Trade Policy Reforms, Export-Import Demand and Economic Growth Analysis with Reference to Pakistan (1981-2010)

Abstract

Reforms in trade policy in favor of trade liberalization Pakistan began most properly since mid of eighties. We, in this study intend to understand that how the reforms in trade policy did may affect the trade flows and economic growth of Pakistan. For the purpose, estimated export-import demand as well as Thirlwall’s model of economic growth and has assorted the thesis in total eight chapters. The empirical exercise are executed, adopting various econometric techniques includes least square method, rolling regression, ARDL and model of error correction, with the annual data of 1981 to 2010 drawn from different national and international databases. Extended trade models are developed to investigate for trade liberalization effects on exports, imports demand and to provide more reliable estimates of the price and income elasticities. We found that trade flows show different responses to the basic trade determinants and trade liberalization measures. In particular, imports are more responsive to the changes in domestic income rather than exports to the foreign income. The trade flows and exchange rates are negatively related. Both exports and imports are less responsive to the changes in real effective exchange rate or relative prices. Given that both price elasticities add more than unit, so their coefficient estimates in absolute form indicates that Pakistan satisfy ML-condition at aggregate level. Different dummies and duties ratios are used to weigh up for the impact of trade policy reforms in favor of liberalization. Among, duties ratio produces robust results and are consistent with expected negative sign. The exports and imports duties reduction have significantly changed the demand for Pg- 4 - exports and imports, with the larger impact on import demand. Furthermore, relatively liberalization of year 2003 has found more significant than year of 1991. The dummies show that the freer the trade, the higher the demand for export and imports. Finally, Thirlwall’s Law has tested for Pakistan economy using the annual data for whole sample and then sub periods. The law can be used to analyze whether economic growth constrained by the trade balance. According to the results, economic growth is constrained by the trade balance and the process of trade liberalization shows a trend increase in the rate of income elasticity for Pakistan’s import demand greater than increase in export growth. Thus, the trade liberalization impact on Pakistan’s economic growth can be esteemed as disappointing. In conclusion, the study finding is beyond than previous and has an important suggestion for the progression and extent of trade liberalization.