Pakistan’s trade liberalization experience

Author: Shiro Armstrong

This month’s EABER newsletter is by Ishrat Husain who is the Dean and Director of the Institute of Business Administration (IBA), Karachi, on Pakistan’s Trade Liberalization Experience. Some snippets:

Pakistan has been one of the fastest growing economies in Asia for last five years. Economic growth rates have risen from 1.8 per cent in 2000/01 to average 6- 7 per cent a year. For Pakistan these rates are not spectacular but a reversion to the average longer term growth rate.

. . .

One of the factors contributing to Pakistan’s growth performance is Pakistan’s track record on trade liberalization reforms. According to a World Bank study ‘Pakistan’s recent reforms have been substantial. Its trade regime is now one of the more open in South Asia…’

. . .

using both partial equilibrium and the general equilibrium impact of trade liberalization and the simulations for the future concludes that, contrary to popular beliefs and perceptions, the process of trade liberalization in Pakistan does not appear to have had a significant adverse impact on poverty and income inequality. These results indicate that trade liberalization has, if anything, reduced poverty and inequality although only modestly so on balance. The main channels of transmission leading to this outcome are growth, productivity, investment and price stability. Foreign direct investment that has come into Pakistan does appear to increase income inequality as it is focused on sectors that use highly skill labour and capital intensive technologies and does not use much of the abundant factor of production, labour.

. . .

Despite pressure and protests from rent seeking businesses, the risks of reversal of these reforms are low as the main political parties are not only committed to trade liberalization but have actually been
behind the implementation of these reforms in the decade of 1990s.

The whole piece is in pdf here

Past newsletters are here.