Is the China-Pakistan economic corridor an opportunity or a threat for small and micro-entrepreneurs? Empirical evidence from Northern Pakistan

Abstract

Are the mega-projects an opportunity or threat for micro and small firms? This question has rarely been examined in the literature. Micro and Small Enterprises (MSEs) have always been at the forefront, playing an important role in the development of rural economies in developing countries like Pakistan. Since the China-Pakistan Economic Corridor (CPEC) project has been initiated, northern Pakistan (Gilgit-Baltistan) has witnessed a huge tourist inflow. As a result, the mushrooming of businesses along the CPEC route is a new phenomenon. The increasing trends in tourism inflow on one side offer new opportunities for MSEs while, on the other side, it increases the competition level among the firms. In the background, this research aims at contributing to existing academic scholarship on whether increasing competition is healthy for the growth and sustainability of MSEs or it might challenge their future progress. To examine this question, we carried out field surveys. Through questionnaires, we collected data for 280 micro and small firms operating in the tourism sector along the CPEC route. The study investigates current and future prospects of micro and small enterprises in the region, given that the CPEC is fostering tourism, which has its effects on the allied industries as well. The study relies on the Jovanovic (1982) model of firm growth and theory of market participation for its theoretical foundation and uses a logistic regression model as the estimation strategy. The findings suggest that the CPEC is not the only opportunity for tourism-related micro and small enterprises but also helpful for the growth of medium and large firms. The implications are that if MSEs could not prepare themselves to compete, there is a chance that medium and large firms would replace them. Growth of MSEs is conditional on easy access to finance and borrowings.