Energy Crisis, Firm Productivity, Political Crisis, and Sustainable Growth of the Textile Industry: An Emerging Economy Perspective

Abstract

Pakistan’s textile industry is suffering from an electricity shortage and political turmoil. Due to a state of instability in which nothing is certain, things cannot be brought into balance by the state. Therefore, we employ firm-level data (101) to investigate the impact of expected and unexpected power outages on textile firm productivity throughout 2014 to 2019. The study assesses the importance of political stability for the flourishing of Pakistan’s textile sector. Outages were found to significantly negatively impact textile sector sales revenue, likely leading to lower results (by 0.240% and 0.0569%). The duration and frequency of outages had significant adverse influences on reducing firm revenue. It has been estimated that a 1 h outage will cause to loss of revenue of approximately 24 percent. Comparatively, load-shedding hours had a smaller impact on lowering firms’ sales revenues, which were 5% to 8% with and without political stability inclusion. Further, outage hours decreased the export of textiles by 0.286%. The magnitude of export reduction by outages and load shedding was higher. The driving impact of political stability was higher than the impacts of expected and unexpected shortages. A stable political system is necessary to develop feasible solutions.

1. Introduction

Energy crises or significant bottlenecks in the supply of energy have always been a barrier to the economic growth of world economies. For instance, in the OPEC oil embargo of 1973, oil prices rose by 350%, and the higher costs rippled through the economy and worsened the economic conditions, e.g., businesses laid off workers, and there was inflation and economic stagnation [1]. The second biggest energy crisis was the 1979 oil crisis, caused by a drop in oil production in the wake of the Iranian Revolution. Therefore, the decade of the 1970s was a period of negative economic/industrial growth because of the energy crunches.

Yet, the world is facing a deepening energy crisis, which is partly due to the global supply disruptions, geopolitical havoc, wars, and market manipulation that eventually affect the industry. Currently, the Ukraine–Russia war has a profound effect on the world’s biggest economies. According to IEA (2022) [2], the Ukraine–Russia war had far-reaching impacts on the global energy system and businesses worldwide, hurting households, industries, and entire economies—particularly developing economies.

This energy crisis also affects the textile industry in most of the world’s economies. According to EURATEX [3], the present energy crisis is affecting the European textile and clothing industry as it requires a consistent supply of power and gas at competitive global rates. Similarly, high energy prices have seriously affected Albania’s textile industry [4]. As energy is an essential input for most business processes, an unreliable supply can hurt a firm’s productivity. Pakistan is also facing this energy crisis; thereby, Pakistan’s textile industry is currently suffering. The significance of Pakistan’s Textile Industry (TID) cannot be understated.

Pakistan’s economy relies heavily on its many sectors; however, the Textile Industry is the primary driver of economic development. It is true that TID is the cornerstone of the Pakistani economy as TID significantly contributes to the national output, employment generation, and exports [5]. Approximately 60% of Pakistan’s total exports, or US $7.72 billion (USD) worth of Pakistani exports at the beginning of the year 2018, are attributed to its thriving textile sector [6]. The sector accounts for around 46% of Pakistan’s overall output and exports, contributing nearly 8.5% of the nation’s GDP [6]. Indeed, the TID sector is placed second in Pakistan and eighth in the Asian region for textile goods. On top of that, Pakistan is a major cotton producer and spinner. More than 15 million people are employed due to the cotton production and spindle capacity [7].

Despite tremendous participation in trade, the textile industry has faced many challenges for decades. It is becoming increasingly difficult to compete in today’s global market, and there is severe competition in the business. Javed [8] claimed that, although the textile industry is one of Pakistan’s major export contributors, it is still far from reaching its full potential and has not performed up to par. According to Global Village Space News, Pakistani TID makes up only less than 5% of the total global textile exports, which is unsatisfactory for speeding up Pakistan’s economic growth. Pakistan’s textile sector has suffered from several significant internal issues that have struck the backbone of Pakistan’s textile industry.

An inadequate power supply is one of the main internal issues that melt down textile performance during various periods. Ataullah [7] found poor performance of Pakistan’s TID from 2007–2008. Hasan [9] stated that power shortages and rising electricity prices reduced textile companies’ productivity, making it harder for them to compete with less expensive Chinese and Indian suppliers. Consequently, several textile industries have shifted to other countries, e.g., Bangladesh. An unstable electricity supply can severely impact a firm’s ability to conduct its commercial operations because this is a necessary input for a wide range of business processes. Therefore, the unreliable electricity supply is a serious barrier that is diminishing economic growth in many emerging countries, including Pakistan. Pakistan is experiencing the worst power shortages in South Asia at present.

Consequently, Pakistan is suffering load-shedding lasting up to 10 to 12 h a day [10]. The average demand for electricity on the K-Electric network is 3200–3300 megawatts, while the average shortfall is 400 MW. Alone, Lahore Electricity Supply Company Limited (LESCO) is reeling under an acute electricity crisis, facing a shortfall of 1000 MW as the demand is 4100 MW, and the supply power is 3100 MW. Pakistan’s textile sector is particularly affected by this widening shortage, as this sector’s exports directly impact the country’s unemployment rate.

The textile sector relies heavily on power, and growing load shedding could harm the industry’s output, impacting the export targets for the next fiscal year. Allcott [10] raised concerns about the effect of India’s lack of electricity on the productivity of manufacturing firms. Fisher-Vanden [11] investigated Chinese firms’ response to severe power shortages in the early 2000s and found that electricity scarcity significantly limited the firms’ productivity. Hardy and McCasland [12] analyzed the consequences of outages on small businesses and indicated that unstable electricity imposes a serious drawback. Other researchers have quantified the consequences of electricity shortages on firm productivity.

Foster [13] for Sub-Saharan Africa, Abeberese [14] studied in Ghana, and Jameel [15] analyzed the nexuses between interest rate, inflation, energy crises, and textile sector growth in Pakistan. In addition, poor infrastructure is widely identified as one of the primary obstacles to growth in developing countries. At the same time, electricity supply is often placed among the top infrastructural impediments to corporate growth and productivity [10].

Power shortage is a significant cause of degradation in the Pakistan textile sector; however, the question is: what other reasons make it severe or cured? Above and beyond, institutional quality or stability is paramount to speed up economic sectors [16]. A stable and effective government can properly respond to external shocks, such as energy supply shocks, currency shocks, and so on [17]. In contrast, an unstable or ineffective government cannot manage external shocks, which slows down the economic sector growth in the long run [18].

According to Yasmeen et al. [19], stable institutions are important to frame policy that can protect from external shocks, including in trade sectors. Countries with high control of corruption and regularity quality have real currency exchange rates that co-move less with the oil price [20]. Institutions frame policies regarding the environment, trade, and other sectors of the economy [19,21,22]. Therefore, we can say that a country’s political institutions are essential in shaping economic activities [23].

Therefore, it would not be wrong to say that political instability seriously affects the textile industry. A state of instability is one in which nothing is certain and where things cannot be brought into a balanced state. Thus, when there is political instability, industrialists must face hurtling issues. All economic actors and market participants can compete fairly and conduct themselves appropriately in a state with a stable government. For instance, textile mills can be encouraged to invest in the country on a large scale, and the government can make a favorable policy for textiles. Encouraging investment on such a scale in textiles can have positive spillover effects on both the underlying industry and allied ones.

On the other hand, if the country is experiencing political polarization, then inflation will rise as will the cost of production and inadequate power supply, thereby, reducing profitability and forcing textile mills to close. Thus, a stable government is mandatory to control the inefficient factors that can hinder the economy and business sector. Since political stability is a key factor in establishing trust with investors and shareholders, which eventually affects the country’s economic health [24,25,26], a power outage negative shock to the productivity of enterprises can be controlled by the government with proper policies.

We performed this research at the firm level from (2014 to 2019) on the subject of the electricity supply and the government’s role in Pakistan’s textile sector. The textile sector is one of the key sectors in Pakistan that can uplift the Pakistan economy at a brilliant rate; however, the current political turmoil and electricity shortages are the major problems in providing a steady power supply to run the production processes.

This paper contributes to the literature in the following ways. First, this study uses firm-level data from 101 firms (2014–2019) to recognize the impacts of expected and unexpected power outages (power supply) on textile firm productivity. The productivity of the textile firm is gauged by both sales revenue and labor productivity. Revenue productivity is defined as firm-level l sales revenue. Labor productivity is defined as the labor input per unit of output.

The second important contribution is the impact of expected and unexpected power outages on textile firm exports. This will shed light on textiles’ performance in the trade sector, which can be affected by power shortages. Third, the study evaluates the impact of political stability on textile productivity. For political stability, we used the world governance indicators database. As per our knowledge, there is no current study that has evaluated the impact of political stability (political and institutional stability) on Pakistan’s textile sector. Therefore, this study is a valuable addition to the literature—further, we remark on the flow of foreign investment, including textile sectors, as accompanied by political stability.

2. Materials and Methods

2.1. The Ins and Outs of Pakistan’s Power Shortfall

Pakistan’s unbalanced electrical demand and supply have lingered for years. Until recently, this electric supply shortfall caused a deficit of approximately 8000 MW during peak demand, and this is increasing daily. Economical and institutional inconsistencies can play a key role in Pakistan’s electricity problem [27]. Pakistan’s “electricity network” structure has important implications for the electricity industry.

Pakistan’s electricity is generated and distributed by two vertically integrated public organizations: the Water and Power Development Authority (WAPDA), which is in charge of producing hydroelectricity that is supplied to the consumers by the power distribution companies (DISCOS), which work under the Pakistan Electric Power Company (PEPCO). The main power distribution companies in Pakistan are displayed in Figure 1. The power distribution companies greatly rely on large and recurrent public subsidies.

Further, inadequate capacity in the networks affects the efficient functioning of distribution companies [28]. Figure 2 shows the load-shedding hours from 2014 to 2019. It is evident that the GEPCO division shows the highest load-shedding hours. Each electricity-providing company’s daily load-shedding hours in its premises differs from others due to the power generation capacity, line losses, and priority to industrial zones. Therefore, the load-shedding intervals are different for different areas of the country.

From the electricity distribution side, Pakistan faces two main issues: electricity theft and line losses. Before reaching the end customers, electricity from power plants flows through transformers, overhead wires, cables, and equipment. At the same time, the equipment used for electricity transmission is often obsolete or inefficient, resulting from long transmission lines and excessive load, which cause voltage drops. At the same time, Pakistan’s electricity sector suffered electricity theft, meter tampering, and unpaid bills that cost the economy 6.5 percent of GDP in 2015 [29]. As of 2018–2019, the public sector’s average line losses were 18.3 percent.

PESCO’s line losses remain the second most inefficient, at 36.2% in 2018–2019. This inefficient structure, mishandling, and illegally tapping into their line create a vicious cycle of load-shedding and financial losses for the electricity sector. Apart from that, electricity price is unmatched by production cost, creating an extra burden on the department. According to McRae [30], underpricing of electricity disrupts the incentives for power providers to offer high-quality services, leading to a situation known as a “subsidy trap.” Gas supply chains also significantly cause power crises. Additionally, there were massive losses in gas distribution and transmission that reached 12% of the entire supply in 2016.

2.2. Power Shortages, Textiles, and Political Instability

The textile sector’s contribution to the national economy shows its importance and impact. Therefore, the textile industry needs a long-term investment plan to become a sustained development driver. Indeed, this sector has a huge untapped export potential and could steer Pakistan’s economy. However, this sector remains vulnerable in Pakistan due to load shedding and political instability. A steady electricity supply is crucial to textile manufacturers’ operations.

Electricity shortages can have a variety of effects on textile firm productivity. The load shedding creates unrest and forces industries to stop producing goods, causing waste of non-flexible and semi-flexible inputs during a power outage [10]. Further, firms can shift to alternative expensive energy sources, causing decreases in the profitability of the firms [31]. Energy shortages will likely result in more textile manufacturing being outsourced [31].

According to Fisher-Vanden [11], a lack of electricity could dramatically raise the cost of production. Consequently, electricity constraints may cause companies to shun energy-intensive technologies; however, transferring to less technologically advanced manufacturing methods can affect firms’ long-term productivity growth [32]. Assuming that the energy crisis alone is responsible for all issues is overly simplistic. Political stability is the most important factor that can control the negative factors and set the economy on the right track. Political instability leads to a breakdown in the growth of every sector of the economy.

However, stakeholders can compete on an even playing field and act appropriately if political institutions are stable. Unfortunately, there is a lack of stability and consistency in Pakistan (See Figure 3). The current situation of Pakistan’s economic downfall is evidence of this. Presently, load shedding is at its peak, thereby, increasing inflation and lowering purchasing power. According to All Pakistan Textile Mills Association’s Chairman, the country’s textile industry has been severely hampered by the suspension of electricity and gas supplies to businesses, particularly in Punjab. All these pose considerable impediments to growth expansion.

2.3. Unintended Consequences of Current Load Shedding and Political Instability on Textiles

Pakistan is currently under severe energy crises and political instability. The section investigates the relationships between power shortages, political stability, and textile sector performance. The current load-shedding situation and political instability’s consequences can be generalized to textile performance.

According to the Pakistan Readymade Garments Manufacturers and Exporters Association (PRGMEA), the government is playing havoc with the textile industry and exports, as it could not complete its targeted exports due to load shedding. They further mentioned that the government must take quick action to prevent forced load-shedding. As thousands of megawatts of power are in low supply across the country, particularly in the export hub of Sialkot, due to a lack of fuel, technical faults, failure to purchase fuel, and maintenance of the power plant.

Due to the negative repercussions of the load shedding, many industrial units have closed down their night shift production owing to the non-availability of power, while others might follow suit. The current severe load shedding would affect 30% of production, hit exports, and lead to an alarming rise in industry unemployment. Indeed, Pakistan’s energy sector has been facing great losses and distortions in the distribution sector for years.

Nevertheless, this sudden spike in load shedding may offset current political uncertainty. Figure 4 shows the monthly economic uncertainty mainly from chronic political instability. A sudden spike is evident from Feb-22 to April-22 due to a no-confidence vote and collation government. This amplified the huge uncertainty of Pakistan’s economy and policies, such as government policies, regulation, monetary policy, fiscal policy, central bank, FBR (or tax authorities), policymakers, parliament, deficit, reserves, taxes, tariffs, and legislation. Economic regulators and enterprises alike were badly impacted due to instability.

Further, this heightened political uncertainty had an economic impact on the macro and micro levels [19,33]. This eventually affects the energy sector, increasing the energy circular debt. Further, uncertain situations affect the fuel supply in terms of oil and gas, affecting the power plant and electricity distribution. For instance, the gas supply shortage of Textiles is increasing because of sky-high LNG prices. However, efforts made in good faith by all those who count can mitigate the negative consequences of political instability on all sectors of the economy, including power and textiles, and speed up the pace of economic expansion.

2.4. Data and Modelling Approach

In light of the above, the present study intends to empirically estimate the impact of load shedding on Pakistan’s textile industry. Using the Textile firm’s level data, the following regression form is estimated:

$$T{Y}_{ij}={\alpha }_0+{\alpha }_1\times T{O}_i+{\alpha }_2\times L{S}_i+\varnothing \times Z_i+{\delta }_j+{\mu }_{ij}$$

(1)

where $T{Y}_{ij}$ represents the textile firm sales revenue, labor–output ratio, or exports of textile (j) firm i. TO and LS are the total outages and load shedding hours, Z is the representation of other controlled input variables (labor, salaries, cost of raw material, finance, other expenses, and Gross domestic income) of the firm (for data description, see

Table A1. Data description.

Variables	Definition of Measurement	Sources
Outage (Hours)	Both load shedding and unexpected outages	Distribution Companies (DISCO) Performance Evaluation Report 2019–2020 by NEPRA
Duration Index	System average interruption duration index
Frequency Index	System average interruption frequency index.
Load Shedding (Hrs.)	Average daily number of hours of load shedding
Political Stability	Index of Political Stability and Absence of Violence/Terrorism	Worldwide Governance Indicators.
Sales Revenue	The sale proceeds of the company after netting all components of expenses associated with sales.	Financial statement analysis of companies (non-financial) listed on the Pakistan stock exchange by the State Bank of Pakistan
Exports	Export sales (net of export sales)
Labor	Employees engaged in production
Finance	Total Capital employed
Raw material	Cost of all raw and other processing materials
Other expenses	General, administrative, including advertising
Salaries	Salaries, wages to employees
GDI	Gross domestic income (constant LCU)	World Development Indicators

, Appendix A) i. $\delta$ is sector fixed effect, and $\mu$ is the error term. In the next equation, we include the indexes that measure the frequency and duration of anticipated outages to highpoint the mechanism by which unexpected outages impact firm productivity.

$$T{Y}_{ij}={\alpha }_0+{\alpha }_1\times T{O}_i+{\alpha }_2\times {\mathrm{SF}}_i+{\alpha }_3\times S{D}_i+\varnothing \times Z_i+{\delta }_j+{\mu }_{ij}$$

(2)

$$T{Y}_{ij}={\alpha }_0+{\alpha }_1\times T{O}_i+{\alpha }_2\times L{S}_i\times {\alpha }_3\times {\mathrm{SF}}_i+{\alpha }_4\times S{D}_i+\vartheta \times P{S}_i+\varnothing \times Z_i+{\delta }_j+{\mu }_{ij}$$

(3)

SF is the System Average Interruption Frequency Index (SAIFI), which calculates the average number of interruptions that a customer experiences in a year (Figure 5). SD is the System Average Interruption Duration Index (SAIDI), which captures the outage duration (in minutes) that the average customer experiences in a year (Figure 6). These two indexes show the severity of the outage. The values of SAIFI and SAIDI continue to fluctuate widely from one area to the next. The SAIDI index shows that MEPCO and SEPCO have higher interpretations among the distribution companies. At the same time, the SAIFI index shows a high range of SEPCO.

FESCO shows low-range interruption in SADI and SAIFI indexes. In the last regression, we include the political instability impact on firm productivity, measured through the “Political Stability Index” (PS) described by (Kaufmann et al.) [34]. The Political Stability index means the Absence of Violence/Terrorism, which evaluates the perceptions of the chance that the government will be destabilized or overthrown by unconstitutional or violent means, including politically-motivated violence and terrorism. The index ranges from −2.5 (weak stability) to 2.5 (strong stability) in the economy.

2.5. Study Data

The textile data (2014–2019) was extracted from the financial statement analysis of companies (non-financial) listed on the Pakistan stock exchange by the State Bank. We included all 101 textile firms available in above-mentioned database. The distribution of firms listed on the Pakistan stock exchange is shown in

Table 1. Textile firms and electricity supply companies.

Textile Firms	District	Electricity Supply Company	No. Firms
Bannu Woollen Mills Ltd. Babri Cotton Mills Ltd. Janana De Malucho Textile Mills Ltd. Kohat Textile Mills Ltd.	Bannu, Kohat	PESCO	4
Shadab Textile Mills Ltd. Amtex Ltd. Ashfaq Textile Mills Ltd. Chenab Ltd. Ibrahim Fibres Ltd. Ideal Spinning Mills Ltd. Masood Textile Mills Ltd. The Crescent Textile Mills Ltd. The National Silk and Rayon Mills Ltd. Zahidjee Textile Mills Ltd.AN textile Mills Ltd. (Formerly Ishaq Textile Mills Ltd.) JA Textile Mills Ltd. JK Spinning Mills Ltd.	Faisalabad	FESCO	13
Elahi Cotton Mills Ltd. Redco Textiles Ltd. Yousaf Weaving Mills Ltd. Saif Textile Mills Ltd.	Islamabad, Chakwal, Rawalpindi	IESCO	4
Artistic Denim Mills Ltd. Blessed Textiles Ltd. de-up textile articles. Dewan Khalid Textile Mills Ltd. Din Textile Mills Ltd. Feroze1888 Mills Ltd. Gadoon Textile Mills Ltd. Globe Textile Mills (OE) Ltd. Gul Ahmed Textile Mills Ltd. Gulshan Spinning Mills Ltd. her textiles n.e.s. Idrees Textile Mills Ltd. International Knitwear Ltd. Ishtiaq Textile Mills Ltd. Island Textile Mills Ltd. Kohinoor Textile Mills Ltd. NP. Spinning Mills Ltd. Nadeem Textile Mills Ltd. Pakistan Synthetics Ltd. Paramount Spinning Mills Ltd. Premium Textile Mills Ltd. Quetta Textile Mills Ltd. Safa Textiles Ltd. Salfi Textile Mills Ltd. Sana Industries Ltd. Sapphire Textile Mills Ltd. Sunrays Textile Mills Ltd. Tata Textile Mills Ltd. Towellers Ltd. Tri-Star Polyester Ltd.	Karachi	K-Electric	30
Ghazi Fabrics International Ltd. Nagina Cotton Mills Ltd. Prosperity Weaving Mills Ltd. Resham Textile Industries Ltd. Ruby Textile Mills Ltd. Samin Textiles Ltd. Zephyr Textiles Ltd. Aruj Industries (Formerly Aruj Garment Accessories Ltd.) Azgard Nine Ltd. Chakwal Spinning Mills Ltd. Colony Textile Mills Ltd. Crescent Fibers Ltd. DS Industries Ltd. Ellcot Spinning Mills Ltd. Faisal Spinning Mills Ltd. Gulistan Textile Mills Ltd. Hala Enterprises Ltd. Hira Textile Mills Ltd. Kohinoor Spinning Mills Ltd. Nishat (Chunian) Ltd. Nishat Mills Ltd. Sajjad Textile Mills Ltd. Sally Textile Mills Ltd. Salman Noman Enterprises Ltd. Sapphire Fibres Ltd. Sargodha Spinning Mills Ltd. Saritow Spinning Mills Ltd. Service Industries Textiles Ltd. Shams Textile Mills Ltd. Suraj Cotton Mills Ltd. Asim Textile Mills Ltd. Shadman Cotton Mills Ltd. Dewan Farooque Spinning Mills Ltd. Kohinoor Mills Ltd. Glamour Textile Mills Ltd. Hamid Textile Mills Ltd. Shahtaj Textile Ltd. Reliance Cotton Spinning Mills Ltd. Rupali Polyester Ltd. Shahzad Textile Mills Ltd.	Lahore, Nankana Sahib, Kasur Sheikhupura	LESCO	40
Indus Dyeing and Manufacturing Co., Ltd. Bhanero Textile Mills Ltd. Dewan Textile Mills Ltd.	Hyderabad Kotri	HESCO	3
Ahmed Hassan Textile Mills Ltd. Allawasaya Textile and Finishing Mills Ltd. Fatima Enterprises Ltd. Fazal Cloth Mills Ltd. Maqbool Textile Mills Ltd. Reliance Weaving Mills Ltd. Mahmood Textile Mills Ltd.	Multan Muzaffargarh	MEPCO	7

Note: (District are also the name of cities located in Pakistan).

. Firm-level descriptive statistics are given in

Table 2. Descriptive statistics.

	Mean	Maximum	Minimum	Std. Dev.
Sales Revenue	7,896,602	84,323,910	148.0000	12,010,102
Textile Exports	3,835,457	47,986,113	0.000000	7,227,506
Political Stability	−2.384676	−2.265187	−2.483173	0.089163
Labor	643,584.9	6,818,202	12.00000	1,062,215
Finance	250,963.6	2,334,040	2.000000	395,730.6
Raw material	1,013,858	12,103,342	64.00000	1,717,701
Other expenses	472,250.7	7,738,610	520.0000	982,582.8
Salaries	810,318.0	9,550,320	300.0000	1,400,258

. The correlation table is given in

Table 3. Correlation matrix.

Probability	Sales Revenue	Outage (Hours)	SD	SF	PS	Raw Material	Finance	Labor Output Ratio(s)	Salaries	Others Expenses	Load Shedding	Exports	Labor	GDI
Sales Revenue	1
Outage (Hours)	0.078795	1
SD	−0.099396	−0.606189	1
SF	−0.104951	−0.971807	0.568332	1
PS	0.078109	−0.081184	−0.107301	−0.013226	1
Raw material	0.768262	−0.223247	−0.176865	−0.233976	0.054297	1
Finance	0.069963	0.030566	−0.042199	−0.003547	0.076507	0.006311	1
Labor output ratio(s)	0.066902	−0.099682	−0.084376	−0.075453	0.098321	−0.165712	0.001832	1
Salaries	0.902400	−0.070949	−0.084148	−0.091655	0.017067	0.733178	0.031093	−0.209025	1
Others expenses	0.761329	0.129432	0.075180	0.148525	0.051214	0.731627	−0.027229	−0.209514	0.824726	1
Load Shedding	−0.024182	0.017113	0.042997	0.020857	−0.066119	0.014631	0.118966	−0.053376	−0.020908	0.014258	1
Exports	0.529720	−0.030459	−0.029569	−0.058275	0.072696	0.471176	−0.035708	−0.076821	0.504781	0.582879	−0.015258	1
Labor	0.882156	0.074383	0.098148	0.087286	−0.017671	0.749835	0.081726	−0.335982	0.945277	0.801012	−0.000968	0.474863	1
GDI	0.090514	−0.069810	−0.070493	−0.019924	0.762529	−0.029222	−0.080132	0.069291	0.029275	0.029881	−0.132687	0.037886	−0.016187	1.000000

. The results show that most of the values are less than 0.8. However, some indicator values (salaries and SF) are higher than 0.8, implying that there might be a multicollinearity issue in the model. Therefore, the study also checks the VIF test for multicollinearity. The results in

Table 4. Multicollinearity test.

	Dependent Variables
	Sales Revenue	Labor Output Ratio(s)	Exports
Variables	VIF (1/VIF)	VIF (1/VIF)	VIF (1/VIF)
Outage (Hours)	1.07 (0.936253)	1.07 (0.931392)	1.07 (0.931392)
Duration Index	1.53 (0.653563)	1.52 (0.659994)	1.53 (0.653386)
Frequency Index	1.56 (0.639135)	1.52 (0.656587)	1.56 (0.639028)
Load Shedding (Hrs.)	1.04 (0.962991)	1.04 (0.966144)	1.04 (0.966144)
Political Stability Index	1.03 (0.974281)	1.03 (0.974448)	1.03 (0.971476)
Labor	3.54 (0.282466)		3.64 (0.274800)
Finance	1.04 (0.960055)	1.03 (0.968903)	1.04 (0.960004)
Raw material	2.66 (0.376589)	2.24 (0.447086)	2.73 (0.366365)
Other expenses	3.85 (0.259707)	3.04 (0.328530)	3.89 (0.256957)
Salaries	1.98 (0.505256)	1.92 (0.520360)	1.98 (0.504842)
GDI	2.81 (0.355873)

show that the value of VIF is less than 10, indicating no multicollinearity between the variables.

Information on power outages was acquired from the distribution corporations’ Annual Performance Evaluation Report (DISCO) issued to the National Electric Power Regulatory Commission (NEPRA). We combine firm-level data with shortage data from same-district distributors.

3. Empirical Estimation’s Outcomes

This section assesses the textile’s productivity performance in two ways: (1) load shedding impact and (2) political stability impact. For productivity assessment, the study includes the sales revenue, export of textiles, and labor–output ratio.

3.1. Subsection Load Shedding, Political Instability, and Product Sales Revenue

In

Table 5. Impacts of shortages and political stability on “Sales of the Textiles” revenues.

Variable(s)	Sales Revenue	Sales Revenue	Sales Revenue	Sales Revenue	Sales Revenue	Sales Revenue
Outage (Hours)	−0.240 ***		−0.0569 *		−0.0843
	(0.0827)		(0.0262)		(0.0846)
Duration Index		−0.347 ***		−0.373 ***		−0.553 ***
		(0.128)		(0.0869)		(0.124)
Frequency Index		−0.602 **		−0.541 ***		−0.779 ***
		(0.250)		(0.125)		(0.151)
Duration × Frequency		0.00661 **		−0.0712 **
		(0.00168)		(0.0180)
Political Stability index			0.814 **	0.873 ***	0.840 **	0.237 *
			(0.281)	(0.178)	(0.386)	(0.142)
Labor	0.364 ***	0.394 ***	0.316 ***	0.358 ***	0.373 ***	0.381 ***
	(0.0584)	(0.0583)	(0.0732)	(0.0702)	(0.0569)	(0.0570)
Finance	0.169 ***	0.156 ***	0.154 **	0.172 ***	0.152 ***	0.151 ***
	(0.0269)	(0.0270)	(0.0580)	(0.0297)	(0.0263)	(0.0263)
Raw material	0.137 ***	0.117 ***	0.147 *	0.151 **	0.139 ***	0.134 ***
	(0.0314)	(0.0309)	(0.0650)	(0.0374)	(0.0306)	(0.0303)
Other expenses	−0.135 **	−0.157 ***	−0.109 ***	−0.128 **	−0.116 **	−0.124 **
	(0.0532)	(0.0528)	(0.0197)	(0.0417)	(0.0522)	(0.0523)
Salaries	0.427 ***	0.411 ***	0.512 ***	0.412 ***	0.404 ***	0.397 ***
	(0.0622)	(0.0619)	(0.0884)	(0.0555)	(0.0602)	(0.0603)
GDI					2.284 ***	1.917 ***
					(0.416)	(0.479)
Constant	4.822 ***	3.066 ***	0.697	−0.478	76.86 ***	64.63 ***
	(0.913)	(0.678)	(1.563)	(0.565)	(13.62)	(15.66)
Sector FE	Yes	Yes	Yes	Yes	Yes	Yes
Observations	606	606	606	606	606	606
R-squared	0.574	0.583	0.163	0.169	0.605	0.606
Number of Textiles	101	101	101	101	101	101

Note: Standard errors in parentheses *** p < 0.01, ** p < 0.05, * p < 0.1.

, the dependent variable is the sales revenue of textile firms. All regression outcomes include the sector-specific fixed effects. In the first two regressions, we did not include the political stability impact. On the other hand, the last two regression outcomes include the political stability situation. The outcomes of columns 1 and 3 highlight that the outage hours significantly negatively affect textile sector sales revenue. We estimated that outage (hours) likely leads to lower textiles revenue roughly by 0.240% and 0.0569%. In addition, we included two indices for unexpected outages in Table 4, which enabled us to evaluate whether the duration and frequency of an outage had a massive impact on sales revenue.

According to the projections, both indices do not show offsetting impacts. In our estimated columns 2 and 4, the duration and frequency of outages have a significant adverse influence on reducing the firm’s revenue. The outcomes of duration and frequency interaction terms reported in columns 2 and 4 show somewhat offsetting effects. The interaction term impacts in column 2 are positive, while column 4 is negative. However, the magnitude impact of the negative term is higher, indicating that its offsetting positive impact is minor relative to the main effects. This implies that the shortage of electricity is detrimental to textile firm productivity.

In columns 3 and 4 of Table 5, we include the political stability index to identify the textile firm’s productivity. The results indicate that political stability is positive for the firm’s productivity growth, as firms’ revenue increases by 0.814% and 0.873%. Political instability can detract from the firm’s performance. Arslan [31] stated that political stability is necessary to flourish the sector. They further stated that politically unstable countries help outsource the firms to other countries. As insecurity increases and investment shifts in other countries, there is a real chance of losing certain international customers if this situation persists for another 5 to 10 years.

Further, political stability is much higher than is the power shortage. This implies that political instability may be the source of every shakiness the country faces. For instance, the lack of proper policies, implementation, consensus on policies, and the priority of handling issues, attracting foreign investment, and encouraging domestic industries can all be addressed in a politically stable country [24,26].

Further, we added the gross domestic income impact in the last two columns. The results indicated that textile sales would increase with domestic income. Additionally, the magnitude impact of domestic income is significantly higher. Other factors (labor, raw material, financial support, and salaries) have positive drivers except for other expenses.

Table 6. Impact of outages, load shedding, and political instability on “Sales of the Textiles” revenues.

Variable(s)	Sales Revenue	Sales Revenue	Sales Revenue	Sales Revenue	Sales Revenue
Outage (Hours)	−0.311 **	−0.233 ***	−0.243 *	−0.0567 *	−0.0679
	(0.122)	(0.0829)	(0.120)	(0.0247)	(0.0847)
Hours/Day Load Shedding (Hrs.)	−0.0636 *	−0.0567 *	−0.141 ***	−0.0803 ***	−0.0929 **
	(0.0375)	(0.0248)	(0.0330)	(0.0185)	(0.0441)
Political Stability Index			0.770 **	0.885 **	0.776 **
			(0.255)	(0.256)	(0.386)
Labor		0.364 ***		0.316 ***	0.370 ***
		(0.0583)		(0.0712)	(0.0567)
Finance		0.172 ***		0.158 **	0.158 ***
		(0.0271)		(0.0570)	(0.0264)
Raw material		0.136 ***		0.147 *	0.139 ***
		(0.0314)		(0.0649)	(0.0305)
Other expenses		−0.131 **		−0.106 ***	−0.110 **
		(0.0532)		(0.0193)	(0.0521)
Salaries		0.422 ***		0.505 ***	0.396 ***
		(0.0623)		(0.0874)	(0.0601)
GDI					2.338 ***
					(0.415)
Constant	17.34 ***	4.824 ***	14.93 ***	0.601	78.31 ***
	(0.954)	(0.913)	(1.229)	(1.518)	(13.59)
Sector FE	Yes	Yes	Yes	Yes	Yes
Observations	606	606	606	606	606
R-squared	0.020	0.576	0.022	0.350	0.608
Number of Textiles	101	101	101	101	101

Note: Standard errors in parentheses *** p < 0.01, ** p < 0.05, * p < 0.1.

assesses the impact of unexpected outage hours and load-shedding hours on a firm’s revenue. The impact of outage hours on revenue is negative throughout the regression outcomes. We estimate that a 1 h outage will cause to loss of revenue of approximately 23 percent. Comparatively, load-shedding hours have a smaller impact on lowering the firm’s sales revenue, which is 5% to 8% with and without political stability inclusion, respectively. Unexpected shortages would be harder to respond to than planned load-shedding.

Political stability is a stronger indicator of promoting the textile sector. This can have the ability to increase revenue by more than 80%. Again, the driving impact of political stability is higher than expected and unexpected shortage. Other factors (labor, finance, raw material, and salaries) positively affect firms’ revenue. However, other expenses are negative to increase the revenue. The GDI impact with load shedding is again positive to increase the sales revenue. The results again verified that, with a one percent increase in domestic income, the sale of textiles will likely increase by 2.338%.

Table 7. Impact of outages, load shedding, and political instability on the labor–output ratio.

Variable(s)	Labor Output Ratio(s)	Labor Output Ratio(s)	Labor Output Ratio(s)	Labor Output Ratio(s)	Labor Output Ratio(s)	Labor Output Ratio(s)
Outage (Hours)	−0.234 **		−0.231 **	−0.0569 *		−0.658 *
	(0.0919)		(0.0920)	(0.0262)		(0.317)
Duration Index		−0.431 ***			−0.317 *
		(0.141)			(0.135)
Frequency Index		−0.221 *			−0.333 *
		(0.110)			(0.160)
Duration × Frequency		−0.638 **			−0.0187 ***
		(0.277)			(0.00382)
Hours/Day Load Shedding (Hrs.)			−0.0568 *			−0.0803 ***
			(0.0232)			(0.0185)
Political Stability index				0.814 **	0.590 **	0.885 **
				(0.281)	(0.148)	(0.256)
Finance	0.177 ***	0.163 ***	0.181 ***	0.154 **	0.150 **	0.158 **
	(0.0299)	(0.0295)	(0.0301)	(0.0580)	(0.0541)	(0.0570)
Raw material	0.0427	0.0369	0.0422	0.147 *	0.143 *	0.147 *
	(0.0336)	(0.0330)	(0.0336)	(0.0650)	(0.0632)	(0.0649)
Other expenses	−0.253 ***	−0.265 ***	−0.251 ***	−0.109 ***	−0.111 ***	−0.106 ***
	(0.0579)	(0.0570)	(0.0579)	(0.0197)	(0.0171)	(0.0193)
Salaries	0.0630	0.0745	0.0674	0.512 ***	0.484 ***	0.505 ***
	(0.0477)	(0.0466)	(0.0479)	(0.0884)	(0.0994)	(0.0874)
Constant	5.564 ***	5.278 ***	5.583 ***	0.697	2.260	0.601
	(1.012)	(1.230)	(1.012)	(1.563)	(2.047)	(1.518)
Sector FE	Yes	Yes	Yes	Yes	Yes	Yes
Observations	606	606	606	606	606	606
R-squared	0.113	0.153	0.114	0.035	0.101	0.085
Number of Textiles	101	101	101	101	101	101

Note: Standard errors in parentheses *** p < 0.01, ** p < 0.05, * p < 0.1.

uses labor productivity as the dependent variable because the inadequate supply of power negatively impacts the firm’s productivity. However, small and medium-sized firms may differ in their impacts. The results reported in columns (1, 3, 4, and 6) show that labor–output decrease with increasing outage hours. This distorts the production process, and firms cannot operate at optimal levels, which leaves businesses vulnerable.

Similarly, the impacts of duration and frequency indices negative impact productivity. These results are indorsing with our previous results. Further, the impact of political stability on the labor–output ratio is positive. Additionally, the impact magnitude of political stability compared to power shortage is higher (approximately 80%).

3.2. Load Shedding, Political Instability, and Textile Exports

As discussed in the former sections, Pakistan’s textile sector contributes significantly to GDP and is the eighth largest exporter in the ASIA region. This is why power shortages and political instability can significantly affect textile exports. Further, energy crises and an unstable political environment restrict this sector from rising at the pace of potential. The results in

Table 8. Impact of outages, load shedding, and political instability on “Textile Exports”.

Variable(s)	Exports	Exports	Exports	Exports	Exports	Exports
Outage (Hours)	−0.885		−0.286 *	−0.284 *		0.136
	(0.602)		(0.136)	(0.128)		(0.137)
Duration Index		−1.400 **			−0.000641 **
		(0.356)			(0.000181)
Frequency Index		−3.243 ***			−0.0413 **
		(0.595)			(0.0128)
Duration × Frequency		−0.672 ***			0.154 ***
		(0.204)			(0.0273)
Hours/Day Load Shedding (Hrs.)			−0.252 **			−0.606 *
			(0.0873)			(0.280)
Political Stability index				0.266	0.242 ***	0.0983 **
				(1.889)	(0.0185)	(0.0300)
Labor	0.547	0.392 *	0.715 ***	0.740 ***	0.385 *	0.671 ***
	(0.425)	(0.179)	(0.163)	(0.146)	(0.177)	(0.133)
Finance	−0.234	−0.334 *	0.0901	0.0796	−0.327	0.0777
	(0.196)	(0.196)	(0.178)	(0.180)	(0.197)	(0.183)
Raw material	0.712 ***	0.632 ***	0.373 **	0.384 **	0.642 **	0.389 ***
	(0.228)	(0.224)	(0.120)	(0.114)	(0.199)	(0.0778)
Other expenses	−1.609 ***	−1.496 ***	−2.228 ***	−2.247 ***	1.530 **	−2.195 ***
	(0.387)	(0.383)	(0.281)	(0.293)	(0.453)	(0.247)
Salaries	−0.495	−0.641	0.749 ***	0.761 ***	−0.636	0.734 ***
	(0.452)	(0.449)	(0.132)	(0.142)	(0.550)	(0.124)
Constant	3.923	−3.254	−20.88 **	−25.44 **	−6.717	−27.28 **
	(6.642)	(4.922)	(5.885)	(9.055)	(9.873)	(8.944)
Sector FE	Yes	Yes	Yes			Yes
Observations	606	606	606	606	606	606
R-squared	0.055	0.079	0.094	0.219	0.1156	0.357
Number of Textiles	101	101	101	101	101	101

Note: Standard errors in parentheses *** p < 0.01, ** p < 0.05, * p < 0.1.

show that outage hours significantly decrease the export of textiles by roughly 28 percent. In column (6), the impact is positive but insignificant, and the magnitude is comparatively minute. Duration and frequency indices show that exports are negatively affected by the power shortage.

The interaction terms of both indices are negative in column 2 and positive in column 5. The interaction term has the opposite sign; however, the magnitude is substantially lower, and therefore its offsetting impact is minor compared to the main effects. Columns 3 and 6 show that load shedding significantly reduces textile export by 0.252% to 0.606%, which is higher than the sales revenue. The magnitude of exports reduction by the outage is also higher. This means that exports are affected greatly by power shortages. Overall, political stability plays a positive role in increasing the textile sector’s exports. This motivates the firms to invest and export even by giving subsidies and tax exemptions [35]. Labor, salaries, and raw material are important drivers of increasing exports [36].

4. Discussion and Conclusions

A rising energy crisis and political turmoil are wreaking havoc on Pakistan; however, the question remains as to what extent these issues can affect the country’s key economic sector. Accordingly, this study used a survey of 101 Pakistan textiles from 2014 to 2019. Firm-level data was employed to recognize the impact of expected and unexpected power outages on textile firm productivity. We used a variety of parameters to assess the durability of the power network, such as the frequency and duration of unexpected blackouts, the total number of outages experienced by firms as well as load-shedding.

Both revenue productivity and labor productivity were used to gauge the productivity of the textile firms. Revenue productivity was defined as the firm-level total sales revenue. Labor productivity was defined as the labor input per unit of output. The impact of expected and unexpected power outages on textile exports was evaluated. Lastly, the impact of political stability on textile productivity was measured.

The results suggest that outages significantly negatively affect textile sector sales revenue, likely leading to lower results (by 0.240% and 0.0569%). The duration and frequency of outages was found to have a significant adverse influence on reducing the firm’s revenue. We estimated that a 1 h outage will cause a loss of revenue of approximately 24 percent. Comparatively, load-shedding hours had smaller impacts on lowering the firm’s sales revenue, which is 5% to 8% with and without political stability inclusion.

Further, outage hours decreased the export of textiles by 0.286 percent. Load shedding, duration, and frequency indices showed that exports were negatively affected by power shortages. The magnitude of export reduction by outage and load shedding was higher. Political stability was found to be positive in promoting the textile sector. The driving impact of political stability was higher than the impacts of expected and unexpected shortages. This may have the ability to increase the textile revenue by more than 80%. Other factors (labor, finance, raw material, and salaries) had positive effects on firm revenue. However, other expenses negatively increased the revenue.

It is likely that businesses would take more decisive action if power outages and political unpredictability were eliminated. Based on the study results, some important points are worth discussing for future policy recommendations. A steady electricity supply would greatly contribute to Pakistan’s rapid economic growth. Secondly, Pakistan can increase its energy supply by avoiding power loss. Such low efficiency affects the grid and causes energy imbalances in the country.

Thus, electricity can be saved by avoiding technical losses and increasing the energy supply. Modern smart grids must be implemented with advanced metering infrastructure to reduce technical and non-technical losses. Grid codes, which are synergistically tied to energy policy, need to be updated in Pakistan. Ineffective sealing and building design are two important players in this higher energy consumption. If all these issues are addressed, a significant amount of power can be added to the system.

Further, the Government of Pakistan can seek international organizations for investments in the power sector. However, a proper policy mechanism is required that can originate from a politically strong country. Therefore, a politically stable system must arrive at pragmatic solutions to Pakistan’s economic teething troubles. Additionally, the government of Pakistan should frame an effective policy that can remove distortions in the pricing and subsidies in the energy sector and expand investments in hydroelectric capacity and renewables. If Pakistan develops a proper mechanism to upgrade and expand hydroelectricity and other renewables, it can protect its industry from future energy crises.