This paper analyses the impact of fiscal incentives on industrialization of backward regions with particular reference to Hub Chowki in Baluchistan. The approach employed is to compare the Net Present Value (NPV) of the project in the underdeveloped area with that in the developed area, after taking into account the variation in capital and recurring costs between the two areas. The analysis shows that the incentives have been more successful in diverting investments from developed areas than in generating new investment. Moreover, it appears that the incentive package has promoted a pattern of industrialization characterized by a high degree of capital and import intensity and a low regional multiplier. The negative impact of the incentives is further reinforced by high welfare costs imposed on the economy. An alternative three tier differential incentive scheme is proposed.
