges are the result of low attention towards empowerment of gender mainstreaming mechanism. Instead of developing the long-term polices, the strategists are focusing on short term goals. Similarly, gender discrimination is another prevailing issue in social context of Pakistan. Women have very few opportunities for education, mobility, employment etc. (Hakim and Aziz, 1998).

Food security and economic growth support each other in the development process of a country (Timmer, 2004). It is recognized fact that food sovereign states are those states that has the capability to buy food from international market to meet its food requirement (Pinstrup and Andersen, 2009). In addition, fundamental national security is the food security (Fallbrook, 2010). With reference to the Pakistan, it is an agriculture country and has key responsibility to meet the food requirement of fast growing population of Pakistan (Ahmed and Farooq, 2010). Keeping in view the birth rate, the population of Pakistan will be doubled by 2050. Food planners are focusing only for basic wheat production rather than producing other variety of the vegetables and cereals with higher growth potential. Regulatory plans for the new technologies to grow value added crops have been ignored. From last 60 years, the cultivated area has increased only by 40 percent but on the other hand, increase in population is 4 times reflecting a big future challenge to state.

To address the above-mentioned challenges, there is a need to discuss the role of National Intellectual Capital (NIC) and National Governance (NG) in socioeconomic context of a country and which has been addressed in upcoming discussion. Socioeconomic challenges because of the traditional methods of economic growth can be overcome in new paradigm with the help of IC measurement and management. However, main purpose is to evaluate and select the best frameworks of IC and NG for further implementation to uplift the economy of Pakistan.

IC has been previously studied on the micro scale but now researchers are investigating the phenomenon at macro level (Malhotra, 2003; UNPAN, 2003). They argue that the economic development of a country relies on IC management and furthermore IC in reality presents the strength of a nation (Malhotra, 2003). As the dynamics of nation’s economy are shifting towards knowledge resources from natural resources, the importance of intellectual capital is increasing. There is an immediate need to evaluate, measure and map the IC for countries, regions, cities (Pomade et al. 2002; Bontis, 2004; Andresen and Stam, 2004; Bonfour and Edvinsson, 2004; Lerro et al. 2005; Pascher and Shachar, 2005). Researchers (Andriessen & Stam, 2004) now argue that National IC (NIC) refers to the concept that applies the principles of intellectual capital management on a macro-economic level, in such a way that it helps to give direction to future economic development. Moreover, it is an important contribution to IC research on both the micro and macro levels of analysis (Bontis, 2001). The core findings about micro and macro level IC also highlighted by many other researchers (Cabrita and Vaz, 2006). They argue that IC components along with their interrelated connections and dependencies, affect economic performance.

Likewise, support of IC to governance has become the main topic of dicussion in development litrature. As a matter of fact, concept of governance is as old as human civilization and is a process of decision making and implementation. On the other hand, bad governance is being considered as the root cause for slow economic growth for a society. Furthermore, it is being used in different context like corporate governance, international governance, national governance, and local governance (Sheng, 2007). Eeconomic development can only be improved if quality of governance will be improved (Sharma, 2007). Furthermore, socioeconomic growth can be promoted if secure private property rights, institutionalization of the rule of law, and electoral mechanisms are transparent. Adverse effects on economic growth are also because of corruption, bad governance and weak institutions

(Mauro, 2004). Hall and Jones (1999), highlighted social differences in different countries because of the differences in capital accumulation, productivity and output per worker. There is strong correlation between long-term economic performance and good governance (Roderick et al. 2004).

To measure the governance, Kaufmann and Kraay (2003) worked on a link between governance and development and measured performance of 200 countries under World Bank project. Main objective of study was to analyze that how governments are selected, monitored, and replaced, how policies are formulated and implemented as well as respect of the citizens in social context. Research highlighted that good governance is actually creativity of a country to utilize its resources for socioeconomic growth. Study also depicted that socioeconomic growth can be measured by using six measured indicators namely (a) Voice and accountability, (b) Political stability and lack of violence, (c) Government effectiveness, (d) Regulatory quality, (e) Rule of law, (f) Control of corruption.

No doubt, Pakistan is equipped with natural and human resources namely oil, gas, coal, agricultural, minerals and youth human resources (Economic survey 2011), but unfortunately traditional government policies are unable to develop and implement strategies for up-gradation of basic infrastructure. They have not even developed structural linkages in-between the cause and effect equation of Pakistan. On the other hand, in modern paradigm, socioeconomic growth has carefully addressed by using intellectual capital frameworks through good governance practices.

Socioeconomic development has always been a challenge for developing countries of the world. Economists and scholars are in effort to develop implementable frameworks for sustainable growth and increased competitiveness for nations. Socio-economic growth is not only directly related to the governance system but is result of the national intellectual resources of a nation. Phenomena of good governance stresses that governance means traditions and institutions that determine how authority is exercised in a country (Kaufmann et al. 2000). In this context, it is not surprising that a broad consensus among growth economists, development experts, and international policy-makers has begun to view good governance as a pre-requisite to sustained socio-economic growth and increase in living standards (Kaufmann et al. 2000; Knack, 2003). Cross-national studies showing that good governance is a key determinant of economic performance (Chong and Calderon, 2000).

In Pakistan, main problem is the missing structural linkages in the national management system. Natural and human resources are the strength of Pakistan but they are not been fully utilized to get the maximum benefits out of it. Good governance is available in national agendas but implementation is far from the reach. Similarly national intellectual capital presenting the human, structural and relational aspects and is most important factor for socio-economic growth (Ruiz et al. 2011) has also been ignored by the national policy makers.

It is obvious that like other nations of the World, intellectual capital is embedded into the whole national system of Pakistan. All the three main circles depicted in figure (1.2) are overlapping each other representing the competitiveness of the intangible resources but linkages are missing and which is the main area of research for this study is. It is hypothesized that by developing connectivity into the whole system, would result into number of advantages namely good governance, effective management of intangible resources and enhanced socio-economic growth of the country.

Intellectual capital (IC) of a nation plays an important role in sustainability, productivity and economic performance of a country. Countries are trying hard to cope with the situation and looking for new strategies and tools to be competitive with the rest of the world. A number of studies have been conducted to determine the impact of IC on national level (Malhotra, 2003; Chou and Bontis, 2002; Lerro et al. 2005; Alexander, 2006; Cabrita and Vaz, 2006), but still there remains a need to investigate the underlining factors that link Good Governance, IC and Socio-Economic Development.

With respect to Pakistan, there are severe strategic and policy imbalances. Lack of good governance, corruption, accountability, government effectiveness, regulatory quality, rule of law is some of the issues of Pakistan. Government authorities have very little control over management systems and which results as low socio-economic growth. For Pakistan, firstly there is need to diagnose problems in the governance system and secondly, connecting it with growth path through national IC of the country. To do so, this research has been designed by keeping in view the importance of good governance and which is missing in Pakistan. This research will unfold the structural links between national governance, national intellectual capital and socio economic growth of Pakistan.

The purpose of this study is to develop structural model connecting National Governance (NG), National IC and Socio Economic Growth of Pakistan by applying structural equation modeling on data retrieved from World Bank, Pakistan Development Review and Human Development Index. More specifically this study will endeavor to

Determine structural linkages between NG, NIC and SEG

So far, single dimensional models are available to measure the impact of NG and NIC on SED. Objective of this research is to develop three-dimensional approach to investigate the impact of NG & NIC on SED having flexibility of the indicators to be applicable for other developing nation as well.

The research is quantitative arguing for concepts as well as using the statistical method for getting the results. The conceptual framework is based on extensive literature review of the domain. It is hypothesized that effective performance of the NG is only possible through effective measurement and management of NIC for SEG. The conceptual framework will be validated by using six years performance data of Pakistan, available from different resources. To analyze the structural links structural equations will be developed. These equations will represent the manifest and latent variables. SEM is helpful for the research as it facilitates the model considering latent variables while taking into account the unreliability of the indicators. This study will use PLS Smart software by using yearly secondary data from 2006 to 2011 to develop the structural linkages. Quantitative data will be taken from the data sources.

In the era of knowledge-based economies, economists have the same opinion that governance is one of the most important aspects explaining the divergence in performance across developing countries (Khan 2007). Another most critical challenge faced by nations is globalization or global sustainable development process. Farazmand (2009) states that globalization is directly related to governance and is a process of worldwide integration. Furthermore, Farazmand (2009) added that because of the fast globalization process, the traditional role of state and government has changed resulting in major structural changes. This change has resulted into the change in governance pattern and administrative process.

Kim et al. (2006) states that in World globalization process, knowledge is the only competitiveness for social, economic and cultural development for developing countries. Furthermore, knowledge embedded in human capital and technology is a reason of economic development of country. Kim et al. (2006) also highlighted that in the era of information and communication technologies, factor of production is actually the knowledge-based activities presenting indicator for level of production. Moreover, information societies have characteristics like intangible resources rather than tangible (Edvinsson and Malone, 1997), information and communication technologies. Knowledge has become an independent force and most decisive factor in social, economic, technological, and cultural transformation.

With respect to the strength of a nation, intellectual capital has become core factor of production and got its importance at national level as well as organizational level but most of the countries assess their process by using traditional factors of productions namely land, labor and machine. Sharma (2007) highlights that The United Nations Millennium Project (2005), the United Nations Development Programme’s Human Development Reports (2003), and the World Bank’s annual World Development Reports (2003) every report has recommended almost one hundred things to do for the achievement of good governance. Things to do list is not only applicable for least developing countries, rather it is also recommendable for developing and transitional economies to achieve the sustainability and economic prosperity through good governance.

The literature available in the domain deals with the National Governance and National Intellectual Capital separately. A number of studies are available on the impact of Good Governance on socio-economic development (Khan, 2007). Similarly, studies are available that investigated impact of National IC on Socio-Economic development only (Malhotra, 2003 and Bornemann 1999).

The concept of governance is widely discussed among policymakers and scholars, but still there is no consensus around a single definition of governance or institutional excellence. Some of the popular definitions of good governance are given in table (2.1).

Table 2.1

Popular Definitions of Governance

Author(S)

Definition

World Bank (1992)

Governance as the traditions and institutions by which authority in a country is exercised.

This includes

(a) process by which governments are selected, monitored and replaced

(b) the capacity of the government to effectively formulate and implement sound policies

(c) The respect of citizens and the state for the institutions.

Kaufmann et al. (2000)

Traditions that are related to economic development and institutions that determine how authority is exercised in a country.

Sharma (2007) states that economic development is closely related with the governance and once there is good governance there will be improved results of economic development. Additionally, with the proportion of the securing of property rights, rule of law and transparent electoral mechanism. Similarly Mauro (2004) highlights that adverse effect on economic growth are also because of corruption and other aspects of poor governance and weak institutions. Hall and Jones (1999) explain social differences in different countries because of the differences in capital accumulation, productivity, and which resulted output per worker. Furthermore, Fischer et al. (2001) mentioned about governance issues like extreme red tapism, bureaucratic inefficiency and perceptions of poor governance of Palestinian economy resulting deterring the foreign investment. La porta et al. (1999) described that countries having English legal system and are ethno-linguistically identical have strong governance system and better governments. Furthermore, Islam and Montenegro (2002) expressed that openness in trade shows positivity with qualitative institutions and shows negativity with French legal origin in governance system.

Coleman (1988) argued that both social and economic indicator contribute significantly to governance. Knack and Keefer (1997) and Whitely (1997, 1998) showed that economic growth can be promoted with high levels of social and economic variables. There are extensive econometric studies explains that there is strong correlation between long-term economic performance and good governance (Roderick et al. 2004). Kaufmann and Kraay (2003) worked on a link between governance and development and measured performance of 200 countries under World Bank project. Their objective was to analyze that how governments are selected, monitored, and replaced; how policies are formulated and implemented as well as respect of the citizens in social context. They concluded good governance is actually the capacity of a country to utilize its resources for socio economic growth of a nation. The six measured indicators are voice and accountability, political stability and lack of violence, government effectiveness, and regulatory quality, rule of law and control of corruption.

The concept of governance has gained its importance globally and currently in Pakistan. It has become point of concern for national policy makers working on Governance. In case of Pakistan significant studies on good governance is done by Hijazi (1999); Husain (1999); Qureshi (1999); Shafqat (1999); Shah (1999); Streeten (1999); Tahir (1999) and Chaudhry et al. (2006). They have worked on Pakistan governance system by taking into account some relationships to prove their strength with governance system. Firstly, Hijazi (1999) analyzed the role of government servants in connection with motivational theories. He concluded that in Pakistan there is administrative system of government instead of management system and good governance can never be achieved until and unless motivation of key role occupants has not been maintained. Moreover, Hussain (1999) has done study on governance system and institution by dividing public sector into three categories i.e. policy-making, service delivery and accountability. Furthermore, (Qureshi, 1999) focused on institutional reforms and sustained economic growth policies for good governance. Moving forward, Shafqat (1999) resulted and recommended reforms of bureaucratic institutions. He has also recommended guidelines to improve governance system of Pakistan. Finally, Shah (1999) contributed by highlighting on three complementary themes for effective and accountable governance system namely globalization, localization and a results oriented management and evaluation.

Generally speaking, all studies done for Pakistan are focusing on issues related to good governance. We have not found any study which has analyzed socio-economic growth of Pakistan as effectiveness of governance using the intangible assets namely Intellectual Capital of Pakistan.

National knowledge assets or National Intellectual Capital can be considered as the hidden assets that strengthen and enhance a country’s growth (Lin and Lin, 2008). Lin and Edvinsson (2011), argue that that the measurement of knowledge assets help nations to recognize important intangible factors for future growth and wealth creation and also provide national level information to policy-makers for developing strategic polices. There is an increasing recognition that knowledge management is the key driver of innovation and learning, national wealth and a country’s GDP (Malhotra, 2000). The significance of National Intellectual Capital has increased so much that it has become debate of national policy makers rather it has been an important factor for technological, social and economic development of countries. Importance and preference of IC is because of information technology, the rise of knowledge-based economy, the emergence of network societies etc. Therefore, intellectual capital on national level has emerged as a significant research area. IC is based on intangible factors, which are responsible for the economic performance and competitiveness of a country. Malhotra (2003) describes that knowledge assets are the intangible assets of a country, and they have significant implications for future national value, as they represent the source of the competencies and capabilities deemed essential for national economic growth, human development, and quality of life. As a result, countries rich in intangible assets fare better in terms of national wealth than those whose assets are limited to land, tools, and labor (Malhotra, 2003; World Bank, 1998). Macro level studies on National Intellectual Capital started almost a decade ago and reproducing micro measurement models (Lazuka 2012). On national level, Amidon (2001) explains that Sweden was the first country that started working on the intellectual capital and announced 1996 the Year of innovation and IC Report of the State of Israel "A Look to the Future: The Hidden Values of the Desert" was released in 1999. The philosophy of intellectual capital was first introduced by John Kenneth Galbraith (Hudson, 1993). Intellectual capital further developed by Drucker (1993). As the domain is still in its emergent stage, researchers are giving their own nomenclature about IC. Definition of IC is still under discussion and there is no joint consensus on its definition (Luthy, 1998). However, mostly researchers agree that IC includes hidden values of company, region and country in the form of knowledge, information, experience, system and processes (Bontis, 1996, 2001). Andersen and Stam (2005) stated that IC is all intangible resources available to a country or a region, that give relative advantage, and which in combination are able to produce future benefits .

In case of Pakistan, Kalim and Lodhi (2002, 2004) argue that only a knowledgeable and effective behaviour can provide competitive edge in the global markets. The public and private entities must develop and manage their Intellectual capital to make the most of available knowledge and to face the emerging challenges. Similarly Makki and Lodhi (2008) studied the relationship between CG, IC and performance, but the study focuses on corporate structure. Sandhu and Lodhi (2011) presented the importance of IC at national level and developed the IC indices presenting the socio-economic status of Pakistan. They have presented National IC indices from 2005 to 2010. Finally, Sandhu et al. (2011) briefs that in the post-industrial world, the Intellectual Capital (IC) of nations has become critical for wealth and value creation. In this era of knowledge-based economy, one real challenge that a nation faces is maintenance of its economic growth and its competitiveness in the international market.

Socio-economic growth is one of the central themes in economic debates Bornemann (1999). Economists are trying to revisit the principles and theories to adjust them with new socio-economic paradigm. Moreover, they are also trying to develop methodologies which are pertinent with requirement of developing countries. World Bank (1998) with its long history is working to gauge the development of human in economic and social gesture. One of the menologies to measure the human development is Human Development Index (HDI). HDI methodology provides an opportunity for the international community development to re-evaluate the ways we measure welfare and human progress (Graham 2012). It presents the quality of life or standard of living namely expectancy, literacy, education, and standards of living of a country. It is a standard means of measuring well-being. Along with the social aspect, it also covers impact of economic strategies on social aspects. With Respect to the Gross Domestic Product (GDP) of Pakistan, it expanded 3.67 percent in 2012 from the previous year. GDP Growth Rate in Pakistan is reported by the Pakistan Bureau of Statistics. Historically, from 1952 until 2012, Pakistan GDP Growth Rate averaged 5.0 Percent reaching an all time high of 10.2 Percent in June of 1954 and a record low of -1.8 Percent in June of 1952. Pakistan's economy has suffered in the past from decades of internal political disputes, a fast growing population, mixed levels of foreign investment, and a costly, ongoing confrontation with neighboring India. However, IMF-approved government policies, bolstered by foreign investment and renewed access to global markets, have generated solid macroeconomic recovery during the last decade. This page includes a chart with historical data for Pakistan GDP Growth Rate (Trading Economics 2013).

Ismail and Rizvi (2000) states that for socio-economic growth and to attain the standards of good governance, it is the only duty of the government for calculated and effective allocation of the national resources. However, unlikely, it has become desire not only for national policy makers, but also for the people of Pakistan. Since the inception of Pakistan, there is increase in poverty level, miscalculated distribution of the resources, corruption and many any other issues are the part the economy. Ismail and Rizvi (2000) also highlight the problems that are effecting socio-economic growth of Pakistan. Political governments in Pakistan comes with future agendas and spend misappropriate resources resulting into higher amounts of rents. Moreover, governments prefer to spend on infrastructure only and by ignoring the social sector. Furthermore, investment on high profile low yield projects and extra subsidies. Taxation system is not in control as taxes are collected from poor rather than richer. Taking about the planning and budgeting system, it is also inefficient. Results always affect the transparency and accountability in the process of allocation and expenditure. Moreover, expenditure monitoring and expenditure evaluation is very poor. For social - economic growth, political will is the prime concern and which is missing now.

The literature review suggests that researches have not so far identified the three dimensional link between NG, NIC and SEG. Literature review is firstly, focusing on governance and its impact on socio-economic growth and secondly, national Intellectual Capital and socio-economic development but no study shows the governance effectiveness through national intellectual capital for socioeconomic development. Our study will attempt to develop a link between the three important pillars of a nation’s economy.

Good governance leading towards sustainable socio-economic development has become the area of research for researchers, politicians, donors, and business community. They are keen for the measurement of the governance system across the countries. Especially international donors are considering good governance as benchmark for socio-economic development of developing countries (Kaufmann et al. 1999) and consider it a key element of sustainable development. The study covers three elements i.e. governance, intellectual capital, social and economic aspects of a nation. It hypothesis that intellectual capital is already been embedded into the system but not been measured and managed effectively. This chapter develops a conceptual framework to uncover the hidden structural links between National Governance (NG), National Intellectual Capital (NIC) and Socioeconomic Growth SEG of Pakistan.

Concept of good governance came under debate of development, policy making and international relations since 1990 (Din & Joya, 2007). According to ADB study (1994), by comparing "governance with good governance", governance is a manner through which political power is exercised and is related to the institutions as well as structure used for exercising the power. Good governance is however a normative subject and deals with the norms of the governance i.e. legitimacy of government, legal framework, popular participation, freedom of association and expression and bureaucratic accountability and transparency. Governance defines the process of decision-making and the process by which decisions are being implemented (Sheng, 2013) and is a combination of eight major characteristics namely participatory, consensus oriented, accountable, transparent, responsive, effective and efficient, equitable & inclusive and rule of law.

Globally, multilateral institutions like World Bank, OECD, IMF etc. are working for the measurement of the governance by considering it as a criterion for the international donor agencies. However, measurement is also important for citizen to select new government through voting process. Businessperson also keep an eye on the good governance practices to anticipate support for industry and politician and public sector matches their efficiency with the required targets (Wescott, 2000). Good governance is actually the capacity of a country to utilize its resources for socio-economic growth of a nation (Kaufmann and Kraay, 2003). Above discussion highlights, that there are different definitions and measurement schemes available for analyzing and measuring governance and good governance. However, more or less every definition deals with socio-economic development, public sector reforms, and state reforms to achieve the sustainability in developmental goals.

Socioeconomic development of a nation is based on the efficient allocation of country resources and this can only be achieved with good governance practices (Ismal & Rizvi, 2000). In economic development of a country, social development has become an important aspect for global competitiveness for improved living standards of human resource (Haq, 2000) but on the other hand, for the sake of macroeconomic stability of economic growth, necessary elements of social development have been ignored. However, for ensuring productivity and equity, social sector development is essential by considering human capital as main source of production process resulting in increased economic growth (Haq, 2000). Social capital which is the sum of the resources, both actual and virtual that accumulate a group or an individual by developing a network or less institutionalized relationships of mutual contact and respect (Bourdieu, 1980). By emphasizing social capital’s function in different contexts, social capital can be defined as the ability of actors to secure benefits by virtue of memberships in social networks or other social structures (Portes, 1998). In social context, Briney (2013) explains that Human Development Index (HDI) has been published by United Nations Development Program and covers developed, developing and underdeveloped countries around the world. HDI includes factors such as life expectancy, education, literacy, gross domestic product per capita in the form of summary i.e. Human Development Index.

Economy is not a static element rather changes as per the developmental polices of a nation (Galbraith, 1994). There are many necessary factors, which support, stimulate to maintain the economic growth (Galbraith, 1994). The export growth is a contributing factor for economic growth and its impact can be measured through its impact on the increase of country’s income, production of non-export goods, capital efficiency, negative external effects, resource allocation, and total productivity factor (Chow, 1987). However, export of a country is not only the single main factor that contributes into the economic growth. Foreign exchange is another factor particularly earning from tourism that has contributing impact on economic growth (Cortes and Pulina, 2006) and international tourism is the largest foreign exchange earner for developing countries. Countries having maximum share of wealth in trade are more economically stronger than those countries, which have less investment in trade (Ricardo, 1817). Study conducted on China, Korea, Taiwan, Hong Kong, Singapore, Malaysia, Philippines, and Thailand reveals that foreign direct investment has direct impact on trade and indirect impact on the GDP of a country through export (Hsiao and Hsiao, 2006). Therefore, foreign trade encourages economic growth (Chen, 2009). Other factor which reveal that there is positive impact by investing on education of country (Mankiw et al., 1992; Benhabib and Spiegel, 1994; Barro and Sala-i-Martin, 1995). With respect to the measurement of economic growth, study conducted by IMF (2013) reveals that economic growth is increased value of goods and services of a country in a specific period and is being measured as percentage rate of increase in real gross domestic product or real GDP. Moreover, in economics, economic growth typically concerned with the growth of potential output i.e. production at full employment.

To establish relationship among national governance (NG), national intellectual capital (NIC) and socioeconomic development, this study follows the input, processing and output model developed by Peppard and Rylander (2001). Figure (3.2) describes the link of NG measures, value creation process of tangible and intangible assets namely NIC and SEG as output of the process.

For implementing effective strategies for good governance namely Voice & accountability, Political Stability & Absence of Violence, Regulatory Quality, Rule of Law, Control of Corruption by following NIC path, which is combination of Financial, Process, Human, Market and Research & Development Capital will result into the positive trend of the SEG so there is strong correlation between long-term economic performance and good governance (Sharma, 2007). Three hypotheses have been developed to check the strength of the structural linkage between the three latent variables and are explained below.

In the postindustrial world, the Intellectual Capital (IC) of a nation has become critical for wealth and value creation of a country. In this era of knowledge-based economy, a genuine challenge faced by a nation is maintenance of economic growth and competitiveness in international market (Sandhu et al., 2011). Policy makers presently need to have a strategic management tool to measure and develop IC assets of a country. This paper extends the framework of Skandia Navigator (Edvinsson and Malone 1997) from corporate level to the national level and developed a tool on the extended framework to visualize the intellectual capital of Pakistan.

The Intellectual Capital of a country is indirectly visualized through various indices. These indices change from year to year not necessarily in a consistent manner, so that one is baffled to form a general view. To overcome this limitation, paper written by (Sandhu et al., 2011) has proposed three methods of measuring change in IC that are based on Financial Index (FI), Human Index (HI), Process Index (PI), Market Index (MI) and Research Index (RI). These tools produce composite IC indices for Pakistan (2005 -2010) that can be useful for the development of national policies. This paper presents the IC of Pakistan until 2010. As to date, data for the year of 2011 is available, so after incorporating the fresh data of 2011, IC of Pakistan has been taken from 2005 to 2011 covering 7 years reflecting time series analysis.

Year wise PNFI, PNMI, PNHI, PNPI and PNRI of IC following three approaches (without reference to their limitations in this section) have been developed. First, it was considered that information on a component with the unit in its current form and then linearly mixing the relevant components attaching specified weights. The percentage change in the yearly weighted component over the base period 2005 has been computed to measure change in the IC. The second option considers the percentage change of each component over its value in the base period 2005 and then a weighted composite index for IC is computed. The third option is similar to the second method with equal weights. These methods are likely to produce different perceptions but the choice of an option calls for a rational support (Sandhu et al., 2011).

The choice of a weight to reflect the importance of a component in an indicator is a debatable subject but as a principle of Skandia Navigator, weights are assigned in view of importance and the degree of an indicator’s value. For our study, these weights were formulated through our consultation meeting with more than 20 experts from different organizations such as chamber of commerce and industry, associations, statisticians and academicians (Sandhu et al., 2011).

Financial capital reflects the tangible economic achievements of the country. It can be measured using indicators such as GDP, the structure of industry, workforce, growth rate of services and products per year, etc. To find out the Pakistan National Financial Index , GDP - Real Growth Rate, Export, Federal Government Revenue Receipts, Gold and Foreign exchange reserves and Manufacturing sector growth (% of GDP) has been selected by considering them the vital components of the economy of Pakistan (Sandhu et al., 2011).

Bontis (2004) describes that human capital is defined as the knowledge, competencies, and education of individuals in realizing national task and goals. It is obvious that economic growth of a country is closely associated with the human capital development. Higher literacy rate of country will help to adopt, new technologies, new ideas, research etc. Along with that, health and earning power of human resource also explains the standards of living. For Pakistan National Human Index, five indicators have been selected which are Employed Total, Expenditure on education as % of GDP, Women Empowerment, Health Expenditure as a percentage of GNP and Literacy Rate (Sandhu et al., 2011).

Market Capital of a country is the relationship of a country with its trading partners in terms of export and imports. Market Capital presents a country’s capabilities to provide competitive services to clients as compared to the competitor countries. The indicators selected to measure Market Capital of Pakistan are balance of trade, foreign direct investment, tourism, and workers’ remittances etc. Foreign relations play an important role in the economy of the country. To find out the Pakistan National Market Index five indicators have been selected (Sandhu et al., 2011).

Process capital or structural capital is representing the infrastructure of a country, and Pakistan’s infrastructure is based on agriculture, manufacturing, and services sector. As Pakistan’s economy is in transition stage from agriculture to manufacturing and then service, indicators have been selected by considering the importance of transition stage. Indicators selected for Pakistan National Process Index indicators are Agriculture sector growth percentage of GDP, Water availability, Services sector growth, IP Broad Band Consumption/Inhabitants and Electricity/Power (Sandhu et al., 2011).

Renewal and Development capital is defined as a nation’s real investment to increase its competitiveness for future. This includes investment and support to research and development program, higher education, patents etc. Indicators selected for Pakistan National Research Index are Growth in number of Ph.D., Number of Patents Registered with Pakistan, Citable Documents, Development, and Non Development Expenditure on Higher Education (Million Rs) (Sandhu et al., 2011).

Lin and Edvinsson (2011) explains that research into national intellectual capital development highlights that NIC frameworks are actually being developed for governance, government and policy developments perspectives. Their main objective is to support the factors deem essential for economic growth of a country namely effective resource distribution, investment, socioeconomic development and GDP growth. They further explain that NIC helps the nation to identify and utilize the important intangible resources necessary for future wealth creation.

The above literature review provides support for the second hypothesis that there is strong linkage in-between NG and NIC and good governance measures can enhance NIC performance.

To measure the socio-economic growth of Pakistan, two indicators have been selected namely, Human Development Index and Gross Domestic Product. Data for HDI has been retrieved from HDI annual reports and GDP yearly data have been taken from economic survey of Pakistan. Data of both the indicator covers period from 2005 to 2011.

Good Governance is directly related to the growth and sustainability of the socioeconomic development of country. Governance as per the concept deals with different aspects of the economy like health, education, infrastructure, capital market regulation, macroeconomic stability, safety net provision, the legal system, good business environment (Brautigam, 1991; Landell-Mills and Seragedin, 1991; Boeninger, 1992; Obadan, 1997; Frugoni, 1988). So if the good governance practices have been implemented correctly, result will be growth and development and if not then poor performance accordingly (Evans, 1997; Coolidege and Ackerman, 1997; World Bank, 1997; Kankwanda et al. (2000). Good governance means interaction between government and the social sector its connection with citizen, decision making pattern, is about how the state and other social organizations interact, how they relate to the citizens, how they take decisions, and how they purify account (Ijaiya, 2006).

Knowledge assets and IC have become the point of attraction and discussion for CEOs as well as the national policy makers from a decade back (Lin and Edvinsson, 2008). World Bank (1998) report highlights that living style of people can be improved if focus should be on intellectual wealth of nation. With respect to the knowledge, it represents the intangible assets of a country and which is deem essential for the current and future growth, standards of living and human development of a country (Malhotra, 2003). It is obvious that, countries who have focused more on their intangible assets rather than land, tool and labor, are more progressive and prosperous than those countries who are not taking care of their intangible assets (Malhotra, 2003; World Bank, 1998).Malhotra (2003) explain that analysis and assessment of intangible assets helps the nations to gauge their competencies and capabilities and they can make national policies for growth and development effectively (Malhotra, 2003).

Overall objective of the nation’s economy is to uplift the wellbeing of the population by increasing GDP per capita income (Pradhan and Sanyal, 2011). However, the economists and researches are of the view that GDP per capita does not cover all the aspects of the wellbeing like social, economic, and cultural aspects (Despotis, 2005; Pradhan, 2007). So the importance has now moved towards the human development. This guarantees the comprehensive growth of human beings by focusing on societal factors (Clarke et al., 2006: World Bank, 2004; Clarke and Islam, 2004; Stiglitz, 2002; Nussbaum, 2000; Dodds, 1997; Daly, 1996; McGillivray, 1991; Doyal and Gough, 1991).

The gross domestic product (GDP) is one the primary indicators used to gauge the health of a country's economy. It represents the total dollar value of all goods and services produced over a specific time - you can think of it as the size of the economy. Usually, GDP is expressed as a comparison to the previous quarter or year (investopedia, 2009). IMF (1996) depicts that good governance is a strategic factor for economic efficiency and growth and which covers rule of law, improving the efficiency and accountability of public sector, and tackling corruption. Pardhan and Sanyal (2011) explain that good governance has a multifaceted notion and can be analyzed from different perspective and dimensions. Furthermore, it is the ability to offer basic law and order, ability to deliver social services to build up human capital, provide physical infrastructure, or economic management are all the part of the governance mechanism and framework. (Basu, 2002; Kaufmann et al., 1999).

Malhotra (2000) depicts that GDP represents traditional assessment of national economic performance and is based on factors of production namely land, labor and capital. He further explains that Knowledge actually comes from ‘law of increasing returns’. On the other hand, traditional factors of production are governed by diminishing returns and every additional unit of knowledge used results in a marginal increase in performance. Undoubtedly, national performance is attributed to knowledge assists but still most of the countries are assessing their performance from traditional factors of production.

The importance of the services sector has been recognized all over the world. This sector has emerged as the main driver of economic growth. The services sector also plays a vital role in sustaining economic activities in Pakistan. The economy has gone through a major transformation in its economic structure. The share of the services sector has increased to 53.5 percent in 2011-12. In developed countries the share of services sector in GDP is around 75 percent. This share is 65 percent in Singapore, 52 percent in India and 42 percent in Indonesia. The services sector consists of the following subsectors: Transport, Storage and Communication; Wholesale and Retail Trade; Finance and Insurance; Ownership of Dwellings; Public Administration and Defense; and Social Services. The Services sector has registered a growth rate of 4.02 percent in 2011-12. This performance is dominated by Finance and Insurance at 6.53 percent, Social and Community Services 6.77 percent and Wholesale and Retail Trade 3.58 percent. The contribution of transport, storage and communication is estimated at 1.25 percent. The recovery in agriculture and industry have resulted a positive impact on the performance of the wholesale and retail trade. Our services sector has a great potential to grow at a rapid pace. In order to develop the services sector, Pakistan has recognized the needs to liberalize operating rights and has separated regulators from operators (Economic Survey, 2012).

The manufacturing sector contributes much to the progress of our economy. The manufacturing sector has remained under stress for the last several years, due to energy shortages, poor law and order situation. The heavy floods also depressed the supply chain and affected market demand. The share of the manufacturing sector in GDP was 17.7 percent in 2001-02. This has increased in 2011-12 to 18.6 percent of GDP. The manufacturing sector has been hard hit by international and domestic factors, which caused the slowing down of its output. The growth of the manufacturing sector was 3.56 percent compared to the growth of 3.06 percent last year.

Manufacturing has three main sub-components; namely the Large-Scale Manufacturing (LSM), Small Scale Manufacturing and Slaughtering. Small-scale manufacturing maintained its growth of last year at 7.51 percent and slaughtering growth is estimated at 4.46 percent against 4.38 percent last year. Large Scale Manufacturing (LSM) has also witnessed a slight improvement. It has shown a growth of 1.78 percent against the growth of 1.15 percent last year. The major LSM industries which registered notable growth include; refrigerators 7.56 percent, sugar 27.09 percent, beverages 10.60 percent, liquid/syrup 15.93 percent, injection 6.53 percent, soaps and detergents 8.15 percent, buses 25.0 percent, electric bulbs 15.02 percent, electric transformers 27.72 percent etc. Overall 38 major industries group recorded growth. The industries, which reported negative growth, include; cooking oil -1.61 percent, motor tyres -25.73 percent, T.V. sets -22.19 percent and deepfreezes -49.47 percent etc. (Economic Survey, 2012).

Finally, it can be assessed that to develop the socio-economic growth, there is need to recalculate the structural linkage with governance and intellectual capital. Study presents the following hypothesis in this regard.

To measure the governance of a country, there are number of governance indicators available. World Bank in 1998 defines governance as the "manner in which powered is exercised in the management of a country’s economic and social resources for development". Worldwide Governance Indicators (WGI) because of their wide usage and global coverage gain importance in the eyes of the national policies makers and scholars. Kaufmann et al. (1999) presents in "Governance Matters," uses the indicators to find "a strong positive causal relationship from improved governance to better development outcomes" and many other studies have also utilized the indicators as explanatory variables (Andres, 2006; Apodaca, 2004; Clarke et al., 2006; Das et al., 2006; Hart et al., 2005; Jung, 2006; Liu et al., 2006; Llamazares, 2005; Neumayer, 2002).

Kaufmann et al. (2010) depicts that for cross-country comparison of governance, WGI have been developed and is a result of a long-standing research project. The WGI is a combination of six composite indicators covering maximum dimensions of governance. This study covers over 200 countries since 1996. WGI indicators have been collected through 31 sources by different surveys conducted by non-governmental organizations, commercial business information providers and public sector organizations. The WDI have tried to cover the governance perception and detail is given in table (3.1)

S.N

Different Aspects

Worldwide Governance Indicators

(a)

The process by which governments are selected, monitored, and replaced (Kaufmann et al., 2010).

Voice and Accountability (VA)

Political Stability and Absence of Violence/Terrorism (PV)

(b)

The capacity of the government to effectively formulate and implement sound policies (Kaufmann et al., 2010).

Government Effectiveness (GE)

Regulatory Quality (RQ)

(c)

The respect of citizens and the state for the institutions that govern economic and social interactions among them (Kaufmann et al., 2010).

Rule of Law (RL)

Control of Corruption (CC)

Voice and Accountability has been defined as freedom of expression, freedom of association and the citizen’s right to freely participate in selection of the government (Kaufmann et al., 2010). Hwang (2011) explains that the voice and accountability deals with the citizen participation in government as well as in the policymaking process. He further added that accountability actually represents the concepts like responsibility, answerability, blameworthiness, liability, and other terms related to account giving. He said that it can be considered as moral, administrative, political, managerial, market, legal, constituency, and professional accountability (Jabbra and Dwivedi, 1989). Hwang (2011) further adds that VA also deals with the, civil liberties in terms of the freedom of speech, assembly, demonstration, religion, and equal opportunity. Also for transparent political system, fair elections, representative legislative, free vote, political parties, no dominant group, respects for minorities should be secured without military involvement in politics. Hwang (2011) depicts that people’s voices must be heard by a decent fashion and there should be free media from any pressure. People should not be treated because of ethnicity, race, or their political, religious beliefs and should not be harassed or imprisoned. In addition, there should be accountability and transparency public sector in the economic field and governmental policies.

It has been defined that by unconstitutional and violent means and by political motivated violence and terrorism, governments can be destabilized or overthrown (Kaufmann et al., 2010).Hwang (2011) explains that PV deals with the political stability and deals with the issues related to conflict between ethnic, religious and regional nature. Moreover, it deals with the violent actions by silent political organizations, social conflicts, etc. It also includes the measurement of the fractionalization of the political range. Moreover, societal conflict like strikes, demonstrations, street violence is also the part of this indicator including the military coup risk. Furthermore, major insurgency and rebellion, political terrorism and assassination, urban riots, armed conflict, and state of emergency or martial law are also the important determinants of this indicator. Continuing the same conflicts like internal and external political violence and its consequences on governance has been measured for effective political system. Reason to measure the government ability is to disclose a government’s stability for the projects being initiated.

This includes quality of public and civil services and ratio of its independence from political pressures, the excellence of policy formulation and implementation, and the trustworthiness of the government's obligation to such policies (Kaufmann et al., 2010).To analyze the government obligations thorough public sector’s intuitive for policy development and implementation, Government Effectiveness indictor has been developed. This indicator comprises of government-citizen relations, quality of the supply of public goods and services, and capacity of the political authorities. With respect to the negativity of this measure it explains, government instability, government ineffectiveness and competency and capacity to cope with national problems that decreases the economic growth. Furthermore, it also encompasses the low level of global e-government, and low quality of bureaucracy or red tape. Furthermore, quality of bureaucracy is actually the strength of nation and which can be measured through institutional strength as well as quality of civil services. So if bureaucracy takes right and quicker decisions, more FDI can be expected in a country for socio-economic growth (Hwang, 2011).

Regulatory quality focuses on the private sector by taking into account the government capability to formulate and implement the policies for the development of the private sector (Kaufmann et al., 2010).For the promotion of the private sector a country, regulatory quality indicator has been designed. This indicator measures the government through institution development and implementation of policies effectively (Hwang, 2011). The WGI RQ deals with the business startup process, prices set by the government, self-controlled market prices, market entry mechanism for new businesses. It also deals with the export and import regulations, limitations on ownership of business and equity by non-residents, price controls, prejudiced tariffs, unnecessary protections, government regulations on stock exchange or capital markets, and foreign investment (Hwang, 2011). There are different other factors which can be taken into the consideration like inappropriate tax system, restriction on import, increased regulations, complexity in the tax system etc. Quality of this indicator may also be checked in developing countries particularly in the rural areas by assessing the pattern of financial services, local businesses, and agricultural production. Moreover, financial institutions' transparency, contracts open to foreign bidders, anti-protectionism, and reduction of subsidies to specific industries (Hwang, 2011).

Rule of law deals with the confidence of the society about the rule of law for contract enforcement, property rights, crime, violence, courts, and police (Kaufmann et al., 2010). Hwang (2011) explains that Rule of Law indicator covers the law relation in-between citizen and administration, the security of people and goods, criminal activity, informal economy, tax and customs evasion. This indicator also covers the justice system, property rights and contracts, the settlement of economic disputes, and protection of intellectual property. This not only focuses on the arrangements but also the enforcement of the policies. Moreover, financial fraud, money laundering, crime, kidnapping , the fairness and speediness of the judicial process, confiscation, nationalization, quality of police, the free judiciary from political pressure, the insufficient legal framework and the degree of the threat that businesses face from crime such as kidnapping, extortion, street violence, burglary, etc. (Hwang, 2011).

This deal with the perceptions of public power exercised for private gain and taken into accounts both petty and grand forms of corruption. Moreover, dominance of the state by elites and private interests (Kaufmann et al., 2010).By reviewing the above literature review and evidence of NG and its impact on SEG, there is need to revisit the impact of NG on SEG. Thus, this study proposes its first testable hypotheses as follows.

This study endeavors to draw the structural links between National Governance (NG), National Intellectual Capital (IC), and Socioeconomic Growth (SEG) of Pakistan. This study is quantitative and based on 7 years data gathered form Worldwide Governance Indicators, Pakistan Development Review (PDR), Human Development Index (HDI) and Economic Survey of Pakistan covering period from 2006 to 2011. Worldwide Governance Indicators have been selected by keeping in view that these are the only indicators depicting the closest governance practices in Pakistan. Moreover, for National Intellectual Capital, data has been taken from research work done by (Sandhu et al., 2011). This study is the extension of Edvisson and Malone (1997)’s model. They proposed Skandia Navigator that has been used in designing the framework that provides IC measurement at national level. Edvinsson and Malone (1997) proposed the Skandia Navigator. This model is known for its contribution for measuring national knowledge assets. Skandia Navigator represents the balance view of the financial capital as well as intellectual capital. This model uses the philosophy of a house to represent a nation. Financial capital is the roof of the house and represents the history comprised of achievements. Process capital and Market capital represents the operations of nations on which it is working. Renewal and development capital is the foundation of the house representing that how a country will secure the future. In the middle there is Human capital and is representing the heart of a nation. As this is comprised of the human so is being reflected with the knowledge, skills, and capabilities of the people of the nation. This model provides comprehensive analysis of national knowledge assets and particularly task of detecting and correcting by aligning the input, process with output and finally outcomes (Malhotra, 2003).

Finally, all three hypotheses are summarized as follows:

GDP