POTENTIAL ECONOMIC GAINS FROM GSP PLUS STATUS FOR PAKISTAN: AN EMPIRICAL ANALYSIS

Abstract

The importance of trade has been recognized as a vital component of sustainable development for an economy. To achieve the goal of sustained economic growth, economies always try to maximize the benefits of trade and especially exports. The purpose of the study is to investigate the impact of Generalized System of Preferences (GSP) plus on the economic growth of Pakistan. The European Union, the largest trading partner of Pakistan granted this status to Pakistan in December 2013. The study attempted to employ the Computable General Equilibrium (CGE) model in its global version called Global Trade Analysis Project (GTAP) to measure the economic gains for Pakistan at macro level under the GSP plus status. The study also used MyGTAP, developed by Minor & Walmsley (2013) to calculate the impact at the household level. This MyGTAP model uses the data of the latest available Social Accounting Matrix (SAM) to makes changes in the standard GTAP by including multiple types of household and labor. The results of different simulations run by standard GTAP and MyGTAP reveal that there is an overall increase in the GDP of Pakistan. The results of all simulations by using standard GTAP 09 suggest a positive change in the real GDP, real investment, merchandise imports and terms of trade of Pakistan while the merchandise exports of Pakistan show decline in case of the second simulation. The main findings of the simulations, run under MyGTAP model also show a positive change in real GDP, merchandise imports, real investment and terms of trade while the first simulation shows a negative change in merchandise exports. Similarly, – EBA status of Pakistan in the EU28 show an increase in the household income with maximum gain by the household of rural Sindh with no agriculture land and a positive change in real wages of most of the factors. However, the large and medium agricultural household types show a negative change in household income in case of the first simulation. Comparatively low improvement over the urban and non-farm household of rural areas of Pakistan. Keywords: Economic growth, trade, GSP Plus, European Union, CGE model, real GDP, terms of trade, real investment, household income etc.