Trade Liberalization and Economic Development

The Lahore Journal of Economics 11 : 1 (Summer 2006) pp. 19-34

Trade Liberalization and Economic Development: Evidence from Pakistan Bushra Yasmin, Zainab Jehan, Muhammad Ali Chaudhary*
Abstract
Unrestricted trade stimulates economic growth and bridges socioeconomic gaps existing in different countries of the world. Pakistan has adopted trade liberalization policies since the late 1980s with the same expectations. This study has empirically analyzed how trade liberalization has affected economic development in the country. Its effects have been examined with respect to four measures of economic development: per capita GDP, income inequality, poverty and employment over the period from 1960-2003. The main analysis is based on a simultaneous equation model. Keeping in view the simultaneity of the chosen development measures, the model is estimated with the 2SLS technique of regression analysis. The analysis shows that, over the study period, trade liberalization has not affected all the chosen indicators of development uniformly. It has affected employment positively but per capita GDP and income distribution negatively. However, it has not affected poverty in any way. The obvious message is that trade liberalization has not affected all the indicators of development favorably in Pakistan. It thus implies the need of a cautious move towards liberalization. The focus of trade liberalization should be to bring about improvement in the performance of mediating factors and to focus exports on labor-intensive products. JEL Classification: F41

Keywords: Trade Liberalization, Economic Development, Poverty
I. Introduction The world is rapidly transforming into a global village. Trade has contributed to this transformation more significantly than any other factor. In fact, the high economic, social, cultural, political, human and intellectual
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The authors are Lecturers in Economics and Professor of Economics, Fatima Jinnah Women University, Rawalpindi,

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