Key takeaways
- The link between investment and growth has weakened in emerging markets since the 2000s.
- Investors respond to stability, policy consistency and contract enforcement, not one-off packages.
- Tax holidays and subsidies without reform redirect capital to rent-seeking.
- Smaller, well-executed projects beat large ones in weak governance settings.
- Investment promotion must move together with export, skills and governance reform.
In this Minute Mirror column (January 2026), Dr. Ghulam Mohey-ud-din challenges the assumption that Pakistan can invest its way to growth. Without institutional reform and macroeconomic credibility, he argues, more capital produces little lasting return.
The argument
Drawing on World Bank and IMF research on emerging and developing economies, the column notes that the relationship between investment and growth has weakened since the 2000s. Capital formation no longer delivers productivity gains automatically.
Private investors respond to macroeconomic stability, consistent policy, reliable contract enforcement and fair competition. A single incentive package cannot substitute for those. Pakistan’s experience with infrastructure spending and tax holidays shows the limits: projects have not sustained growth because the policy environment lacks credibility, and regulatory uncertainty and bureaucratic delay cut returns.
Quality matters more than quantity. In weak governance settings, smaller projects that are well executed outperform large ones. Tax holidays and subsidies work only inside a broader reform programme; on their own they redistribute capital towards rent-seeking. The countries that succeeded combined capital formation with stronger institutions, trade integration, skills and better public administration at the same time.
What needs to change
- Replace transactional, deal-by-deal policymaking with systemic institutional reform.
- Reduce informality, deepen financial intermediation and enforce competition law.
- Coordinate investment promotion with export development, human capital, labour reform and public administration.
- Prioritise medium-term debt sustainability, credible monetary policy and predictable regulation over short-term sectoral packages.