This article examines the impact of trade liberalization, that is, reduction of tariff and non-tariff barriers on trade balance, in Pakistan over the period 1982–2013. The results reveal that reduction of average effective tariff rate improves trade balance in the short run, while lowering of non-tariff barriers deteriorates trade balance in the long run as well as in the short run. The analysis also suggests that depreciation of real effective exchange rate and foreign income causes an improvement in the trade balance, whereas domestic income deteriorates it. The negative association between the reduction in non-tariff barriers and trade balance worsens sustainability of current account of the balance of payments in Pakistan.
AftabZ.AurangzebK. (2002). The long run and short run impact of exchange rate devaluation on Pakistan’s trade performance. The Pakistan Development Review, 41(3), 277–286.
2.
AkhtarS.MalikF. (2000). Pakistan performance vis-à-vis its major trading partners. The Pakistan Development Review, 39(1), 37–50.
3.
AlexanderS.S. (1952). Effects of devaluation on a trade balance. IMF Staff Papers, 2(2), 263–278.
4.
Bahmani-OskooeeM. (1992). More evidence on the J-curve from LDCs. Journal of Policy Modeling, 14(5), 641–653.
5.
Bahmani-OskooeeM.CheemaJ. (2009). Short-run and long-run effects of currency depreciation on the bilateral trade balance between Pakistan and her major trading partners. Journal of Economic Development, 34(1), 19–45.
6.
BalassaB. (1982). Development strategies in semi-industrial economies. New York: Oxford University Press.
7.
BhagwatiJ. (1978). Anatomy and consequences of exchange control regimes: Liberalization attempts and consequences. Cambridge, MA: Ballinger.
8.
BransonW. H. (1987). Comments on Dornbusch, R. and Frenkel, J. A. “macroeconomics and protection”. In SternR. M. (Ed.), U.S Trade Policy in a Changing World Economy (pp. 131–136). Cambridge: MIT Press.
9.
DollarD. (1992). Outward-oriented developing economies really do grow more rapidly: Evidence from 95 LDCs, 1976–85. Economic Development and Cultural Change, 40(3), 523–544.
10.
EdwardsS. (1998). Openness, productivity and growth: What do we really know?The Economic Journal, 108(447), 383–398.
11.
EngleR.F.GrangerC.W.J. (1987). Cointegration and error correction: Representation, estimation and testing. Econometrica, 55(2), 251–276.
12.
FelipeJ.LimJ. (2008). An analysis of Pakistan’s macroeconomic situation and prospects. Asian Development Bank Working Paper No. 136, Manila: Philippines.
Government of Pakistan (2008–2009). Pakistan economic survey (Supplement) 2008–09. Economic Advisor’s Wing, Finance Division, Government of Pakistan, Islamabad.
15.
Government of Pakistan (2014). Pakistan economic survey 2013–14. Economic Advisor’s Wing, Finance Division, Government of Pakistan, Islamabad.
16.
HaliciogluF. (2008). The J-curve dynamics of Turkey: An application of ARDL model. Applied Economics, 40(18), 2423–2429.
17.
HandleyK. (2014). Exporting under trade policy uncertainty: Theory and evidence. Journal of International Economics, 94(1), 50–66.
18.
HasanM.A.KhanA.H. (1994). Impact of devaluation on Pakistan’s external trade balance: An econometric approach. The Pakistan Development Review, 33(4), 1205–1215.
19.
HustedS.MelvinM. (2001). International economics (5th ed.). USA: Wesley Longman.
20.
International Monetary Fund (2013). International financial statistics CD-ROM -2012. Washington, DC: International Monetary Fund.
21.
JaffariA.A. (2006). Impact of trade liberalization on current account balance of Pakistan. GCU Economic Journal, 39(1), 33–47.
22.
JohansenS. (1988). Statistical analysis of cointegrating vectors. Journal of Economics Dynamic and Control, 12(2–3), 231–254.
23.
JohnsonH.G. (1972). The monetary approach to the balance of payments theory. Journal of Financial and Quantitative Analysis, 7(2), 1551–1571.
24.
JuJ.WuY.ZengL. (2010). The impact of trade liberalization on the trade balance in developing countries. IMF Staff Papers, 57(2), 427–439.
25.
KhanM.S.KnightM.D. (1988). Import compression and export performance in developing countries. Review of Economics and Statistics, 70(2), 315–321.
26.
KhanM.S.ZahlerR. (1985). Trade and financial liberalization given external shocks and inconsistent domestic policies. IMF Staff Papers, 32(1), 22–55.
27.
KruegerA.O. (1978). Foreign trade regimes and economic development: Liberalization attempts and consequences. Cambridge, MA: Ballinger.
28.
MacKinnonJ. G.HaugA. A.MichelisL. (1999). Numerical distribution functions of likelihood ratio tests for cointegration. Journal of Applied Econometrics, 14(5), 563–577.
29.
McCartneyM. (2015). The missing economic magic: The Failure of trade liberalization and exchange rate devaluation in Pakistan, 1980–2012. The Lahore Journal of Economics (Special Edition), 59–89.
30.
MukherjeeS.ChandaR. (2016). Differential effects of trade openness on Indian manufacturing firms. Economic Modelling, 61, 273–292.
31.
OstryJ.D.RoseA.K. (1992). An empirical evaluation of the macroeconomic effects of tariffs. Journal of International Money and Finance, 11(1), 63–79.
32.
ParikhA. (2004). Relationship between trade liberalization, growth and balance of payments in developing countries: An econometric study. Haamburgisches Welt Wirtschafts Archive (HWWA) Hanburg Institute of International Economics, Discussion Paper. 286.
33.
PesaranH.M.ShinY. (1997). An autoregressive distributed lag modelling approach to cointegration analysis. England: University of Cambridge.
34.
PesaranM.H.ShinY.SmithR.J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3), 289–326.
35.
PerronP. (1989). The great crash, the oil price shock, and the unit root hypothesis. Econometrica, 57(6), 1361–1402.
36.
RobinsonJ. (1937). The foreign exchanges. In RobinsonJ. (Ed.), Essay in the theory of employment. Oxford: Basil Blackwell.
37.
RodriguezF.RodrickD.(2001). Trade policy and economic growth: A skeptic’s guide to the cross-national evidence (Vol. 15, pp. 261–388). NBER Macroeconomics Annual2000.
38.
SachsJ.D.WarnerA. (1995). Economic reform and the process of global integration. Brookings Papers on Economic Activity, 26(1), 1–118.
39.
Santos-PaulinoS.A.ThirlwallA.P. (2004). The impact of trade liberalization on exports, imports and the balance of payments of developing countries. The Economic Journal, 114, 50–72.
40.
ShahbazM.AwanR.AhmadK. (2011). The exchange value of the Pak-rupee and Pak-trade balance: An ARDL bounds testing approach. Journal of Developing Areas, 44(2), 69–93.
41.
SinghA. (2001). Financial liberalization and globalization: Implication for industrial and industrialising economies. In JamoK.S.ShyamalaN. (Eds), Globalization versus development. New York: Palgrave.
42.
StiglitzJ.E. (2000). Two principles of the next round or how to bring the developing countries from the cold. World Economy, 23(4), 437–454.
43.
TokarickS. (2006). Does import protection discourage exports? IMF working Paper 06/20. International Monetary Fund.
44.
UNCTAD (1999). Trade and development report. Geneva: United Nations.
45.
VogelsangT.J.PerronP. (1998). Additional test for unit root allowing for a break in the trend function at an unknown time. International Economic Review, 39(4), 1073–1100.
46.
WacziargR.WelchK.H. (2008). Trade liberalization and growth: New evidence. The World Bank Economic Review, 22(1), 187–231.
47.
World Trade Organization (WTO) (2015). Trade Policy Review. WT/TPR/G/311, Pakistan.
48.
World Trade Organization (WTO). (2016). Tariffs profiles 2016. The World Trade Organization.
49.
YanikkayaH. (2003). Trade openness and economic growth: A cross-country empirical investigation. Journal of Development Economics, 72, 57–89.
50.
YasminB. (2012). Impact of trade liberalization on trade balance in Pakistan: Cointegration and error correction mechanism. Zagreb International Review of Economics and Business, 15(1), 73–88.
51.
ZakariaM. (2014). Effects of trade liberalization on exports, imports and trade balance in Pakistan: A time series analysis. Prague Economic Papers, 23(1), 121–139.
