Our analysis of private industrial investment, which covers the entire period of the sixties, i.e. the boom as well as the subsequent slowing down, provides us with substantial evidence of the factors which influenced it in this period. We have analysed the factors which induced the growth and pattern of industrial investment and identified the importance of institutional and supply factors, especially foreign aid, which emerge as playing a crucial role in explaining industrial investment in this period.

Our analysis suggests that the economic system which operated in Pakistan in the sixties was quite different from that suggested by earlier writers. It bore little resemblance to classical nineteenth-century capitalism (portrayed by writers like Papanek). On the other hand, the system did not fail because the capitalist class were no longer prepared to ‘play the game’ or had lost the desire to invest (as, for example, Nulty would make us believe). The system which operated in Pakistan came very close to being what we can term a ‘Foreign Aid Dependent Regime’ in which the mechanics of industrial growth were in one way or another made dependent on foreign aid inflows. Once these aid flows slowed down, the system, not being able to replace foreign aid with other forms of external finance like direct foreign investment, and without the peculiar boost to profitability associated with the local system for dispensing aid, found it difficult to sustain the earlier growth it had generated.

Behaviour of private industrial investment – an explanation

We now offer an explanation of the behaviour of private industrial investment in the sixties based on the factors we have investigated in detail, together with other wider considerations where relevant.