TRADE LIBERALIZATION AND ECONOMIC DEVELOPMENT: EVIDENCE FROM PAKISTAN

Abstract

One of the most important strategies for developing nations to modernize their economies, raise productive capacity, and participate in global markets has been trade liberalization. Pakistan has focused on trade liberalization since the late 1980s and early 1990s. This integrated reform agenda included, for example, reduction of tariff and non-tariff barriers, deregulation of the export and import trade, and an open door policy for foreign direct investment. Many have debated the extent to which trade liberalization has impacted Pakistan's economic growth. Among the arguments in favor are the diffusion of technology, increased productivity and diversification of exports. Among the arguments against trade liberalization are the increased trade deficits, the erosion of industrial competitiveness, and inequality. This research aims to establish the correlation between trade liberalization and economic development in Pakistan by analyzing applicable theory and literature review. It also investigates the different ways trade liberalization affects macroeconomic indicators like GDP growth, the creation of jobs, performance of FDI (Foreign Direct Investments) and exports, and poverty levels. The author also discusses trade liberalization’s impact in the light of the infrastructure deficit, the thin-fiber economy of Pakistan, and the various institutional limitations. In the review of other existing literature and the macroeconomic data of Pakistan, the author asserts that trade liberalization policies have a positive impact on the economic development of Pakistan, but the positive effect is undermined by the various governance problems and the domestic economy of Pakistan.