Macroeconomic impacts of cigarette consumption in Pakistan

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Pakistan has a large population of tobacco users, with about 24 million adults consuming tobacco products in one form or another. There is a dearth of research on the impact of a reduction in tobacco use on Pakistan’s economy which can inform policy-makers on the extent that tobacco control measures would affect macroeconomic indicators such as output and employment.

The objective of this study is to quantify the changes in output, income and employment resulting from changes in cigarette consumption and to quantify the impact of such changes on the overall economy.

The study uses the input–output table for the fiscal year 2010–2011 for Pakistan’s economy, to estimate the output, income and employment multipliers. The Leontief input–output model is used to estimate the sectorwise multiplier effects. It estimates direct, indirect and consumption-induced effects of changes in tobacco use on the economy. 

The cigarette industry’s share in large-scale manufacturing and industrial employment is 1.1% and 0.3%, respectively. The estimates of gross output, income and employment multipliers for the cigarette industry have relatively small magnitudes indicating minimal impact on the economy. A simulation analysis based on the latest estimates of price elasticity of cigarette and input–output multipliers, shows that a 10% increase in price will lead to an 11% reduction in cigarette consumption, which translates into annual savings of Pakistani Rupees (Rs) 16 billion by households. Reduction in cigarette consumption will allow individuals to spend their savings on other commodities. For example, spending this amount on food items will lead to a net increase of Rs 40 billion annual output of the economy.

Reduction in tobacco consumption will lead to initial losses to the economy but there will be considerable gains in output, employment and income due to redistribution of tobacco expenditures.